THE DOLLAR DRAMA

Evening Post, Volume CXV, Issue 94, 22 April 1933, Page 12

THE DOLLAR DRAMA

NEXT ACT UNWRITTEN

ENORMOUS POSSIBILITIES

[WILL .WORLD BENEFIT?

The opinion that it was too early to . judge the effect of America's departure from the gold exchange standard was ■expressed by a financial authority who was interviewed today for "The Post.'' He pointed out that when Great Britain abandoned the gold standard in September, 1931,. all kinds of hopes and fears had been raised, but the majority of these had not been realised. When the exchanges were working smoothly they.attracted' only academic interest, but once there was any departure from normal conditions a hue and cry was raised and inexpert attention at once gave glib utterance to unscientific opinions which were of no value and served only to distract .attention from the'real problems of the situation. The irony of the position, he said, lay- in the fact that, while the major nations were expressing an anxiety to Teturn to the gold exchange standard on the ground that it was the only medium which would give stability to international trade, they were tumbling off one after another and did not know how-to make the recovery. Economic nationalism seemed to be getting the better of economic wisdom, and the gold question was only one symptom of this state -of affairs. The cataclysmic fall in the world price level had shaken the confidence of almost every industrial and commercial enterprise-, and . everyone involved- seemed to be bent on making his individual recovery without a thought to the effect his actions might have on the general sitaation. This1 was revealed strikingly in the deliberate depreciation of the currency in New Zealand. In fact, thero wore several points of similarity between the steps taken by both America and by Kew Zealand. Both were taking steps which were not warranted cm their trading figures, but in ■ both instances it was contended that, their competitors with depreciated currencies were gaining an unfair advantage1 and that the price }evels for exported commodities were too low to be profitable. Of course, other /factors entered into the calculations of both countries, but these did not destroy the striking points of similarity. AMERICA'S EXPORT TKADB. There was no doubt that the American export trade 'had been seriously affected by Great Britain's action in departing from the gold exchange standard. Great Britain's decision •,. had .meant that .her competitive sterling power against other industrial countries which remained on the gold standard was enormously increased. Her internal costs had not risen to an extent which would offset this advantage, and she had been supported to a large exient by.the Dominions, which in adhering to sterling rather than gold had raised a form of tariff against exportins countries, which were adhering to the gold standard. ' Canada had fixed her exchange rate between • gold and sterling', Australia had been as much as 40 per cent, off sterling and was now .in'the same position as New Zealand (05 per cent, off), while South ■■ Africa, after attempting to retain parity with cold, had moved on to sterling. Some of the European countries which had .£» interests in the. British markets had also joined the sterling group. Paced with such a position, it was •not surprising that the United States ■gave serious consideration, to a move In the direction of her. principal competitor:' When it. was realised that one-tenth of the American people are dependent on the export trade, it would •be realised that her plight in the circumstances was an unenviable one. Furthermore, like all other she had her internal problems as well, and a rise in the general price level was perhaps more essential than it was in Great Britain. Before the depression she "had languished in a bath pf ■ perfumed prosperity," and practically the whole Of her extraordinary development had been carried out on credit. After the Wall Street crash in 1929 the American entrepreneurs who had. borrowed lavishly in expectation of a further expansion of industry and commerce, began to feel the burden of debt, and evidence of the instability of her credit structure had been illustrated from time to time by the crashes which had occurred in industrial and banking ventures. At the present time the position .of the debtor in America was practically unbearable, and only a substantial rise in the price level could prevent a general collapse. The huge drop in the export, figures, the growth of the army of unemployed, and tho plight of. the farmers were sufficient to bear'out this .contention. { HOOVER'S POLICY. How was the rise in prices to be brought about? America, like other countries, was riot lacking in currency "reformers," and most of these were out-and-out inflationists, who ' talked with sublime confidence about the raising of purchasing power. The Hoover Administration endeavoured to pump additional currency into the system by cheap loans, but the schemes did not work out as anticipated. They seemed to forget that the real basis of currency expansion was confidence in jwofitablo returns. As these, conditions could not be brought about by credit and currency manipulation, Hoover's methods failed, and tho new President assumed office at a time when his. country was in the trough of pessimism. "Since assuming office, Mr. Rooso-1 velt has acted as quickly as the National Government did in Great Britain, but it is yet impossible to forecast the effects his policy will have, and the public should not take early prophecies too seriously," stated the "Post's" informant. "There are so many factors to be considered it is -hardly possible that the Americans themselves are in a position to foresee all \he consequences which may follow from the actions of their administrators. There is one thing certain, however, and that is that with America's abandonment of the gold standard, international trade will be still more difficult. Gold fixes the limit of exchange fluctuations, because when the rate goes over a certain point gold is transferred,'and the rate falls back again; So far the world has not been able to find a substitute for, gold as a 1 stabiliser of exchanges, and America's action will probably lead to 'further instability in 1 tho. foreign exchanges, tending to destroy that confidence which is essential to the flow of .international trade. DANGERS OF INFLATION. "AVithout an . international money standard or system, the dangers of inflation are immeasurably greater, as the onus for maintaining stable money is placed upon the wisdom of the politicians and the bankers. Politicians are susceptible to sectional agitation and bankers have seldom showed any conspicuous signs of adaptability when thrown out of their routine. If the bankers and the politicians are unequal to the task, the pressure that would be brought to bear on them by industrialists would set in motion the cumulative forces of inflation which, once fully in process, would be hard to arrest. If not arrested, the end would1 TSe financial chaos and the ruin of helpless, people. ' "Notice that it has been.pointed out in some quarters that one of -the re-lultfi^fil-Amgrica^TfEelis?; ■ W&

recapture the trade she lost to those countries which have gained an advantage over her by a previous abandonment Of the gold exchange standard. There will certainly be a tendency iv this direction, but its extent will depend almost wholly on the price at which the dollar . stabilises after the preliminary fluctuations. At the present time the dollar in relation to the pound is quoted at 3.85, as against the par value of 4.866. The nearer the dollar gets to par, the greater will be America's chances against her competitors on the sterling exchange, and until the dollar depreciates much further than it has yet done, her chances of beating her rivals by exchange depreciation are -not' great. In view of America's credit position abroad this is extremely unlikely unless artificial pegging, which would bo a dangerous experiment, is resorted to. "From the international aspect there are two possibilities. The first is that America's action might lead to a currency depreciation race, and the second is that it may speed up international co-operation. During the last few years the tendency towards economic nationalism has been very marked, and this has frustrated all efforts to reach a universal settlement of the numerous problems which are confronting the world. •If America has forced the issue the world will benefit."