SOUND MONEY

Evening Post, Volume CXVI, Issue 135, 5 December 1933, Page 12

SOUND MONEY

FEARS IN AMERICA

RETARDED CONFIDENCE

"Evening Post," December 5;

I'resident Roosevelt's radio address ■- (published in '"The Post" on Tuesday last) • was regarded by the leading American '. banks as reassuring to the extent that it contained no mention of .the possibility of direct'currency inflation by the issue of "fiat money." But uneasiness appears to be generally felt by bankers that inflation is pending. As New York cablegrams published on Tuesday indicated, there is a clamant ■ and maybe a large number of suppdrters of inflation. The Guaranty Trust Company of New York, one of the great American banks, evidently fears that .the inflationists may prevail. It urges as the most constructive step that the Government can take is "to give the immediate assurance that a sound monetary policy •will be pursued." Not only the level of prices, but the level of business activity determines prosperity, it is pointed out. But it is becoming increasingly apparent in the States, the bank observes, that the "recovery* projects cannot lift the country out of the depression unless confidence is restored'"'to the monetary medium in. which business transactions are conducted." ' ■ '•■',-. Purchasers became subject to buying inertia and lenders and investors unwilling to extend credit all the time the value of money is. unstable. SLUMP IN THE DOLLAR. "This retarding hesitancy (states the bank) exists both iv domestic and foreign trade." At the time when America suspended the gold standard, it was argued that export 'business would be stimulated by lower prices of domestic commodities in terms of foreign currencies. ■ There has been a moderate upturn in the level of foreign shipments since then, yet the increase in exports has not only been smaller than the rise in imports, but has lagged far behind the expansion in some branches of domestic business. Reasons ior this are that foreign nations, in order to protect their own industries against the slump in the dollar, immediately made adjustments in tariffs and import quotas; the lack of stability of the currency has led to rapid fluctuations in the exchange value of the dollar. American exporters have found that, instead of conducting a legitimate business on a carefully calculated profit basis, they have been practically forced to speculate in foreign ex- ' Slipping off the gold standard is much easier than climbing on again, the bank points out, and especially since the dollar has been allowed to depreciate heavily from its gold parity. •,._.,. ~ "In part, however, this difficulty could be overcome. For example, if the Federal Administration, even without committing itself on the question of a new gold parity, should take a definite and irrevocable stand'against currency inflation, a partial opportunity would be given for the dollar to, show what its 'natural level' would bo if dictated by the supply of and demand for-dollar exchange in conducting legitimate business and financial transactions. ■ - • , it "In the opinion of many observers, the dollar, if thus left to itself, would make rdpid strides towards its old parity, because the removal of the fear of inflation would free dollar fluctuations from the pressure of purely speculative influences and encourage a return of American capital sent abroad for 'safe keeping.' The Guaranty Trust stipulates that no mieh- consideration should be placed in the way of a re-establishment of sound, money. .. ■ "The country cannot continue indefinitely on a makeshift monetary policy. The announcement of any specific currency programme, regardless of its nature, is likely to bring, some degree of price realignment,. 'Inasmuch as temporary price readjustments Aye inevitable, it. is better that they be precipitated'for the express purpose of giving' the country the sound currency so essential to lasting business progress. . . . "A large-scale' flotation of Government bonds for the purpose'of meeting-current expenditures always presents an' opportunity for a credit inflation. . . . Moreover, it is a frequent occurrence ;in economic history for nations to become 60 deeply involved in debt that payment is possible only by redeeming the obligations with fiat money printed expressly tor that purpose. WHEN CONGRESS MEETS. "While it is hoped that such a disastrous turn of events in this country will not take place, the anti-inflationists are concerned about the possible disposition ot Congress when it assembles two.months hence. For almost the first time in history, inflation is being contemplated not as a fiscal necessity, but as a deliberate economic policy. Since the last Congress adjourned, some of ite members have publicly axpressed displeasure because the 'President has not used his more drastic monetary powers, which, would enable him to isfeue up to 3,000,000,000 dollars in irredeemable paper, money, to substitute bimetallism for the gold standard, and to reduce the gold content of tile dollar by as much as SO per cent. ' "History warns us that inflation, once ■begun, is "likely to be followed by increasingly large doses to bolster the artificial speculative boom that it has created. "Many individuals in the nation today, weary of the hardships of depression, seem to look favourably upon any expedient that would automatically' bring about price advances in the false, 'belief that higher prices are the cause, rather than the result, of sound business progress." But history and analysis show beyond question that favouring currency inflation is also favouring a partial destruction of the value of savings, a reduction of real wages, and a shrinkage in tho value of bank deposits, insurance policies, and trust funds, to say nothing of the inevitable ultimate collapse of the inflated economic structure, with a loss of all the ground gained thus far towards recovery on a sound basis. . Inflation is described as by nature, '•"speculative; violent, uncontrollable, and dangerous in the highest