THE NEW DEAL

Evening Post, Volume c, Issue 54, 5 March 1934, Page 10

THE NEW DEAL

AMERICAN RECOVERY

AN OPEN LETTER

MB. JOHN 31. KEYNES

(From "The Post's" Representative.) NEW YORK, January 16. A diverting phase of the British outlook ou the New Deal is an open letter to President Roosevelt by John Maynard Keynes, in the New York "Times." Commencing "Dear Mr. President" and ending "With great respect, your obedient servant," the letter has been reproduced from the Atlantic to the Pacific. Mr. Keynes says that the President has made himself "the trustee- for those in every country who seek to mend the evils of our condition by reasoned experiment within tho framework of the existing social system." If he fails, "rational change will be gravely prejudiced throughout the worlfl, leaving orthodoxy and revolution to fight it out." If he succeeds, new and bolder methods will be tried everywhere." Mr. Keynes and those who, with him sympathise with the Roosevelt programme, are "nervous and despondent," wondering whether the President understands the order of different urgencies, whether his aims are rot confused—"whether some of the advice you get is not crack-brained and queer." He believes social reform and recovery arc being confused in tho New Deal. The former may impede tho latter, may upset confidence, overtask tho bureaucratic machine, which tho spoils system has left none too strong. TECHNICAL FALLACIES. "I cannot detect any material aid to recovery in the N.R.A." is the damning conviction the famous economist reaches after giving it his most sympathetic hearing. "The N.8.A., which is essentially social reform, has been put across too hastily, in the false guise of being part of the technique of recovery." Two technical fallacies in the Rooscvelfc programme are indicated by Mr. Keynes. Firstly, rising prices are being brought about at the expense- of rising output, and without the support of increased monetary turnover. The setback American recovery received three months ago was a consequence of Roosevelt's fajlure to organise increased loan expenditure during his first six months of office. The second fallacy arises out of the quantity theory of money, out of a rigid fixing of the quantity of money, which is only a limiting factor, as compared with the volume of expenditure, which is the operative factor. "It is_ even more foolish to believe there is a mathematical relation between tho price of gold and the prices of other things." Mr. Keynes offers the President a constructive suggestion. "You have three alternatives. You can devalue the dollar in terms of gold, returning to the gold standard at a new fixed ratio. This would.be inconsistent with your declarations in favour of a long-range policy of stable prices, and I hope you will reject it. BEST ULTIMATE SOLUTION. "You can seek some common policy of exchange stabilisation with Great Britain, aimed at stable price levels. This would be the best ultimate solution; but it is not practical politics at the moment, unless j'ou are prepared to talk in terms of an initial value- of sterling well below fivo dollars, pending the realisation of a marked rise in your domestic price-level. "Lastly, you can announce that you will- control the dollar exchange by buying and selling gold and foreign currencies at a definite figure, so as to avoid wide and meaningless fluctua--tions, with a right to shift the parities at any time, but with a declared intention only so to do either to correct a serious want of balance in America's international receipts and payments or to meet a shift in your domestic pricelevel, relative to prictf-levels abroad. "This appears to. me your best policy during the transitional period. You would be waiving your right to make future arbitrary changes which did not correspond to any relevant change in the facts, but in other respects you would retain your liberty to, make your exchange policy—free to let out your belt in proportion as you put on flesh."