INFLATION FOR U.S.A.

Greymouth Evening Star, 16 March 1934, Page 4

INFLATION FOR U.S.A.

PROBLEM FOR PRESIDENT. Professor Melchior Palyi, who is an economist of European repute am is guest professor at Chicago University, sums up the present American financial situation in the following article, recently published in the London “Daily Telegraph.. He writes with authority and wide experience of banking and currencyproblems. He points out that although the spirit of the United States has changed for the better, there are obvious signs of a beginning ot inflation. He forecasts that the problem will become acute within the next six months, when provision will have to be made for the new expenditure. He states: — “President Roosevelt goes on with a surprising consistency following up the lines- of his policy. Devaluating the dollar did not help to turn the cycle to any substantial extent. Prices rose very little and all indices of economic activity show a moderate increase only, an increase which hardly amounts to more than what an estimate of the longterm trend on a most conservative basis would allow for. Having practically failed on this line of policy, he tries others. First, by huge public expenditure with the aid of loans, and second, possibly later may come recourse to the printing press for the issue of paper money. For the time being public expenditure is financed without adoption of currency inflation. So far the sum actually disbursed probably amounts to more than one billion dollars (the American billion is' one thousand millions), but certainly less than two. The sum is moderate, and the results are, objectively speaking, very moderate indeed, in spite of the coincidence with the depreciation of the dollar. The spirit of the country, however, has already changed substantially. One does not need to go back to the days of the March panics for visible signs of this change of spirit. Even as compared with last summer, when prices and employment were comparatively booming, the psychological situation now looks far more favourable. Half a year ago labour unrest frightened many American industrial centres and farmers seemed to arm for a real fight. Since then the dollar went down, but so also did wheat and cotton. Yet, disregarding minor disturbances; as, for example, the recent milk strike in Chicago, everything looks more quiet and more satisfactory than at any time since the beginning of the depression. What is happening is, of course, that the promise of disbursement of dollars over the country keeps people hopeful and happy. Directly or indirectly, everybody -is more or loss at the “receiving end.” The farmer who has just received a cheque for hundreds of dollars (with the condition, of course, that he cuts down his acreage) .sees the world in a different light. So does his neighbour who is told that his cheque will be forthcoming soon. COST OF “NEW DEAL.” The unemployed' arc hopeful, hearing and reading daily of the tre- ( mondous volume of work to be “created” very soon. All over the United States hundreds of plans of house-building, road extending, railway re-equipping, extension of irrigation projects, waterwork construction and similar undertakings are brought forward, discussed, agreed upon, financed h'y (he Government 1

and started—or on the way to be started very soon. The total costs of the “New Deal” are estimated by the Industrial Coitfe'rence Board, New York, at 15,135,000,000, which include however, more than six billions for Governmental guarantee for farmers’ bonds, etc. It is difficult to say how much of this contingent liability might or might not fall due within a short time. About nine billions are to be spent in “cash,” most of which is for public works of all sorts; the so-called “Federal Emergency Administration of Public Works” alone absorbs 3,150,000,000 dollars. About one-third of the actual expenditure is supposed 1 to be covered by taxation, and almost two-thirds (six billions) by the issue of new Governmental loans —in addition to about four billions of maturing debts to be renewed within the next half year or so. Will it be possible to finance the deficit of the Federal Government on such a huge scale without recourse to the printing press? The devaluation, of the dollar not only provides a “profit” of over 3,000,000,000 dollars, which might be used to safeguard the bond' market; it creates in addition an immense basis for new credit expansion.

The question, however, will become much more acute in six months from now, when another couple of billions will have to be provided for new expenditures. It might arise even earlier, depending on factors which cannot be easily foretold. Who would dare to forecast whether or not the President will succeed in drawing out the “idle” reserves of the country? How far will the money spent on the extension of public and private works, or spent to subsidise the cutting down of production bo used just to liquidate old debts and to create new balances, instead of providing permanent employment? All this depends on psychological and objective factors, especially on the opinion which the public, or important parts of it, will form as to the possibility of serious inflation. In the meantime, spending goes on, and the Government shoves marvellous liberalism iu allocating money for all sorts of purposes. Very few people seem, at any rate in public, to question the usefulness or productivity of the new investments. Democrats and Republicans, inflationists and sound-money men compete for every bit of the DollarRain. Members of Congress and the Senate, of whatever political position and economic conviction, know very well that their constituencies would not understand if they were to be excluded from the blessings of Governmental subsidies.

So far, everything seems to be in the most beautiful harmony. Retail prices do not yet rise; the growing demand is easily met at first by drawing upon stocks of goods and heaps of unused resources.

ATMOSPHERE OF INFLATION. The atmosphere of the early stage of inflation is unmistakable for anybody who has experienced similar situations in France, Germany, Austria, Hungary and Poland. In spite of the very different underlying situation in the United States as compared with that of post-war European countries, there arc the same portents of the beginning of inflation. Here, like there, is the same sticky atmosphere of growing wealth without competition and without cfiert. Money lies on the street, and one just needs to outstretch the hands. Indeed, hands are stretched out, and the Administration is busy day and night in fulfilling all desires..

Certinly nobody thinks that there may not be much more money, forthcoming. Minor disadvantages, however, arc already visible. The farmer gets the subsidy with the condition that he cuts down his acreage in wheat, cotton, etc. So possibly he docs, but at the same time, part of the money at. least is used for buying farm implements and fertilisers; loss acreage consequently does not necessarily mean lighter crops. At the same time subsidies to build up new irrigation systems in the Far West of the United States necessarily help to provide new land for farm production, and to intensify the “over-production” of farm products. The choice of investments to be financed partly depends upon political influence, partly on the wisdom of local adriiinistrators, or on mere chance. Stories, true or untrue are spread all over the country, showing in what uneconomical and often senseless ways the subsidy is given. Often it is a rich man.who gets the subsidy for house-renovation or anything else. Even more often it is the employed workman who is taken off

e the private pay-roll to be put on a - public one—at a much higher rate of pay—while the unemployed man still 3 has to wait his chance. 3 Whatever opinion one may have a about the economics of Government , expenditure as a means of overcomt ing a crisis, the way it is applied and ; the methods used in America are - certainly not the host ones. It. looks - as if the liberal principle of free - competition is being applied to the distribution of subsidies. Social jus1 tice and economic productivity seem, r in the “New Deal,” to be just as rer mote principles as’ are sound money i and balanced Budgets.

SELLING EFFORTS REDOUBLED. Emphatic testimony to the value of newspaper advertising was forthcoming from Mr Edmund' F. Crane, managing director of the Hercules Cycle Company, at a ceremony in connection with the assembly of the company’s 3,000,000 th machine. Mr Crane attributed much of the ’company’s success to having followed the advice of the Prince of Wales on advertising. After satisfying himself that he produced the world’s best bicycle at the right price, he advertised, advertised, and advertised'. In 1934 the company’s advertising and selling efforts would be redoubled. Press advertising was the cheapest and most effective method of creating big sales and cemientiqg goodwill with the trade, and the public.—“Newspaper World.”