National Affairs: Inflation Finessed

Louder than ever boomed the guns of currency inflation last week on the Washington front. The dollar was down to 63¢ gold. Many a Wall Streeter thought this figure already discounted actual devaluation, doubted if direct inflation would boost prices appreciably or hold them up. Oklahoma’s Senator Thomas, field marshal of the inflationary forces, was loosely threatening a march of 1,000,000 men on Washington unless there was a great outpouring of printing-press money. His polls of Congress showed a 20-to-1 sentiment in favor of quick inflation. Nevada’s Senator Pittman tried to interest the White House in inflation by the free silver route. In Idaho Senator Borah rumbled: “Infla-tion is indispensable to the success of the NRA.” A growing demand was developing for the Treasury to pay off depositors in closed banks with $3,000,000,000 in “greenbacks.” The Iowa Farmers’ Union was ranting for inflation and Secretary of Agriculture Wallace’s scalp because he refused to believe that inflation was a cureall. Even conservative members of the Administration were recommending a quick burst of paper money as the only practical way of silencing the inflationary clamor. “‘I am unexcited and intend to remain so,” President Roosevelt, up from a sick bed, told callers who asked him what he proposed to do about the currency. But by the end of the week he had begun to act. The President received a delegation of southern Congressmen and planters whose demand for 20¢ cotton had been shunted about Washington for days. They got into the White House only on the promise that they would hush their inflation talk and stick to cotton. Day after their visit the President announced that the Agricultural Adjustment Administration would lend planters 10¢ per Ib. on unsold cotton, provided they agreed to reduce their 1934 crop 40%, their 1935 crop 25%. That was 1¢ per Ib. above the spot market price and represented a potential outlay of $400,000,000 by the Government. Cotton futures went churning up above the proposed loan level. Southern pressure for inflation eased off. Next move to finesse the inflationists by upping commodity prices came out of the White House in the guise of an unemployment relief measure. The President announced that in 30 days A A A would start buying $75.000,000 worth of surplus cotton and foodstuffs to be distributed among the 3,500,000 families still dependent upon public charity. He described this move as “one of the most direct blows at the economic paradox which has choked farms with an abundance of farm products while many of the unemployed have gone hungry.”

President Roosevelt was determined to try credit inflation on a grand scale before shifting to currency inflation. The success of his NRA campaign depended on ample easy money for the withering capital industries. To this end he held a series of White House conferences last week. One concrete proposal: let R. F. C. go into the market, purchase millions & millions of dollars worth of railroad equipment, lease it to the carriers. The President called in steelmasters, tried to induce them to reduce the price of rails.

Thousands of closed banks remained a pothole in the road to Recovery. Last week the President was preparing to prod the R. F. C. on toward reopening them by buying their preferred stock, thereby releasing billions of frozen deposits as new purchasing power.

Widespread complaints about the slowness of the $3,300,000,000 public works program to reach the spending stage drew a spirited retort from Secretary Ickes last week before a Chicago conference of mayors. Blaming municipalities for construction delays, the Public Works Administrator declared: “All we can do is to ask you to ‘Get on your mark! Get set! Go!’ We can give you the money but we can’t make you borrow it from us. … We’re more liberal than any lender on a large scale since the beginning of the world but we’re not dropping taxpayers’ money into the hat of a blind man.”

Despite his public silence on inflation, President Roosevelt was giving much time and thought to his currency plans. An important White House visitor last week was George Frederick Warren, professor of agricultural economics at Cornell whom the President had commissioned to study dollar devaluation and stabilization. Just back from a survey of European monetary systems Professor Warren spent hours reporting to the President, recommending eventual use of his own famed “commodity dollar” by the U. S. The President listened long, gave no hint of his intentions.

Professor Warren, archfoe of the old gold standard and ardent champion of a managed currency, believes that the dollar must be devaluated until it has a purchasing power equivalent to that of 1926, at which point it would be stabilized in relation to wholesale commodity prices and not to gold. Explains he:

“The ‘compensated dollar’ is a proposal to establish by law a currency redeemable in gold but the weight of gold for which the dollar would exchange would vary with the index number of wholesale prices of all commodities. If prices rose 1%, the weight of gold for which the dollar would exchange would be raised 1%. If prices fell 1% the dollar would exchange for 1% less. This would keep the dollar stable in buying power for the average of all commodities. The dollar has to be rubber as to weight or as to value. It cannot have a fixed [gold] weight and also a fixed value. This proposal would give it a fixed value and a rubber weight.”