Socialized Money-Chapter VI

CHAPTER VI
Under Existing Non-Social Monetary Policy,
Can Any Plan of Stabilization Benefit
Society in the Long Run?

MECHANISM of this socialized monetary system is designed to create and safeguard larger production, more equal distribution and wider consumption of wealth within the United States. These social benefits will flow largely from two fundamentally-sound economic establishments.

The first and most essential of these is the socialization of the system of exchange within the nation whereby this truly governmental function is wrested from the monopoly which controls both money and credit.

The second is the stabilization of the price level within the nation; or, the creation of a condition which, under favorable basic auspices, will insure to both the man-power and the wealth-resources of the nation a constancy of normal employment.

During the London economic conference, delegates moiled and pleaded for "stabilization" as prerequisite to all other international agreements.

Stabilization of what? The international value of gold and silver? And what one nation's monetary promises-to-pay are worth in such metals in ratio to the monetary promises-to-pay of every other nation?

Regardless of all else it might or might not do, such stabilization would substantially stabilize central banking in the area dominated by this money-credit monopoly. Such stabilization would also insure the continued economic supremacy of those who own wealth at interest over those who are struggling to free from indebtedness their wealth under interest.

The establishment of stable price levels in every nation is perhaps the world's most pressing economic need. And, unquestionably, any sound money based on the independent economy of a nation, if controlled in its quantitative relationship to other wealth, can be made to serve such end.

But will society at large actually gain in the end by merely being spared depressions and unemployment, due to fluctuating price levels, so long as surplus profits in production continue to go to build still greater surplus wealth, which, in the hands of the money-credit monopoly, come back to take still greater "earnings" from wealth burdened with interest-bearing indebtedness?

It must be remembered that stabilization, even though accomplished, is subject to prior conditions interposed by the monetary system and the economic policy under which it is set up.

Since, under the existing monetary system, the purchase and sale of government bonds through the Federal Reserve is inseparably a part of any scheme of stabilization that may be employed by the federal government, the United States treasury must of necessity continue to be an incubator for the hatching of federal bonds. Bonds are the very lifeblood of such a stabilization scheme. Therefore, under the so-called open-market transactions carried on from month to month in the course of stabilization the Federal Reserve and its banking affiliates would become incomparably the greatest bond-brokerage combination on the American continent. They have over twenty-two billion dollars' worth of federal bonds to play with, in addition to the short-term treasury notes which aggregate billions each year.

It can easily be understood that values which hold wealth at interest cannot be affected adversely by any act of stabilization under existing non-social monetary policy. In fact, it makes little difference to the money-credit monopoly whether values are embalmed in gold, silver, or managed currency which is always looping-the-loop with government bonds. Stabilization of the price level, being unimportantly incidental, would still leave unimpaired the supremacy of wealth at interest over wealth under interest.

THE FOURTH OF JULY 1933 brought to me a sense of pride in my country greater, perhaps, than ever before. There had come with the dawn's early light another declaration of American independence—the right of monetary freedom. As I mused the meaning of President Roosevelt's patriotic words, I found myself standing before a time-stained parchment framed and hanging on the wall in my humble home. The meaning of service and sacrifice never seemed so full as it did at that moment. Very simply, the parchment told that James Mackenzie Campbell, my father, had been honorably discharged after four years of service with the Board of Trade Battery of Chicago during the Civil War. . . Nearly seventy years later a President of the United States had acted so gallantly in behalf of his people—for humanity everywhere, in fact—as to glorify all previous sacrifice in the name of the Republic.

How significant of progress in human affairs when a President of the United States has been able so far to free himself from the sordid influences of a continuing national curse as to say:

"The sound internal economic system of a nation is a greater factor in its wellbeing than the price of its currency in changing terms of currencies of other nations. . . .

"Let me be frank in saying that the United States of America seeks the kind of dollar which a generation hence will have the same purchasing and debt-paying power as the dollar value we hope to attain in the near future. That objective means more to the good of other nations than a fixed ratio for a month or two in terms of the pound or franc."

The President's communication concluded with the expression that the purpose of the conference was "to better and perhaps to cure fundamental economic ills."

Just as pegging the dollar at the economic conference would have been superficial and inane in the circumstances, as well as a detour from the main-traveled road of progress, likewise will any scheme of stabilization be impotent to reach the nation's most deep-seated economic ill so long as our monetary system remains a part of the now dominant money-credit monopoly securely entrenched behind the Federal Reserve.

THE GROWING ALARM which financial crises bring to the people of every nation has, quite naturally, been communicated to those economists who concern themselves with the remedial side of their science. These have, within the present century, formulated and submitted for public consideration numerous plans of stabilization. The central purpose back of every one of these plans has been so to control or "manage" the supply of money in its relation to other wealth that its purchasing power will be the same today, tomorrow, next month, next year, or a decade hence.

The possibility of thus accomplishing stabilization of the price level is based upon one of the few economic assumptions regarding which there is no disagreement—the Quantity Theory of Money. This theory is epitomized by Prof. Irving Fisher, widely-recognized American authority on stabilization, as follows:

"The general level of prices is dependent upon the volume and rapidity of turnover of the circulating medium in relation to the business to be transacted thereby. Therefore, if the number of dollars circulated by cash and checks doubles while the number of goods and services exchanged thereby remains constant, prices will about double."

On the other hand, if the number of dollars circulated is reduced one-half, the price level will fall in about the same ratio.

Evidencing the earnestness with which means have been sought to overcome the recurrence of financial crises, and also as showing the range of thought upon the subject, a number of plans by forward-looking economists are summarized in an exhaustive work by Prof. Joseph Stagg Lawrence,¹ whose critical study of stabilization is prefaced by the query: "Shall the quantity of gold subject to world influences of supply and demand, or the deliberate and conscious administration of men, determine the general level of prices?"

It will be noted in the perusal of these plans that, according to one theory, a medium like gold, whose purchasing power is variable, must be diluted or strengthened at times in order to accommodate itself to the greater or less quantity of gold in proportion to commodity and property forms of wealth subject to exchange. This theory, presumably, was that subscribed to by President Roosevelt and his monetary advisers when it was announced from the White House that the gold content of the dollar would be reduced. Another theory would regulate production of gold to monetary needs. Still other theories would employ a variety of devices—all, however, based upon gold.

In the United States the first plan to be presented for legislative consideration was that by Prof. Irving Fisher, introduced in the 67th Congress by Representative T. Alan Goldsborough. By its provisions the gold dollar was to cease to be "a constant quantity of gold of variable purchasing power" and become "a variable quantity of standard gold bullion of approximately constant computed purchasing power." Deviations in the value of the "goods dollar" as determined by index numbers of wholesale prices, compiled by the Department of Labor, would be added to or subtracted from the weight of the dollar.

An index number, as described by Prof. Fisher, is "a figure which shows the average percentage change in the price of a number of representative goods from one point of time to another."

A "goods dollar" contains a definite portion of many different representative goods having equal fractional value one to another, and which when combined total 100 cents. In other words, a cent's worth of 100 different goods would be a "goods dollar."

Another stabilization plan based upon gold was submitted by John Maynard Keynes, leading English economist. He believes that it is "essential that provision shall be made that there will never be cause for hope that prices will rise or fear that they will drop, or that if such movement does occur it will never go far." The Keynes plan is similar to that by Fisher, except that, in addition to changing the gold equivalent of the pound sterling from time to time to conform to changed conditions, stabilization would be assisted by variations in the bank rate to control internal and external prices.

R. G. Hawtrey proposed the gold-exchange standard, an international plan. "If all principal countries would settle what the value of their currency units in gold is to be," he states by way of qualification, "we want so to regulate the demand for gold that the values of these currency units in commodities does not vary substantially." This having been accomplished, the central banks of issue of the leading mercantile nations would be induced to extend each other credits or paper money of domestic validity in exchange for similar credits or paper money legally current in foreign countries. "Any one with legal tender money in one country," Mr. Hawtrey insists, "should be able to surrender it in exchange for an equivalent amount of legal tender money in any other country."

The plan of Carl Snyder for stabilization of gold would employ the open-market and rediscount powers of the Federal Reserve—that is, a given rise in the price level would call for a given rise in the discount rate and a similar set sale of government securities. "Gold would cease to be directly legal tender," it was pointed out, "though practically it would be, of course, just the same as now" (1923). Attempt would be made to keep the amount of currency and credit in balance with the price level, which would be maintained as nearly constant as possible.

The plan by Prof. Lehfeldt contemplated the buying of all gold mines and ground known to possess gold deposits, and the regulation of production in accordance with the needs of the world for money—the object being to maintain a constant value for the unit of gold, so that the dollar, remaining the same number of grains of gold, should retain approximately the same value. Prof. Lehfeldt estimated the cost of the gold sources at about one billion dollars.

Reasons which may have commended these plans individually or collectively, so long as the gold standard dominated monetary policy, do not apply to the same extent at this time, when virtually all the mercantile nations of the world are "managing" their currencies quite independently, being governed by the degree of expediency demanded in each case.

1Stabilization of Prices, by Joseph Stagg Lawrence (Princeton).