Oats for Deflation

Oats for Inflation

When President Roosevelt last week again took the U. S into his confidence by radio (see p. 9), he saved for the end the most potent part of his remarks--his pronouncements on monetary policy. His points:

1) "The definite policy of the Government has been to restore commodity price levels. . . ." This was no news. He was driving an old point home. 2) "Some people are putting the cart before the horse. They want a permanent revaluation of the dollar first. It is the Government's policy to restore the price level first. I would not know, and no one else could tell, just what the permanent valuation of the dollar will be. To guess at a permanent gold valuation now would certainly require later changes. . . ." This was definite news: a promise that stabilization of the dollar is not to be expected soon. 3) "When we have restored the price level, we shall seek to establish and maintain a dollar which will not change its purchasing and debt-paying power during the succeeding generation." This intention he had mentioned once before. Now he left no doubt that he wanted to establish a "commodity dollar." 4) "The United States must take firmly in its own hands control of the gold value of our dollar. . . . I am going to establish a Government market for gold in the United States. . . . I am authorizing the Reconstruction Finance Corporation to buy gold newly mined in the United States at prices to be determined from time to time after consultation with the Secretary of the Treasury and the President. Whenever necessary to the end in view we shall also buy or sell gold in the world market. . . . This is a policy and not an expedient. It is not to be used merely to offset a temporary fall in prices. We are thus continuing to move toward a managed currency." This was news indeed, but ambiguous. 5) "Government credit will be maintained and a sound currency will accompany a rise in the American commodity-price level." This was hope, not news. No means had anyone listening to his speech to tell exactly what the President meant by establishing a Government market for gold. Already the Government buys gold at the world price. Apparently the Government will now buy gold at whatever price it chooses to set--in order to influence the value of the dollar. Coupled with the declaration for a managed currency and higher prices it may mean that the Government intends gradually to increase the price of gold, thereby devaluating the dollar. There was no clue whether the Government would fix its price at a different level from the world price for gold--or, if so, how far different. Buying & selling gold in the world market would influence exchange rates in the same way (but not necessarily with the same purpose) as setting up an equalization fund, might be used to keep the world price for gold close to the Roosevelt price. Obvious was one fact. President Roosevelt, trying to ride a Sound Money and an Inflation horse at the same time, had urged on Sound Money fortnight ago by announcing a long-term bond issue* (TIME, Oct. 23). Last week prices of grains and stocks were slumping. Equestrian Roosevelt undoubtedly intended his radio speech as a special dinner of oats to put new pep into his lagging charger, Inflation.

Day after he spoke his wish was realized. Wheat mounted 4-c- a bushel. Other grains and stocks started a better rally than they had for days. The dollar dropped from 71-c- to 70-c- in foreign exchange. The Government boosted the price offered for gold from $29.01 to $29.59 per ounce. Sound-money men were appalled at the idea of a permanently managed currency. But inflationists cheered.

Said Senator Thomas of Oklahoma: "A big step in the right direction. . . . If it doesn't work, then apparently he'll try direct inflation. It's what we've been advocating."

Said James H. Rand Jr., chairman of the self-styled Committee for the Nation: "Today marks the ending of the Depression."

* The $500,000,000 portion of this issue offerred for cash subscription was last week oversubscribed four times, prior to the President's speech.

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