February, 1933 



THE I. A. A. RECORD 



Page Seventeen 



i ill The Money Question 



Our Nation Can't Continue With Half Its People On One Price Level And The Other 



Half On Another Says Henry Wallace 



EVERY country except the United 

 States, Holland, and Switzer- 

 land has eased the internal prob- 

 lem for debtors by depreciating 

 their currencies and raising prices, 

 Henry A. Wallace, editor of Wallace's 

 Farmer, told more than 1,500 men 

 and women who attended the Fri- 

 day morning session of the recent 

 I. A. A. convention held in Peoria. 

 An honest way out of our diffi- 

 culties, he said, is to reduce the 

 grains of gold in the dollar. Another 

 way out is not to balance the bud- 

 get and float gracefully off the gold 

 standard as France did. One thing 

 4 ;is certain, the United States is a 

 : dominant economic force in the 

 • world, and if this country starts 

 back to normal prosperity the rest 

 of the world will undoubtedly start 

 with us. 



Wallace expressed the hope that 

 silver would be used on a world- 

 wide basis through symmetalism by 

 "which paper currency would be re- 

 deemable partly in gold and partly 

 in silver rather than in one or the 

 other exclusively. 



^r'. ::-^/'^':— Debt Adjustments ' '- - 



i~ Debt adjustments, he said, only 

 temporize with the situation. It is 

 difficult to make debt adjustments 

 uniform in treatment. The farmer 

 has been caught in a trap or en- 

 closure with four walls something 

 like a bunch of cattle. When we 

 push on one side to get out, our 

 opponents tell us to try the other 

 side. There are several ways to 

 ease the predicament in which we 

 find ourselves. One way is to raise 

 farm price levels with legislation 

 like the domestic allotment plan, 

 another way is to devalue the dol- 

 lar. When Fred Lee, your next 

 speaker, suggested to an insurance 

 man who was in Washington that 

 his company write down their farm 

 mortgages 40 per cent, he threw up 

 his hands in alarm and said: "If 

 we do that how can we pay our 

 death claims?" Before, he had op- 

 posed price raising legislation, but 

 after thinking it over he became an 

 ardent advocate of establishing 

 higher price levels. 



The public and private debt of the 

 United States, Wallace said, is close 

 to 200 billion dollars whereas the 

 national wealth is estimated to be 

 not much more than 180 billion dol- 

 lars. "Something is going to snap," 

 he continued, "we can't continue on 

 our present basis trying to pay our 

 debts with prices half or less than 

 they were when the debts were 



created. Our nation cannot continue 

 much longer with half its people on 

 one price level and the other half 

 on another. The tension is too 

 great. 



Effect of Deflation 



"Some people say that the proper 

 way to deal with this situation is 

 to go ahead with the deflation. This 

 means that debts and taxes must be 

 cut in half, and that the rates of 

 public utilities and railroads must 

 be reduced very materially. If the 

 reduction in debts is accomplished 

 by the customary procedure of 

 bankruptcy and sale of foreclosed 

 properties, there can be no large 

 volume of construction activity in 

 the cities until 1937 or 1938. If the 

 freight rates are brought down and 

 the railroads thrown into receiver- 

 ship, the effect on the insurance 

 companies may be disastrous be- 

 cause they hold about three -fourths 

 of the railroad bonds. If farm mort- 

 gages are cut in half, the insurance 

 companies may again be embar- 

 rassed because they have to pay 

 their policies in full. Some people 

 think there is something fine, 

 righteous, pure and high-minded 

 about deflation and that inflation 

 is something wicked and luxurious 

 against the laws of God and man. 

 As a matter of fact, what we want 

 is neither inflation nor deflation 

 but stability at a price level which 

 will do the maximum of justice be- 

 tween debtor and creditor. 



"Our present monetary system is 

 based on the theory of a fixed price 

 for gold without regard to the law 

 of supply and demand. For more 

 than 50 years in the United States, 

 the price of gold has been $20.67 

 an ounce no matter how scarce or 

 how abundant gold might be. If the 

 law of supply and demand were 

 really functioning with respect to 

 gold, the price might well have gone 

 down to $10 an ounce during the 

 early part of this century, whereas 

 at the present time, in view of its 

 scarcity, the price might well be $30 

 or even $35 an ounce. In times like 

 these, it is barbarous to compel all 

 industries to adjust themselves to 

 a suspension of the law of supply 

 and demand with respect to gold. 

 This has been recognized in every 

 country but the United States, Hol- 

 land and Switzerland. All of the 

 others have at one time or another 

 during the past 10 years devalued 

 their respective units of currency 

 and, in so doing, have eased the 

 burden of debt, .s; , -v^.;v * > 4 ,.v 



"It has ever been thus. When 

 debts have reached an impossible 

 point, and repudiation on a scale 

 sufficient to endanger the creditors 

 has started, it has been customary 

 to reduce the amount of metal be- 

 hind the unit of currency. Often- 

 times this has not been done openly 

 but by issuing paper currency and 

 government bonds. 



Col. Ayres' Prediction 



"At Cincinnati I heard Colonel 

 Leonard Ayres of the Cleveland 

 Trust Company say that he thought 

 the year 1933 would be known as 

 the year of the great battle between 

 the inflationists and the deflation- 

 ists and that in his opinion the in- 

 flationists would' lose, as usual. 

 Colonel Ayres is a very level-headed 

 man for whose judgment I have 

 the greatest respect. But in this 

 case, I am inclined to think he is 

 wrong. The continuance of present 

 prices means such a volume of fore- 

 closures, bankruptcies, receiverships 

 and failures that no man in his 

 right senses can think about them 

 without wanting to do something to 

 bring a more even-handed justice 

 between debtors and creditors. We 

 must have inflation but it must be 

 a controlled inflation. We must 

 avoid an uncontrolled inflation such 

 as that which plunged Germany 

 over the precipice after the World 

 War. 



"The most honest method of con- 

 trolled inflation is to increase the 

 price of gold from $20.67 an ounce 

 to $30 an ounce. This is the same 

 thing as reducing the weight of gold 

 behind the dollar from 23.22 grains, 

 as at present, to 16 grains. If this 

 were done, the foreign currencies 

 would at once be able to buy more 

 dollars and, therefore, more pounds 

 of wheat, lard and cotton. The price 

 of our exports in terms of British 

 pounds and French francs would 

 not go up but in terms of American 

 dollars, the price would be ma- 

 t rially higher. The price of imports 

 into the United States would also 

 be higher in terms of American dol- 

 lars although there would be no in- 

 crease In the price in the country 

 from which they came. Domestic 

 prices would move more slowly. 



Objections To Reflation 



"The common objection to de- 

 valuing the dollar is that more than 

 50 billion dollars of contracts have 

 in them the celebrated 'gold 

 clause.' The 'gold clause,' it is 

 claimed, would compel a man who 



