Professor G.1. Warren

January 5, 1934-P 3.

the problem of public expendituzes, timidity is a grave ambarraszent.Half measures will be worse them no mecsures. the technical problemsinvolved in controlling the situation have, I think, been gxeetly exag=gerated. The authority designated by Congress has merely to announcethet it will buy and sell all gold at rates to be announced from timeto time. For example, it may decide to buy and sell at dollars 36,00to the ounce. If the London   price of sola is then pounda 6-7-6, thesterling exchange rate would settle at approximately dollars 5,65 tothe pound. This would equalize the internal and external price ofgold and make the gold policy effective on internal economie conditions.it would be a mistake to stabilize the rate at present. You cannothave stability of anything in your unetable weria. Stability of ex-change rould be purchased at the price of instability in some elemeatsof the economie structure. Certainty as to foreign exchange trans=actione could be purchased at the price of uncertainty as to the basisof contract in the internal econony. The latter is nuoh zore importantin berns of both economic activity and huran welfare. than the formex.Once the cold standard 1s zuspended, it is possible to experiment withthe price of gold until it reaches a point at which the debt burden of tethe country becomes tolerable and some thing approaching normal economieactivity has been restored. One cannot repeat toooften that succes8a:mul control of the gold price demands strong action on the part of thegovernment to designate some authority charged with the responsibilityof establishing a free market for gold at tates whioh are consideredto be consistent with the main objective of economic policy.

It is sometimes said that this will involved a cost.this to be a profound error and to axlee from the fears of curreneyauthorities that you cannot manage a currency. with the price of goldat dollars 36,00, the V.8. currenay would be somewhat weakened and thetendency would be for money to blow towards this country. In thesecircunstances, the controlling authority has merely to issue credet oxcarrency Internally against Its purchases of gola sbroad. It does notseek this an unhealthy movement in the gold price induced by the flowof short term funds which have done auch damage to all currencies inthis crisis. Every country must take action to prevent the depreda-tions of these funds that seems to run iron one part of the world toanother seeking a safe home and leaving considerable wreckage behindthea. No oaxrenez should be the sport of short texn investors.

If on the other hand, there is a flow of funds from the United States   abroad, the controlling suthority has two weapons at its disposal

It can rase the price of gold, making it more costly for the expoztfunds. On the other hand, it can regåely export a aneatity of the goldnow held. This will be a proof to the world that the United States  

18not seeking a price for the metal thet will give it aubetantial pros-pect of rapid reeeovery. In doing so, it is cheapening the dollar forthe rest of the world, and making it easier for debtors to seet theirobligations in dollars. the export of gold is, however, moet unlikelyat present, because there is no deficit in the balance of payments andno likelihood of a large flood of capital. The problem is really todeal with en inlow of capital that would cause the gold price to fall.It is very easy to handle this problem by the simple expedient of purechasing all the gold offering and issuing credit in the United Statesagainst the gold offering and