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Pastimes : Book Nook -- Ignore unavailable to you. Want to Upgrade?

To: Ilaine who wrote (361)	8/20/2001 9:29:08 AM
From: Ilaine	Read Replies (1) \| Respond to of 443

Final segment . . . . Those who believe (a thing that is quite unthinkable to the writer) that so long as we have unequal income distribution the consuming power of society cannot keep pace with production may advocate, as Mr. John A. Hobson does, heavy taxation of personal incomes, the funds so derived to be spent by the government for community purposes.* [ Hansen footnote The tax would not be imposed on business units and therefore would not destroy business profits.] Governments, at least, have never found it difficult to spend their incomes. Those who have more or less frequently attended school board meetings in typical American cities will not find it difficult to imagine how some of the money might be spent, and without waste too. And the pressure upon State legislatures and the Federal Government suggests supplementary means of public spending should the former not prove sufficient. Business men who argue that we cannot possibly dispose of our "surplus"' products unless we find foreign markets open the door wide for those who advocate heavier taxes on wealth in the interest of community consumption. But altogether aside from the spurious argument that it may be necessary to turn to larger governmental expenditures to find an adequate market for our products, we may discover that a greater measure of community consumption is really a wiser way of spending our national income than to leave it to the individual consumer sorely beset by misleading advertisers. Maladjustments in the Transition Period. But let us not overlook the evils of the interval before a new balance is reached. While a new equilibrium is not impossible in the long run in spite of our present conflicting investment and tariff policies, we must realize that before this new balance is reached we are creating (and shall continue for a long time to create for ourselves and the whole world) maladjustments that are now intensifying, and will in the future intensify, business depressions throughout the world. The current maldistribution of gold is intensified by this policy and an important factor in the 1930 world-wide depression. And the second consequence is the painful readjustment which is forced upon our industries by the necessary curtailment of purchases by our creditors and the consequent decline in our exports. This also became plainly evident in 1930. In fact Australia, under the pressure of a genuine crisis, felt it necessary to place a complete embargo on a considerable list of goods, while various South American countries raised their import duties. So far as our abnormal gold holdings are concerned, could this situation not be relieved by a liberal discount policy that would send the gold back to our creditors and thus relieve the stringency? This policy, at the advice of leading European bankers, was indeed attempted in 1927. The discount rate was reduced to artificially low levels. In consequence gold did, as a matter of fact, flow out for a time. Our gold holdings declined by $580,000,000 from May, 1927, to June, 1928. But to no avail. The permanent forces based on our position as a great creditor nation and our prohibitive tariff policy were too powerful. The service charges on our vast foreign investment acted like a powerful magnet, which soon began to draw the gold back to this country. An artificially liberal discount policy will not remedy this maladjustment. A step in the right direction would be a drastic reduction in our tariff. Once the world's gold has been wrongly distributed it is not easy to return to a normal condition. Had there been no tariff obstacles to the free flow of goods the problem would have been simpler but by no means solved. The distrust of Europeans in their own currencies and their greater confidence in the stability of the dollar operated to hinder the desired outflow of gold. Nothing short of a rather extreme inflation of commodity prices in the United States sufficient to neutralize in large part the high tariff wall could have sent the gold out. And even then, the gold outflow which one would have expected, consequent upon the larger inflow of imports, might well have been blocked by the counter movement of capital from abroad which our stock market, booming under the influence of rising commodity prices and larger corporate profits, might have attracted. It will not be an easy task to effect a balanced distribution of the world's gold and thus reestablish again the gold standard on a firm basis. But the task would surely be greatly simplified if tariffs everywhere, and particularly in America, were sharply lowered.<< [*CB footnote - I wish everyone who likes to rant about the Fed's "easy money policy" would take the time to educate himself/herself as to the facts - it may have been a bad choice, but it was a rational choice - and the boom in the stock market was an unintended side effect. Further, we see here how political actions and individual investment decisons undercut Fed policy - Alan Greenspan isn't God and the Fed wasn't all powerful then, either.]