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From The Militant, Vol. VI No. 42, 9 September 1933, p. 3.
Transcribed & marked up by Einde O’Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).
When President Roosevelt was granted the power to reduce the gold content of the dollar by one half and to inflate currency the inter-relation of politics and economics was clearly seen by the stimulation this act gave to the increase of the prices of commodities. Neither of these measures have been carried out, nevertheless, a state cannot adopt such a far reaching political measure, knowing the experience of post-war Europe, without expecting immediate effects upon the economic system and upon prices.
The commodities that the workers buy have increased greatly in price and average over 30 percent in many cities. Many economists deny this and inform us that inflation amounts to only about 1 percent. One of the many tricks they use is the method of taking an average of about 300 commodities, the majority of which the workers do not even buy once a year. In this manner the capitalist spokesman try to cover up the increase in prices of the daily consumed commodities the workers use.
Again the question of currency inflation is coming to the fore. This time directly in relation to the NRA. General Johnson correctly informs the public that unless the machinery for credit is organized as fast as the codes are being signed the NRA will not function properly. This means increased credit inflation now, to be followed by currency inflation later. Within the last few weeks the Federal Reserve Board has been increasing its purchases of government bonds This is also a form of credit inflation.
The apologists of capitalism are systematically propagandizing the general public to the effect that there is no inflation. This is true only in the sense that the technical financial machinery of inflation has not been put into motion on a broad scale. The cost of living, however, has gone up rapidly and consistently, and this is what the worker means by inflation, because this is how inflation is expressed in his every-day life. All lies that have an element of truth, or a half truth unexplained constitute the best kind of capitalist propaganda. Such is the case with the question of inflation. When the capitalist economists inform us that there has been no inflation, meaning outright currency inflation, they are correct. But the real problem only begins where these writers leave off.
Currency inflation is only one form of inflation and not the best as experience has proven. Currency inflation will only be resorted to if the other forms and other methods applied fail to bring the desired results. Then we may be forced with the problem of actual devaluation of the dollar.
Credit inflation measures were started under the Hoover administration and have been increased since. The effects, however, were washed out by the decline in world prices. Nevertheless, the policy of the Hoover and later the Roosevelt government, through the different farm relief organizations, through the R.F.C. and N.R.A., as well as the banking and currency acts, taken together all constitute measures in this direction.
The currency policy of the government is now following up its farm relief and R.F.C., policy by having the Federal Reserve increase its purchases of government securities in the open market. Since this leads to the replacing of Federal Reserve notes, backed by a minimum of 40 percent gold, by notes, backed by what is called sound collateral, this leads to a form of inflation. The general result is that since the Roosevelt government took office, there have been over a hundred million dollars of the new Federal Reserve Bank notes issued, but this has been more than counterbalanced by the heavy decrease in the old Federal Reserve notes outstanding. The further expenditure of public funds under the recovery plan will stimulate the inflation of credit, started under the Hoover administration.
On the foreign exchange markets the dollar has declined 30 percent. When Roosevelt issued his statement to the London conference instructing the American delegation not to participate in plans for currency stabilization, the policy of “controlled inflation” took another jump upward. The immediate effects of the fall of the nation’s currency on the foreign exchanges usually does not effect the domestic prices to a great degree. However, in this case it did move prices upward on the home market. On the other hand, the fact that America is the world’s creditor nation has a tendency to force the dollar toward par. But further measures against this tendency have been taken by the government.
Nevertheless, the government measures that is: the conferring of power to inflate currency, the going off the gold standard, the embargo on gold, the power to reduce the gold content of the dollar by 50 percent, the public works projects, the credit inflation and the fall of the dollar on the foreign exchange by 30 percent, all this has had the effect of causing prices to rise rapidly. Senator Thomas, who sponsored the Farm Adjustment Act amendment, said in behalf of his proposed inflationary measure: “If the kind of inflation we are having brings back the 1926 price level, then perhaps we may not need to resort to physical inflation of currency”.Thus Senator Thomas informs us that inflation existed prior to the measures of the Roosevelt government. He is correct and today prices have been increased.
The Frazier Jelke and Company, dealing with the effects of inflation on stock market prices listing some stocks from March the third to June the nineteenth, finds that in dollars industrial stock rose 78 percent; rails 80 percent and utilities 65 percent. This is the price advance in terms of dollars. From the standpoint of the theoretical advance in terms of gold the rise in price has been: industrial 45 percent; rails 47 percent; and utilities 34 percent.
Hughes, of the Consolidated Press calculated that the advance due to inflation is between 41 and 46 percent. Inflation changes and price rise in the cost of living differ from the stock prices. The transfer of wealth from currency to commodities and stocks is the logical process of inflation plus the fear of currency inflation.
America’s gigantic economic system, its creditor position, and its tremendous gold supply gives this group of imperialists a strong position despite the path of inflation in which, it is now traveling. Nevertheless, even these bulwarks are no guarantees against the coming storms.
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