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No. 44 "An Open Letter to the President," by Dr. Neil Carothers, Professor of Economics and Director of the College of Business Administration at Lehigh University, June 23, 1935. American Liberty League. 400dpi TIFF G4 page images Digital Library Services, University of Kentucky Libraries Lexington, Kentucky Am_Lib_Leag_44 These pages may freely searched and displayed. Permission must be received for subsequent distribution in print or electronically. No. 44 "An Open Letter to the President," by Dr. Neil Carothers, Professor of Economics and Director of the College of Business Administration at Lehigh University, June 23, 1935. American Liberty League. American Liberty League. Washington, D.C. 1935. This electronic text file was created by Optical Character Recognition (OCR). No corrections have been made to the OCR-ed text and no editing has been done to the content of the original document. Encoding has been done through an automated process using the recommendations for Level 1 of the TEI in Libraries Guidelines. Digital page images are linked to the text file. Pamphlets Available â˜… Copies of the following pamphlets and other League literature may be obtained upon application to the League's national headquarters: Why, The American Liberty League? Statement of Principles and Purposes Progress vs. Change Speech by Jouett Shouse Recovery, Relief and the Constitution Speech by Jouett Shouse American Liberty Leagne Its Platform An Analysis of the President's Budget Message Analysis of the $4,880,000,000 Emergency Relief Appropriation Act Economic Security The Bo Inflation Democracy or Bureaucracy? Speech by Jouett Shouse The Thirty Hour Week The Pending Banking Bill The Holding Company Bill The Legislative Situation Speech by Jouett Shouse "What is the Constitution Between Friends?" Speech by James M. Beck Where Are We Going? Speech by James W. Wadsworth Price Control Yesterday, Today and Tomorrow The Labor Relations Bill Government by Experiment Speech by Dr. Neil Carothers How Inflation Affects the Average Family Speech by Dr. Ray Bert Westerfield The AAA Amendments Political Banking Speech by Dr. Waller E. Spahr The Bituminous Coal Bill Regimenting the Farmers Speech by Dr. G. W. Dyer Extension of the NRA Human Rights and the Constitution Speech by R. E. Desvernine The Farmers' Home Bill The TV A Amendments The New Deal, Its Unsound Theories and Ir-reconcilable Policies Speech by Ralph M. Shato Is the Constitution for Sale? Speech by Capt. William H. Stayton How to Meet the Issue Speech by the Hon. William E. Borah The Supreme Court and the New Deal The Duty of the Church to the Social Order Speech by S. Wells Utley AMERICAN LIBERTY LEAGUE NATIONAL PRESS BUILDING WASHINGTON, D. C. An Open Letter to the President â˜… â˜… â˜… By DR. NEIL CAROTHERS Professor of Economics and Director of the College of Business Administration at Lehigh University Member National Advisory Council American Liberty League AMERICAN LIBERTY LEAGUE National Headquarters NATIONAL PRESS BUILDING WASHINGTON, D. C. Document No. 44 June, 1935 AN OPEN LETTER TO THE PRESIDENT â˜… My DEAR MR. PRESIDENT: When a private citizen writes an open letter to the President he is nearly always seeking some personal benefit, material or psychological. This letter has no such objective. I am not writing in my own interest. This is not the first letter to you that has borne my signature. In October, 1933, there was sent to you a letter signed by forty-four economists and practical experts on money. It was a letter urging you to preserve this country's monetary standard and warning you of the dangers of inflation. The group signing that letter included many, though not all, of the leading experts on money and exchange in all America. In an accompanying letter we very respectfully asked you to make that letter public. But it never was. A while later there was made public a letter from five little-known instructors of subordinate rank in one college. This letter indorsed the government's money policy. A president of this country is inevitably surrounded by politicians. They create around him a thick mist of misinformation, propaganda and adulation which separates him from the views of millions of citizens. The thousands who write you are nearly all partisan admirers, frequently beneficiaries of governmental action. Their letters are less than worthless, for they are actually misleading. Thus a president is sometimes in ignorance of the real feelings of his people and frequently uninformed as to the judgments of the people regarding his conduct. You have studied the history of other presidents, and you must have been impressed by the number who never knew until too late. Some presidents never understood how their policies were regarded until the Supreme Court got around to them, and others never knew where they stood until a second election. President Harding went to his death without knowing what the people thought of his administration. Some presidents refused to rely on the judgments of partisan advisers but sought information from every available source and then acted without reference to politics or politicians. Cleveland was conspicuous among these, and today he is held to have been one of America's greatest men. There are some reliable avenues of information and sources of advice available to a president in our time. One is the editorial judgment of the reputable newspapers. Another is the judgment of the academic economists. The editors of our great papers, along with the economists, happen to be the best informed, most impartial and most courageous judges of economic policy in the country. They are not infallible, of course, and in rare cases they are prejudiced by their partisan or financial connections. But not the majority. Both these I groups are so far superior in economic wisdom) to any political organization, such as the United States Senate, that it would he cruel to force) the comparison. Take one example. If there is one responsible newspaper in this country that has not condemned the 30-hour-week bill for the economic idiocy it is, I have not heard of it. If there is any reputable economist in favor of it, I do not know about it. But that Senate has passed this monstrosity twice, and will do so again unless they are frightened by some rival political pressure brought on them. When the leading newspapers, the academic economists and the Supreme Court are on one side of a question, and the Rev. Coughlin, the Committee for the Nation, and Senator Elmer Thomas are on the other, there is just one answer. But in your entire administration you have had little confidence in the newspapers and still less in the economists. Early in your administration you disapproved the economists in a radio talk to the nation, even before they had publicly questioned your economic policies. But two years later it is clear that on the issues where the economists have differed with the policies of the government, the economists were right. They have made a hit every time they came to bat. You have approved a number of measures that were vehemently opposed by an overwhelming majority of the newspapers and of the economists. As a whole both of these groups condemned the abrogation of the gold clause. They said it was repudiation nearly two years before the Supreme Court said it. You said that there was not enough gold in the world to pay the gold bond indebtedness, despite the fact that the economists had long before pointed out the truth that we had just about twice as much gold as we could possibly need to pay all gold debts as they fell due, a tiny bit at a time. Both the newspapers and the economists have known for more than a year that the N.R.A. has retarded recovery. The economists said so publicly at their Chicago meeting in December. The Brookings Institution said so somewhat later. And all they got in reply was abuse from administration spokesmen. A majority of the responsible papers and of the economists condemned the Frazier-Lemke Act and the silver subsidies before they were passed. TrllS is not merely a review of past history. It has a very deep significance now. When a president ignores the patriotic appeals of the two most reliable agencies available, he must turn to politicians, and more especially to Congress. And you have been unfortunate in having during your administration the most irresponsible Congress in American history. When they have not been passing bills without even reading them, they have been busy passing measures in response to mob pressure. On the few occasions when they have summoned up enough courage to oppose you, they have opposed you on measures about which you were signally right, as in the case of the bonus bill, the economy measure, and the World Court. In 4 past history it has been possible to hope that the lower House could be kept under some sort of control by a wiser and more patriotic Senate, hut for two years past it has been very difficult to tell which is the lower House. And this brings me to the crux of this letter. On my own responsibility I am undertaking to speak for a great many millions of people who badly need your protection but who are but poorly represented among your advisers. I am wondering if you are not willing to consider the judgment of the newspapers and the economists in regard to certain of your policies. On May 22 you presented your message vetoing the Patman bonus bill. The message won the practically unanimous applause of the intelligent people of this country. In clear and forceful language you presented the reasons why a bonus should not be paid in paper money. The reasoning you advanced was flawless. In that message you made an irrefutable case against fiat money, against inflation, against Treasury deficits without taxation, and against your own entire monetary policy since March, 1933. About fiat money you said this: "It is easy to see the ultimate result of meeting recurring demands by the issuance of Treasury notes. It invites an ultimate reckoning in uncontrollable prices and in destruction of the value of savings that will strike most cruelly those, like the veterans, who seem to be temporarily benefited." And yet on May 12, 1933, you signed the Thomas Inflation Act, which authorizes and makes possible a three-way inflation of the currency beside which the Patman inflation is a drop in the bucket. And on June 19, 1934, you signed a silver bill which compels a slow but relentless inflation. In that veto message you pointed out the sinister dangers of recurring deficits. You said this: "Solely from the point of view of the good credit of the United States the complete failure 5 of the Congress to provide additional taxes for an additional expenditure of this magnitude would in itself and hy itself alone warrant disapproval of this measure." And yet we have had for the past two years the most stupendous deficits in the history of the world, financed by every imaginable device except taxation, even including the forcible seizure of gold coin in private hands. In THAT veto message you said this: "The final 'whereas' clause, stating that spending the money is the most effective means of hastening recovery, is so ill-considered that little comment is necessary." And yet there has been for two years past a record of reckless expenditures of government money without parallel in history, in a futile attempt to "prime the pump" of private business. In the bottomless pit of C.W.A., P.W.A., T.V.A. and, in part, F.E.R.A., there have been sunk the billions now represented by the increase in government debt. And between now and 1937 there is to be spent the incredible sum of $4,800,000,000, of which about $4,000,-000,000 is pure deficit. This is to be spent in "work relief," hut, whatever the needs for relief and whatever the plans for spending, at least half of this vast sum will be pure "pump priming." In THAT splendid veto message attacking inflation you overlooked two other types of inflation already steadily undermining the currency of this country for many months past. You attacked paper money inflation without mercy, but you failed to refer to two other kinds quite as destructive. One is inflation through silver purchases. Recently the Secretary of the Treasury went on the radio to defend the monetary policies of the administration. He discussed our monetary system, hut I noted that he did not name it or describe it. He couldn't. No man in the world can name or describe the strange thing our currency has become. It is supposed to be 6 based on gold, but there is only paper. The ) Secretary has somewhere referred to it as a gold bullion standard. But you have down there in Washington a weird hybrid mixture of gold and silver of fluctuating value, locked j up in the vaults. Although the gold dollars in that mixture weigh 25.8 grains, you now call 59 per cent of each one a dollar. Although the silver dollars in that mixture are worth about half-a-dollar, you call each one a standard dollar. And this sterilized and uncertain mixture is by law the base of our money system. All our paper money is legal tender, although some of it represents one thing, some another. No other nation in history ever had any such goulash as this for a currency. Day after day, secretly, we buy capricious amounts of silver and bury it in the vaults, for what purpose no one knows. And every day we pump into the currency a lot of silver certificates. But each one represents a useless lump of silver not worth a dollar or redeemable in a dollar's worth of anything. At yesterday's value a silver certificate represented about 55 cents worth of silver. What it will be worth tomorrow is a guess. And every single certificate going into circulation is debased fiat money, and every one represents that much inflation. In 1878 the silver bloc, which has been gnawing away in Congress from 1873 to 1935, jammed through over the president's veto a measure just a little like the one in our day, though far less evil. Some years later this measure wrecked the finances of the country and another president forced a frightened Congress to repeal it. But the damage had been done. The other kind of inflation is the most subtly dangerous of all. It is the inflation through bank deposits which has been steadily mounting since early in 1933. The government sells bonds to the banks, the government spends the money, and the money goes back to the banks as deposits. The banks may then borrow from 7 the Federal Reserve Banks on their bonds. The Reserve Banks may also buy bonds on their own and use them as a basis for currency issues. With this set-up there develops a swollen deposit situation which has the deceptive explosive properties of nitro-glycerine. It is harmless until exploded, and then you cannot find the pieces of the innocent bystanders. The fuse that sets it off may be a sudden popular distrust of the government's financial stability. It may he a mad flight from capital. And it may be merely a sudden burst of economic activity from returning business confidence. We have been piling up these explosive materials for a long time. The banks of the country now hold about $14,000,000,000 in government securities. It is conservatively estimated that there are already enough currency and credit available to finance a hundred billion dollar inflation. It seems fair to say that this inflation has not taken hold yet. Commodity prices have risen about 33 per cent since the abnormally low point of March, 1933, but this has been due to a multitude of events, of which the chief factor is probably natural recovery, supplemented by such economic afflictions as destruction of agricultural products, the drought, devaluation and the N.R.A. But every qualified expert in America knows that we have all the ingredients of a disastrous inflation. Secretary Morgenthau goes on the radio to tell the people we have a very sound currency, but the financial journals are advertising ways by which their subscribers may seek to i avoid the destruction of the coming inflation. Not long ago you told the country that prices are not yet high enough. There is the underlying philosophy responsible for our whole confused monetary policy. Recovery does not require any given level of prices, the 1926 level or any other. A rapid and wholesome recovery comes naturally at a price level considerably below the pre-depres-8 sion level that gets us into the trouble. What I, is needed for recovery is confidence in the j integrity of the money supply. On this are built the foundations of recovery, which are profit | | for business and wide-spread employment. You do not have to accept economic theory i to believe this. You need only to look at the rapidly rising prices of 1934 and the tragic unemployment figures for the same year. In our other great depressions recovery came at j a lower level of prices. There was no artificial price-raising, and we got out a lot quicker than ) we have in this one. As for "adjusting the burden of debt," re- \ covery has been so long delayed by our efforts to force it by act of Congress that time has in large measure wiped out the old debtor classes. Artificial price-raising is now in great degree for the benefit of the speculators, foreclosers, and moneyed men who bought stocks and other property at rock-bottom prices. Any further price-rises will probably be at the expense of the wage-earners and the middle classes. The cost of living is up about 16 per cent since March, 1933. Just how this benefits the many millions whose incomes have not increased is hard to see. The whole policy of the administration has been inflationary since the date of the World j Economic Conference in 1933. There may he no justification for it, but it is widely believed, none the less, that the administration, still clinging to the "prime-the-pump" theory, has now embraced the theory of "squandering our way out." Many people believe that this theory | was adopted on the advice of Mr. John Maynard Keynes. If this is so, there is irony in the situation, for there is cosmic humor in a great \ government which derides economic theory I adopting the worst economic theory there is. It IS a regrettable thing for economists to disagree, because it enables people to defend wholly unsound policies with the statement that there are no agreed-upon economic truths. There are a great many economists, and it is 9 unhappily true that every now and then one of them loses his balance and goes haywire. They do not do this as often as politicians or hank presidents or captains of industry, but a few do go off the reservation at times. There was, for example, that tiny little group that said N.R.A. would bring recovery by artificial wage-and-hour regulations. There was, for example, the gallant band that urged the gold-purchase program, and guaranteed a price rise from devaluation. These are mostly dispersed now, back explaining to their colleagues and students in our grandest universities just how right they would have been if they had not been so wrong. There is the isolated little crew who believe in a commodity dollar, but cannot agree as to what it is or how to get it or what it would do. But there does not appear to be in America any discoverable group who believe in the squander-our-way-out theory. And I hate to see this country, after exhausting the programs of domestic economists with hallucinations, importing a special brand from Europe, especially when the imported commodity has such a low value at home. Mr. John Keynes urging the squander theory on this country is too reminiscent of Mr. John Law urging the Mississippi Bubble on King Louis of France. But I am interested mainly in the future. Recovery is standing on the door-step, humbly begging admittance. The Supreme Court has done a lot to revive free enterprise and restore the obligation of contract. But there is a fear of inflation over the land. Many of the most distinguished and conservative authorities in the country believe that a disastrous inflation is inevitable. I do not believe it. This is a rich and powerful country. It can withstand nearly any economic adversity, including depression and recovery by experiment. It can absorb the inflation already initiated. It can carry the burden of deficits already created, and the huge deficit of the coming year. But it cannot do this indefinitely. There ought to be, very soon, 10 some assurance that we are going to have sound currency and credit. There is no need to wait for international currency stabilization. We had our chance for that in July, 1933, and muffed it. We are strong enough to establish a sound currency at home and let the foreign currency-jugglers play their games. The European tail cannot wag the American dog. What we need now is the restor- ^Â» ation of our own gold standard, at the 59-cent level we finally stumbled into. We need also J an end of this blind and unjustified and humiliating and dangerous silver business. We need also some assurance of the frugal employment fjj) of the work-relief billions, for purposes of relief i only, and not pump-priming. These three simple measures would assure recovery, and then the government would gird its loins for the control of the inflationary elements now working in our midst. It is still possible to restrain the inflationary forces in our situation. There are ways to do it. But will it be done? It would he a solemn thing to be responsible for a monetary policy that does what you said the Patman bonus would do, that is, destroy the savings and the wages of the common man. It would be a bad thing to have the long-delayed and now-inevitable recovery ruined by a head-long inflation resulting from policies wilfully put through over the bitter protests of the leading newspapers, nearly all the economists, practically all the recognized experts on money, all the responsible organizations of business men, and the ablest men in Congress in your own party. It would be an awful thing for you, and an awful thing for us Democrats, and above all an awful thing for the nation that entrusted to you more power than any other American has ever had. (Reprinted from the New York Herald Tribune, June 23, 1935) 11