LETTERS TO THE EDITOR

Inflation, If and When?

Dear Sir:

May I request that in the May issue, you include comments from one of the faculty pertaining to inflation. Apparently some form of inflation is definitely on the way and one familiar with the working of inflation can no doubt offer worth-while suggestions to those not so well informed.

For instance, a shifting of some assets is probably advisable at this time. Certain classes of common stocks will be greatly benefited by inflation while others will not react to advantage. I believe one who thoroughly understands economics could in ageneral way point out interesting and worth-while steps to take in preparation for a period of inflation.

I am sure comments from a member of the faculty would be appreciated by many of the graduates, at this time.

12 North Seventh St.,Camden, N. J.March 26, 1935.

[At Mr. Myer's suggestion the editors requested a member of the department ofEconomics of the faculty to answer hisquestions. Prof. R. V. Leffler, whose courseson money and banking have long beenpopular "with Eccy majors, has kindly submitted the following brief outline in discussion of "Inflation in General." ED.]

Prof. Leffler's Reply

THERE IS NO single definition of inflation acceptable to all. For our purpose, inflation will be considered as any increase in the price level. During the period of drastic decline in prices from 1929 to 1933, a period of unprecedented depression, most citizens were hoping for business improvement and rising prices. But for the last two years many persons have become alarmed about the monetary policies of the government and have predicted inflation of a dangerous sort. Some forecasters have been disappointed although the price level has risen considerably from its low point. Others are saying now that only a little more time is required before terrible inflation will appear. The economist, how- ever, does not guarantee that inflation will come. He cannot predict the date of its arrival. He is inclined to think that any inflation will appear slowly and only become dangerous near the termination of the next period of prosperity. Finally, he can only indicate the factors which may lead to future inflation.

Generally, a period of prolonged depression and deflation is followed by recovery and inflation. This may be observed from past statistics of the business cycle. We may expect similar changes in the future. A wise citizen will plan for inflation as business improves. But it is doubtful if the business interest of the nation alone, or the Federal Government, or the banking system can bring business recovery and rising prices. They are interrelated and must cooperate. In a later control of inflation, the same cooperation will be necessary.

Considering money and credit factors, the price level may rise whenever the amount of exchange media increases and/or the velocity of circulation rises. Considering the influences on prices from the goods side, a greatly increased demand and/or higher costs of production will have a similar effect. An enormous increase in the supply of exchange media in the future is possible. As a result of devaluation, the U. S. Treasury has a large amount of gold profits which may be used to provide additional bank reserves. Further devaluation of the dollar is legally possible. Large silver purchases for reserve purposes also will increase the basis for bank credit expansion. New greenbacks up to $3,000,000,000 may be issued. Professor J. F. Ebersole (in Review of Economic Statistics, Feb. 15,1935) has calculated that these factors provide basis for monetary expansion up to 65 billions dollars. But they are only maximum potentialities.

As business recovery develops, the demand for bank credit will increase. Then the potential supply of credit will begin to be used. What credit expansion will appear? What will be the effect on the price level? How much will the velocity of circulation increase and contribute to inflation? The answers are mostly guesses. Ebersole calculates a total expansibility of 93 billions dollars on a recovery basis. He also estimates that combining recovery and non-recovery monetary factors the wholesale price level may rise to about three times the present level. These are estimates considering the monetary factors. But the goods factors are still to be added.

Will controls be applied to inflationary tendencies? The automatic control of a gold standard is gone. High tax rates likely will provide some restraint to business activity. .The Federal reserve banks can exercise only a limited amount of credit control. Individual banks have never cooperated in restraining unsound business expansion and inflation. The Federal treasury possesses much discretionary control. The key to credit control appears to be in the hands of the Treasury. But probably it will be psychologically, politically, and financially difficult for the governmental officials to restrain inflation. Indeed the fiscal needs of the government may even augment and accelerate inflation. In a new deal, however, more legislation and government planning may be attempted if inflation appears unattractive. But a fortuneteller could not predict the future of democracy let loose in a legislative circus.

Some inflation seems likely to appear in the next three to five years. As in the past, some people will benefit temporarily while others will be hurt. Farmers, merchants, manufacturers, real estate operators, and holders of industrial stocks hope for inflation. Public utilities, railroads, and salaried men oppose it. Some persons may prepare for it while others can do little or nothing. In general, we may think of spending and of buying tangibles, commodities, urban real estate, farm lands, and common stocks. Emphasize borrowing rather than lending. But in all cases use caution and good judgment. Whenever in doubt, hedging transactions will be wise. At all times, observe the signs of economic statistics and analyze them by the application of common-sense logic.

Slippery Terms

Dear Sir:

As a recent graduate of Dartmouth, and being reasonably well acquainted with the prevailing undergraduate opinion I wish to register a protest against the impression created by an article in the April ALUMNI MAGAZINE that the students of Dartmouth are conservative almost to a man. "Conservative" is a slippery term, and Mr. Lane has taken full advantage of that slipperiness when he speaks of preserving the "original values" of the country and in the next breath pledging support to an economic system which liberals and radicals alike believe is denying mankind the exercise of those original values liberty, equality, and freedom.

Everyone, including the Communists, has his own solution for the preservation of those values which are endangered by the present crisis. Surely you would not call a Communist, a Socialist, or a New Dealer a conservative. Whether he knows it or not, Mr. Lane has read into his conception of "liberty, equality, and freedom" a narrow interpretation of those ideals based on economic and political thinking of the eighteenth century.

Liberty, equality, and freedom, it seemto many of this generation, can be produced only by a reform or reconstruction of the present economic and political system. Through unemployment, monopoly, hyper-nationalism, insecurity, oppression of the freedom of speech and thought, and in numerous other ways, the present system endangers those values.

The "conservative" must make his choice between the values and the system which is denying those values. Mr. Lane clearly indicates that he has chosen the second alternative and rationalizes his choice by interpreting the "original value" in the eighteenth century contest. He has become impaled on the horns of the dilemma.

I hardly believe that the majority of Dartmouth under-graduates are content to assume a similar grotesque pose.

The Fletcher School of Law and Diplomacy,Medford, Massachusetts,April 15, 1935.

Better Seniors

Dear Sir:

I have just been reading with great interest, as I usually do, the latest number of the ALUMNI MAGAZINE, and I was especially impressed with the articles that were written by the seniors. It seems to me that they show a breadth of knowledge and good judgment in the ability to write, which is entirely beyond anything that could be found among the seniors of my day and generation.

April 15, 1935.

Psychological Request

Dear Sir:

I am writing to you at the suggestion of Professor Gordon W. Allport, now of Harvard but formerly professor of psychology at Dartmouth.

Professor Allport used, in one of his psychology courses, a questionnaire based on The Locomotive God, a psychological autobiography by the poet-scholar Professor William Ellery Leonard of the University of Wisconsin. As I am preparing a biography of Leonard, it would be very useful to me to know whether this class consideration of Mr. Leonard's neurosis as written of in his book aroused sufficient interest in the students to cause them to read his poetry and other work. It would also be interesting to me to know what kind of personality they decided Professor Leonard's to be. To this end I should like to communicate with any of Professor Allport's students who were in these particular classes. Could you, therefore, make my quest known to them through your alumni notes? I should be very grateful to you.

7 Park Avenue,New York, N. Y.

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