20 DECEMBER 1963, Page 12


SIR,—No 'matter how often or how rigorously the Keynesian economic theories (such as the 'purchas- ing power' doctrine) are proven false by economists, and by history, there are always those who, like Nicholas Davenport, will continue espousing the panaceas set forth in The General Theory.

In Mr. Davenport's drama (November 8) the gold standard is the villain, the working class the victim, and public works (or the printing press) the hero, It is sad but probably true, judging by what is being taught in most schools, even in America, that the from-gold-to-poverty-to-paper theory is generally accepted as valid.

First, the. Government undermines 'the gold stan- dard by manipulating and expanding bank credit so that sound liquidity is impaired, public confidence shaken, and cheap money made plentiful. (There appeared in England from June, 1919, to June, 1920, an expansion in 'bills discounted' and 'advances' of 41 per cent. In America the Federal Reserve Board induced an expansion of $11+ billion of bank credit, 1922-27, which could not possibly be put to pro- ductive use by industry. When the secret Conference of Governors convened at the call of the Bank of England in 1927, a cheap money policy was stressed and adopted.) This credit expansion and undermin- ing of the gold standard was purposely instigated to bring about 'prosperity.'

Secondly, since human nature places more trust' in gold than in bureaucratic fiats, and after seeing Austria and Germany collapse financially, holders of sterling wanted to make sure that sterling was 'as good as gold'—and the 'run' on England began, July 13, 1931. Why at this time the Bank of England refrained from raising its rates well above the 41 per cent mark (the final rate when the gold standard was abandoned) and thus stopping the gold out- flow, I will never know. With a high Bank rate and the $400 million loaned England by the US and France in August of that year, keeping the standard and a return to sound money would have been pos- sible. (This idea is being tried now M the US and is showing favourable results, despite the adverse effects caused by the generally accepted Keynesian philosophy prevalent in our government.) Anyway. the gold standard became the scapegoat and a 'new' solution adopted.

What was the 'new economics"? To complete the triangle the governMents told the people that



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'demand' had to be 'created.' How was this to be done? You guessed it: there followed a mad, dash to the printing press and a general renewal of credit expansion. There was money everywhere—between July and December of 1931, the increase in money in circulation in the States totalled $810 million— and the rich became poor and the 'poor poorer.'

Did the abandonment of the gold standard help British economy? I would like Mr. Davenport to

check the wholesale prices, both of food and indus- 'Sir, you're a fellow!' trial products in 1931 and 1932, and also the volume of production of goods in Britain, and see for him- self. Then perhaps his bleeding heart will pine once more for the 'working class,' reduced to misery as `Capitalism . . . produced an appalling economic and social mess.. .

No one advocated .Keynesian economics with more apostolic reverence than the late FDR in the US. Did he get us 'out' of the Depression? Let us :ompare Mr. Roosevelt's record to the year 1921, year of deep depression when the unemployed made up 11.5 per cent of the labour force. In 1932 the unemployed formed 24.9 per cent of the labour force; in 1933, 25.1 per cent: the lowest figure between 193239 was 12 per cent in 1937; in 1938 it jumped to 18.8 per cent.

Try as he did, Mr. Roosevelt just couldn't 'create dem incl: The 'public works' theory, the building of 'halt a dozen new towns,' is as old as the pyramids; unfortunately it has nothing to do with the creation

of wealth. THADDEUS W. KOPCZYNSKI 2020th Communications Squadron, Shaw AFB, • South Carolina, USA