Unorthodox Economics
GRAHAM, BENJAMIN
Unorthodox Economics The Dollar. By Roy Harrod. Harcourt Brace. 156 pp. $3.50. Reviewed by Benjamin Graham UN financial consultant; author, "World Commodities and World Currency" In these...
...But here lurks another paradox...
...The first lecture traces its evolution as legally defined currency...
...An analysis of our economic development since 1900 suggests an inherent tendency for productivity to increase faster than the level of consumption...
...The alternative is "systems of pure paper money"—but earlier he mentions not unsympathetically the newer idea that currencies may be backed by and have stable value in terms of "a whole basketful of commodities...
...Most economists will agree with Harrod's thesis that the Federal Reserve did not, and probably could not, act effectively to Stem the Stock Market madness of the late 1920s because its terms of reference held it to observe primarily the course of industry and trade...
...There is an implication that, otherwise, gold itself might fall into disuse, as happened to silver under like conditions...
...America's 16:1 ratio, adopted in 1834, undervalued silver, which therefore failed to circulate because it was worth more abroad than here...
...The first, already noted, is that the price of gold should be raised substantially...
...Thus, our excessively low price for silver in 1834 led indirectly to its far lower price in 1900...
...In 1933, the price of gold was raised as an antidote to the collapse in the commodity level...
...This in turn calls for more rather than less discrimination by Europe against American merchandise...
...This divergence was largely offset by the shortening of the work-week...
...In defense of his position, he points out that our experience since 1939 has been too closely tied in with war-induced demands to demonstrate that the mature-economy thesis is wrong...
...now it is proposed to raise gold again because commodities have advanced...
...But the chief interest for many of us will lie not so much in his facts as in his comments and opinions...
...author, "World Commodities and World Currency" In these four lectures delivered in England, Professor Harrod considers the dollar under three aspects...
...The business boom, as distinct from the Stock Market boom, had not gone far enough in 1928-1929 to warrant general tightening of credit...
...the second deals with it as the basis of our banking system: the last two bring it into the wider sphere of international trade and international cooperation...
...Harrod unhesitatingly advises this controversial course as the necessary prior condition to the general convertibility and world currency which are so close to his heart...
...The latter approach is now before the United Nations as a possible means of stabilizing the price level of primary raw materials...
...There is another possibility, however, which neither Harrod nor most other economists have considered...
...Harrod's regret at the passing of silver stems from his belief that convertible currencies are good for the world, and that silver and gold combined would supply a firmer base for money than gold alone...
...His account of how it happened is somewhat paradoxical...
...Harrod deplores the passing of bimetallism in the 1870s, after persisting for some 500 years...
...However, failing a rise in the price paid by America for gold from abroad, Harrod insists that the future balance of payments will have to be achieved by curtailment of dollar exports...
...But this somewhat inadvertent step, Harrod implies, led later to the dropping of bimetallism by the Latin Union, and then (in 1893) to India's abandonment of the silver standard...
...If gold alone is to do the job, we need much more of it—so he boldly suggests that its dollar price should be doubled...
...But the uncompensated portion produced substantial unemployment even in a year of overall prosperity like 1941...
...The lecture on the Federal Reserve System dwells largely on its role in the 1929-1932 debacle...
...When Congress in 1873 legislated the return to convertibility into gold, it failed to provide for silver coinage—presumably on the ground that silver dollars were unimportant, since they had not circulated in 82 years...
...This would be a simple and, he believes, an equitable way of closing the dollar gap and giving other nations more purchasing power, since an ounce of South African or Australian gold would then pay for twice as much in American exports...
...Then came the Civil War and inconvertible greenbacks...
...As to the broader reasons for the Great Depression, Harrod reaffirms his adherence to Keynes's stagnation hypothesis—in spite of its status here as economic heresy...
...On the international front, Harrod breaks a lance for two concepts which are quite unpopular in Washington...
...However familiar he may be with our financial history, the American reader is certain to find some of Harrod's factual material rather novel...
...The quiet Oxford don has definite views, and some are quite unorthodox...
Vol. 37 • July 1954 • No. 28
