Three Notches Open

President Roosevelt put his hand on the throttle of inflation last week, jerked it open one notch, another, then a third. Amid a great chuffing of headlines his money program began to roll slowly forward.

Notch No. 1. On White House orders the Federal Reserve went back into the open market as a purchaser of U. S. securities. Its first week's buying totaled $25,114,000 which brought its portfolio of "governments" up to $1,861,712,000. The Reserve system became the largest single holder of Treasury obligations last year when it bought nearly a billion dollars worth at an average of $100,000,000 per week in an effort to expand commercial credit. Its heavy buying ceased in August when its easy money policy failed to make headway against deflation. Under the new inflation law the system may buy up to $3,000,000,000 more of "governments." Last week's small start, Secretary of the Treasury Woodin explained, was simply "to inject life into the market."

The open market program, however, did not get away to a perfect start. Federal Reserve credit, instead of rising in line with the new purchases, showed a net decline for the week of $35,000,000. This was due to a drop in member-bank borrowings and a decrease in bill purchases.

As a policy booster, President Roosevelt instructed the trustees of the Postal Savings Bank to buy $100,000.000 worth of U. S. bonds.

Notch No. 2. Because his Secretary of the Treasury is an industrialist and his Undersecretary, his Governor of the Federal Reserve Board and his Comptroller of the Currency are lawyers, President Roosevelt has long felt the lack of a first-rate banking brain to steer him through the technicalities of a managed currency. Last week he secured such a pilot in the person of Oliver Mitchell Wentworth

Sprague, who was appointed executive assistant to Secretary Woodin. To become financial adviser to the U. S. Government Dr. Sprague gave up a much better paying position as economic adviser to the Bank of England.

Born in Somerville, Mass. 60 years ago (Secretary Woodin called him "a real true American") Dr. Sprague "loafed egregiously" (his phrase) during his first two years at Harvard, then specialized in political science and was graduated in 1894 summa cum laude. He traveled in Europe, taught economics at the Imperial University at Tokyo, became in 1908 an original faculty member of the Harvard Business School. His extemporaneous lectures on finance and banking were so good that at least one pupil reproduced them and sold them at a profit to outside businessmen. Abnormally nearsighted, Professor Sprague could not identify even his front-row students through his thick glasses. In April 1930, the Bank of England lured him from Harvard. When Britain went off gold, Expert Sprague helped run its Equalization Fund whereby the pound was kept at a 30% depreciation through foreign exchange purchases and sales.

A quiet scholarly man with international prestige Dr. Sprague contrasts with President Roosevelt's young "Brain Trust." He presumably knows the practical magic for managing the dollar, knows how and when to "control" currency inflation. If the U. S. creates an Equalization Fund, Dr. Sprague will doubtless manipulate it. Said he on taking office: "It is impossible to stabilize currencies tomorrow or next week. They cannot be stabilized until economic conditions are stabilized. We are working toward that end."

Notch No. 3. To make the law about gold jibe with the facts about gold, President Roosevelt sent to Congress legislation to outlaw the gold payment clause in all public and private debt contracts, past and future. Since March 6 the Treasury has withheld gold coin. Since April 19 the U. S. has been officially off the gold standard by executive order. Yet the law of the land still requires the Government to pay its old debts in gold on demand, to contract to do likewise with its new borrowings, but as no gold is available,sb the Government technically violates its own law by refusing to pay gold on its $22,000.000,000 "gold" debt. Likewise outstanding are State, municipal, railroad and corporation bonds which bring promises-to-pay-gold up to 100 billions. The President would cut this legal knot by having Congress declare the gold payment clause "against public policy," thereby nullifying it in old debts and barring it from new. Thus the President would be free to manage the paper dollar, irrespective of gold, as he chose and give it a sound standing in court as a debt payer.

When the Administration's measure reached the Capitol, Alabama's Steagall, smalltown chairman of the House Banking & Currency Committee, ignorantly proclaimed: "This repeals the gold standard act. Its passage will mark the greatest advance in the interest of the people ever taken. It is a declaration of economic independence. It will restore prosperity." But Representative Steagall, in his excited enthusiasm for "soft money," was mistaken. Untouched by the President's bill was the Act of March 14, 1900 which fixes the dollar at "25.8 grains of gold nine-tenths fine." Under his new currency powers the President was already free to flex that ratio 50% and thus devaluate the dollar. When Representative Steagall realized his bad blunder--a blunder that helped churn the stockmarket to new heights--he ducked behind the familiar excuse that he had been misquoted.

"Hard money" irreconcilables promptly flayed the President's measure as repudiation by the Government of a contract from which it had already benefited in the form of easy sales of its securities. Cried Pennsylvania's Senator Reed: "This is terrible--a blow to American good faith which will be felt for 100 years!" Growled Virginia's Senator Glass: "The proposal is unconstitutional and the courts will so hold if there is any integrity left in them in regard to the sanctity of contracts."

sbLast week the Federal Reserve was "hoarding" $3,499,234,000 worth of gold, a high record on the President's order against its public use.

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