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48
money supply, often called "loose
money," also fueled renewed price
increases, according to the theories
of "monetarists" such as Chicago's
Milton Friedman.
The amount of money "created" by
the Federal Reserved Bank system in
the first half of 1971 grew by an
annual rate of 12.3% "which is in the
lOOth percentile of all six-month
periods since World War Il" accord–
ing to the Federal Reserve Bank of St.
Ambossodor
College
Photo
Louis. "Money supply" means cash
and checking accounts. Meanwhile,
"time deposits" ( savings accounts)
grew at a similarly high rate of
13.6% . Each money category stood at
about $225
biilion
in
mid-1971, ora
combined total of
4
5 times the gold
supply which theoretically backs the
dollar.
Average costs have risen 22 per–
cent since 1967, and double that
amount in such oft-used services as
medica! cace, repair and main–
tenance, homeowning, and insurance
rates.
To slow clown this wage¡rice
spiral, President Nixon acte to
"freeze" all wages and prices for 90
days, and perhaps longer. Economist
Milton Friedman noted that such ac–
tion was "cosmetic," that is, treating
the effects and not the cause ( the
cause being increased money supply
and inflationary wage contracts) . But
the "freeze" will no doubt help
much in reducing prices sig–
nificantly, if sorne form of "wage–
price review board" is established
after the 90 days and if the Ameri–
can people lend their voluntary sup–
port to these controls.
The
PLAIN TRUTH
111. The lnternational Front
Until August 15, 1971, every
major world currency, except the dol–
lar, had been devalued at least once
since 1945. That is one indication of
how strong the dollar actually was
during the postwar recoostruction
era. Most of those devaluations carne
during the late 1940's.
Subsequently, a relatively peaceful
twenty years of monetary equilibrium
(1948 to 1967) was jolted by no
less than ten monetary crisis events
in
the ÍOllr years since 1967. These
crises began with the British deval–
uation in 1967 and continued
through the depreciation of the dol–
lar in 1971.
Each revaluation, devaluation, and
float was accompanied by surges of
speculative "hot" money flooding in
and out of foreign central banks.
The last three of these ten "crises"
have been attacks on the overvalued
dollar. Such speculation was only an
effect of the problem, while a
severely weak dollar was the ultimate
cause of such billion-dollar "betting"
in foreign capitals.
Last May, the German mark and
Dutcb guilder were set "afioat,"
mainly due to the relative weakness
of the dallar. During the three days
before the mark floated, the German
government had to buy a bíllion dol–
lars per
day,
just to keep the mark at
its official parity (3.66 to the dol–
lar) . Such purchases gave Germany
more foreign reserves (gold, dollars,
SDR's, and foreígn cucrency) than
any other nation including the U.
S.
This August, the same speculation
occurred with the Japanese yen
primaríly, and European currencies
as well. The Japanese government
had to buy up about $3 billion dol–
lars in one week just to keep the yen
at its old parity of 360 yen to the
dollar. Such emergency measures
couldn't last, so the yen was set
afloat on August 27.
The President's actions on the
international front included a 10
percent surcharge on most imports
entering the U. S., coupled with a
downward " float" of the dollar in
foreign maney markets. Technkally,
this
was
not
a
devaluation, since the
international prke of gold remained
at $35 per ounce. A devaluation, by
definition, means an appreciation of
the price of gold in terms of the
dollar.
For a more complete backg round
on the third arena - the inter–
national front - be sure to read the
accompanying article on "The Dollar
Crisis."
OctOber 1971
The quickest - but not necessarily
the best - way to solve America's bal–
ance of payments deticit is to bring her
troops home, and to curtail foreign aid.
America could pull back f rom not only
Vietnam, but other troop commitments
around the world - which are some–
what superfluous in an age of nuclear
overkill. America could develop a real–
istic
labor
policy, to halt excessive wage
increases, and at the same
time
increase
mean ingful productive growth so that
labor rightfully can
earn
more money to
live better.
On the other hand, Americans could
violate the wage-price freeze. Americans
could continue demanding more money
for less work. Americans could revert to
isolationist "buy American" restric–
tionist actions to cure the
effect
(im–
ports) rather than the
cause
(mis–
management, excessive labor demands,
and an inflationary standard of living).
The choice is before us.
An bour of automaking labor costs
$7 in the U.
S.,
$3.50 in Germany, and
$1.35 in Japan. The U. S. is still com–
petitive in sorne fields mainly because of
technological superiority, bigger and
better machines, far-sighted manage–
ment, and, until about 3 years aga, pro–
ductive labor. Since then, however, the
world has caught up in technalogy and
macbinery. Meanwhile, U. S. wage rates
have been more than twice that of pro–
ductivity increases. The wage-price
freeze should increase productivity per
wage temporarily, but the chronic dis–
ease is still there.
The problem is not all in labor,
though. It is hard for the assembly line
worker with six children to believe that
bis $8,000 per year is enough to live on
for such distasteful work, while execu–
tives may make 5 to 50 times as much
for what the laborer sees as papex:–
shuffiing and martini-hopping. After
all, in an assembly line, "productivity"
is more in the hands of the foreman,
the standards-maker, than the worker
who has a quota of work he is not
permitted to exceed.
America's Choice
With such diverse causes and effects
working together, what one thing can
most Americans
do
to salve their econa–
mic
ills?