January 24, 1935

“Old Bill” Suggests—

“When Jerry is drunk he feels too important to pay his debts,” a bartender described one of his customers, “and when he is sober he hasn’t any money.” A similar situation in the United States, when the average citizen was drunk with prosperity, has intensified economic fluctuations.

When credit expands, as in 1919-20 or 1928-29, people will not work except for high wages and would rather spend or speculate than save. When credit contracts, the picture changes. Then only sharp adjustment of prices, wages, rents, etc., could make a smaller total cover the same activities.

Curiously enough, it is saving rather than spending that will lead us out. When a surplus of capital seeks investment (there is a surplus now, but it is mostly seeking the tall timber) then credit expansion will begin a period of rising values.

There are many ways, all very costly, by which credit expansion can be stimulated. Some are now in use. The question is whether, after we have been treated to a drink of credits, we remember to pay our debts—or merely pave the way for another headache. OLD BILL.

(ROYAL F. MUNGER.)

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