ARGUMENTS IN THE NEGATIVE 2° 
mportant currencies of the world—are not the least important of the available in- 
lications of a strained position in international finance. * * * 
“This world-wide financial crisis has been heralded by the customary fall in the 
price of a number of sensitive key commodities in which a speculative market exists. 
Among these might be mentioned the substantial falls that have taken place in the 
prices of tin and copper, of sugar, wheat, rice, and rubber. There is about the present 
position every appearance of a major deflation crisis, and if ‘natural forces’ are allowed 
free play we may rest assured that the cycle will pursue its course and will lead to 
a further general fall in commodity prices and to a restriction in commercial and 
industrial activity. It is, therefore, high time that the purely financial or monetary 
factors which played their part in giving the downward phase of the economic cycle 
its initial impetus should be reversed. Once the forces of deflation have been set in 
motion they gather momentum by the psychological reactions which they themselves 
create. If the policy of stabilizing business conditions and credit is to be maintained, 
it cannot be too soon for money rates throughout the world to adjust themselves to 
an appreciably lower level than has obtained in recent months. The lead in this 
movement should, of course, be taken by the U. S. A., and the Federal Reserve Bank 
of New York this week signalized the new trend in its policy by lowering its buy 
ing rate for bills in the open market * * * and by reducing the official redis 
tount rate. * * # 
The same financial review, in commenting upon the action of the Bank of 
England in raising its rate for rediscounts in September, 1929—a course which was 
criticized in many quarters in England because of the business depression already exist- 
ng—expressed its views as to events in earlier months, saying: 
“The Bank of England, however, appeared to look farther than its critics. It 
saw that America was not “playing the game” demanded by the normal functioning of 
the international gold standard. In their attack upon the supposed evils of stock 
speculation, the Federal Reserve authorities were creating artificially stringent credit 
conditions in the United States, and were effectively sterilizing any gold that was ar 
riving in that country. Our own difficulties arose directly out of the abnormal con: 
ditions obtaining in the United States. * * = 
“The Bank rightly considered itself to be protecting the interests of Europe 
against those of the United States in resisting as long as was feasible the pressure on 
sterling exchange. *®* * * The most serious aspect of the high Bank rate, from the 
point of view of trade and industry as a whole, is that it strengthens the forces of 
:redit and price deflation which have been rampant throughout the gold standard world 
during the past ten years. The curtailment in purchasing power and the fall in prices 
iikely to follow the more restrictive credit policy must hamper business activity far 
more seriously than the relatively insignificant factor of the higher price paid for 
borrowed money. The circumstances which forced the Bank of England to impose 
virtually a panic rate when every index in the domestic situation calls for easier credit 
:onditions is a damning commentary on that intelligent cooperation between central 
banks which is supposed to be taking place and which should render the gold standard 
an effective and equitable basis of world values. The cooperation of this kind that has 
{Continued on page 27) 
Commodity Prices