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Memorandum on In fla tio n Indefensible expansion of cre d it is monetary in fla tion * Defensible expansion o f c r e d i t is not in fla tio n , although i t may injure cred itors or the owners of bonds, c e r t ific a te s o f debt, bank d e p o sits, insurance p o lic ie s , or those receivin g fix e d sa la rie s and wages* Expanding cre d it on national defense does not Ju stify the payment o f in terest on the c re d its so expanded fo r national defense, as Abraham Lincoln Justly held. Congress having exclusive righ t to create the cred its (money) required should do so through the Federal Reserve banks, which should be taken over by the Government and made a public in s titu tio n and the medium through which t o regulate the value o f money by regulating i t s volume as fa r as humanly p o ssib le . Fixing p rices is a temporary expedient, usefu l in pre venting the greater co st o f national defense* This expedient in Europe has been follow ed by s ca rc ity in the products s o ld , by the lowering of the qu ality o f commodities, and by the black market system which means a lowering of public morale and general disobedience to, the law or rule fix in g p r ic e s . S ellin g the people bonds and stamps absorbs buying power and makes dormant that much o f ths expanded c r e d it, but i t puts in the hands of ths people cre d its con vertible in to cash on demand a fte r s ix ty days from purchase and lays the foundation fo r the future sudden expan sion o f c r e d it when human hopes an ticipate higher p rice s . Such money poured in to use w i l l then, o f course, create higher p rices and an unde sira b le c i r c l e upwards with the p ro b a b ility o f a reaction and depression follow ing* The question i s so important and involves so many considera tion s that i t seems to me i t should b# taken up in Congress and thoroughly discussed around the table where every angle can be considered and a sound formula worked out through which the con stitu tion a l duty o f Congress to create and regulate the value o f money shall be made e f f e c t iv e . An executive p o lic y lacks s t a b il it y , as o f f i c i a l s can be persuaded t o do things contrary to the public in terest unless restrained by a le g is la t iv e mandate incapable o f disobedience without re s p o n s ib ility to Congress* This weakness has been f u l l y demonstrated by experience in 1930, 1929-32, 1937. S ta b ility requires a dependable standard fix e d by law fo r guidance and t o establish public confidence. K. L. 0. A pril 15, 19U
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