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January 5, 1934.

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Professor G.F. WarrenCornell UniversityI thaca, lew Yoxk.này đear in reli

I was delighted to read the resident budget bessage this morening. It is splendid that, unlike any others in similar circunstances,he has xefused to nibble at the chexzy but has taken a substential bite.There was much cotxoversy in Austalia   on the question o* Public workeexpenditures, but it was soon realized that a fairls ambitious programWEB neccessary. This helped to maintain an ubalanced budget for thetime beeine but it laid the foundations for a balanced budget in the courIse of two years. We built up a floating dept c# over four hundzed mixlion dollars for our enexgency expenditures and this wonld be compan:rable to one of eight billion dollag in he Ueld States. When westate the problema li Cuch relative teres se find that the figures forthe United States   do not appear so astronomical as many finacial exi-tics suppose.

I have always held the view that cuok cuergency expendittre ona substantiu soale was essential, to recovery. Apart from the directstimulus to employment, there are other indirect and even more substan=tial benefits:first. To the extent to which the program is financed from the expan=sion ol Central Bank   Credit, there will be an increase of funds on themoney market and a fell in the rate of inrerest. This is contrary toRecepted economie- doutrine, but t is direct eeping with our overexperience 10 Australia   and with the experience of Great Britain  .Second: The expenditure itsell promotes sweater activity in Industryand an increase in national income. As recovery proceeds in this way,governtent- revande autonatically increases and soon 18 able to supportthe interest and the Amortization charge or the dept. properly handled,suoh energency expenditure is in fact self- liquidating as the crisispasses.

There is further ease to the banking system on account of theIncreased cash resources of the banks and the prospects of more profi-table investment of surplus bank funds.

If the bond market weakend through temporary fears of the in-vestors, the situation can easily be handled by the sizplo expedient ofselling skoter- seemiliss to the Central Benk, in your case, theFederal keserve Banks. This is correctly called innetionary finance,but it is the very na ture of financial polloy in a crisis to report,if necessary, to soue unorthodox methods. The bond market will Icovexas soon as the benificial eftects of government expenditure are observabıin industry and goverment revenue. in the so circuastances, I soe noreason to take alarm because the bond perket is unfavorable to govemment borrowing. The governuent cen correot this ky proceedings courage:ously with its policy and increasing contral bank credit through thesale of short term securities to the Central Banking System. The expan=