University of Virginia Library

Economists Claim Government
Should Allow Dollar To Float

By SAM BARNES

Two University economists
predict both good and bad
results from President Richard
M. Nixon's devaluation of the
dollar, but agree that a
fluctuating value based on the
prices of foreign and domestic
goods would be a far better
answer to the balance of
payments deficit.

Both Profs. William P.
Culbertson Jr. and Warren L.
Coats Jr. see a "floating"
exchange rate as the best
solution to the U.S Deficit
crisis.

"This devaluation is the
second in 14 months," Mr.
Culbertson said.

"Instead of trying to
repeatedly guess at the market
value of a dollar, the
administration should simply
allow the dollar to float and let
the market do in a precise way
what the clumsy devise of
periodic devaluation can do
only haphazardly," he said.

Right Direction

The devaluation is a least a
half step in the right direction,
though, Mr. Culbertson added.

"The most encouraging
aspect of the devaluation is the
signal that the current
administration is willing to
promptly undertake unilateral
action when exchange rates are
out of line," he said.

"The most discouraging
feature, however, is that the
administrative officials are
unwilling to follow the
argument for devaluation to its
logical conclusion," which
should be the "floating dollar,"
he said.

Mr. Coats said the general
reaction to the devaluation is
that it is "neither good nor bad
but simply necessary."

The devaluation is designed
to "try to bring the values of

goods in line so that we're
trading equal amounts of goods
with foreign countries," Mr.
Coats explained.

"If the balance gets out of
line we end up buying more
goods from foreign countries
than we are selling to the
they are stuck with a surplus of
dollars," he said.

The ten per cent cut in the
dollar's value will cause a ten
per cent rise in the prices of
imports intended to reduce the
balance of payments, according
to Mr. Coats.

This move is "okay if it
brings the balance of payments
back into line," he said.

Mr. Coats said that he could
not agree, however, with Mr.
Nixon's request for higher
tariffs on imports.

'No Tariffs On Imports'

"It disturbs me that the
president has asked for
additional trade legislation," he
said. "It is both unnecessary
and undesirable. I would
personally like to see no tariffs
on imports."

Besides being harmful to
the consumer, by cutting down
on marketing competition, Mr.
Coats said that import tariffs
provide for selected industries

to be sheltered "by
governmental control."

"There may also be
pressure from industries to levy
tariffs on certain goods, and
when an industry has
something to gain from the
government, there is a strong
chance for corruption," he
added.