The Washington herald., 1914-03-17
DANGER SCENTED
TO RESERVE ACT
New Currency System Would
Be Injured by Railroad
and Telephone Control.
ALL BONDS MIGHT FAIL
Government Ownership Perhaps Would
Result in Securities Going Below
Parrish Land Stock Case.


l. is asked If there will be two classes
II Federal reserve notes. one TOR the
,,irpose of making advances to Federal
,eserye banks and the other for circu-
ating notes based upon government
bonds as provided in both section 4 and
lection IS.
The issue Of Federal reserve notes un-
Ser these sections is similar 10 the issue
II national hank notes secured oY gov
.Fnment bonds. and this class Of Federal
reserve notes should rank with national
bank notes. These sections. in effect. eN-
lend the national bank act in its provt-
Eions for bond secured circulation. TO the
Federal reserve banks. But II prescribes
that the Federal banks shall not be lin
ted i'm their issue of bond-secured circu-
lation by the amount of their capital
stock.
This is of course necessary. as. after
two years the Federal board has the right
TO require the reserve banks to purchase
from the offerings of the national banks
q millions OF bonds per annum dnclud-
ing all their purchases) and they may
take out a like amount of circulation
against the bonds or may convert into
per cent bonds without circulation priv
Ilege.
Here again the wisdom of the Federal
reserve board will be put to the test 1t
has the authority If the bonds are offered
In retirement OF national bank circula-
tion to require the Federal hanks to take
up 25 millions of such bonds for twenty
years, or 500 millions in all. 4 20 per cent
shrinkage in the value of these bonds is
easily possible in time of war or national
stress and such a shrinkage might involve
the whole capital of the Federal reserve
banks.
0nRstinu.
II at the end of the twenty-five years
the Federal reserve banks are found
laden with 500 million per cent United
States bonds with the circulation privi-
Iege. there is the frightfuI possibility that
the value of such bonds. even with circu-
lation privilege. might he seriously
dragged down by Washington proposals
to issue two billion more. which would
ne the amount then required for the pur-
chase of the telephone interests of the
country.
II the Washington authorities had sue
ceedeG n stopping all railroad Construc-
ton during this twenty-five wears. halt
ing railroad credit and construction that
II might purchase the railroads a little
more cheaply. il would require ten bill
lions additional to purchase the railroads
at S3oOO0 per mile. and the lowest cash
value of their equipment and terminals
II may be argued that the railroads
could he purchased through their shares
at SeO.OOo per mile. or for five billions
But certainly If credit were easier at ,.
3. or even per cent government bonds
would issue to take Un the railroad in
debtedness as IT matured. And billions
more would follow for the delayed inn
provements and extensions.
Certainly within a generation twenty
billions Of bonds. if they could he sold.
would be outstanding for the acquisition
of telephones teleEraphs and railroads
If it were once determined that the gov
ernment should own all these and meet
the necessary ito say nothing of the pop
ulsD demands for improvements and ex-
tensions.
Investors Would Run.
Il may be he answered that investors
forced out of railroad shares and bonds
would he Obliged To buy government
bonds on > to per cent basis Invcs-
tors would do nothing of the kind. They
would purchase industrial bonds. seCuri-
tics Of mercantile and trading companies.
or loan their money abroad at hetter
rates Of interest. The Federal reserve
act. with its foreign branch extensions.
and tine now tariff placing our prices
more ON parity with thos" of the outs
side world would both aid in the export
Of money to other countries.
The whole world has tried for many
centuries to enslavc the money of tho in
dividual and direct its work and return.
II has failed absolutely: indeed has never
had show Of success. The Who'll" world
could heat. imprison or cruelty the Jew.
hut since he invented the hill Of exchange
he has been able 10 laugh at all his op-
pressOrs.
How is it said bright Virginia girl
one evening at a London dinner table.
addressing herself pertly to a South At
rican gold king. that you Jews go to
South Africa and bring back the dia-
monds and the gold and yet You never
seem to work.
With benign cOuntenance the South
African millionaire smiled upon her and
replied: We don't drink. We trade and
therefore We don't have to work: you
English work and drink and then work
some more"
And this little lady thus had her lesson
in both temperance and finance.
Destroying American Credit.
1t behooves the Washington authorities
IL they would insure the success of the
Federal reserve act to put a strong hand
over the mouths of the yaps who would