Rock Island Argus. (Rock Island, Ill.) 1893-1920, 1914-11-20
Federal Reserve System Put End Money
Panics and Give United States Most Elastic
Currency in History

such a tremendous advance in bust
ness that we have outgrown IL, and
| IL has proved inadequate to meet the
needs of today.
II is hardly to be expected that the
vast and complex business of the goth
century can be handled properly with
a credit organization created about the
middle OF the 18th century. The old
system performed its functions well
under normal conditions of trade and
commerce, but it broke down when
any unusual demand was made upon
/ it. entailing incalculable losses to the
! people.
Defects of Old System.
| After long and patient study and
vast amount of discussion and debate
there eventually came a general agree
ment that the old system contained
three fundamental defects: % Lack
OF elasticity in the currency supply.
/ (2) Lack of effective cooperation
among the $4,000 banks, and 90 Rigid
and obsolete laws regarding bank re
serves. with no practical method of
replenishng those reserves in time of
need.
moving time a considerable increase
in the volume of currency and credit
is required. The annual production
on the farms exceeds nine billion dol
lars, and a large percentage of this
is marketed within few months.
Every fall we saw a tightness in the
money market. because there was no
way under the old system to provide
for this expansion.
The banking power of the United
States is equal TO the combined bank
ing power of Great Britain, France
and Germany. and yet because of the
lack of any machinery for effective
cooperation among our $4,000 banks
we found ourselves helpless in the face
of stringency or panic. United they
would be able to master any emer-
gency; divided into scattered units
they were unable to cope effectively
with periods of distrust and depres-
sion.
Law Affects Everybody.
While the average citizen nay think
he is not interested in the question
Of the law relating to bank reserves,
as a matter of fact that phase of our
monetary system is of the most vital
importance to him. The old reserve
law proved in times of stress to be a
panic breeder The law required each
bank to hold a certain percentage of
reserve in lawful money in its vaults,
thus scattering these reserves among
$4,000 widely separated banks. with
no provision whereby they could be
modified.
When signs of trouble appeared.
each bank struggled to amass the cash
reserve necessary for its individual
protection; each bank thus became a
competitor of every other bank in an
effort to secure enough cash to wealth T,
er the storm. The law prohibited
bank from using fits reserve in time !
of stress. and there was no way to :
strengthen or replenish these reserves /
except by requiring borrowers to pay
up when their notes fell due.
In the European countries. when an |
arises. the banks increase !
their loans and at the same time pay |
out their reserves, thus avoiding pan
ics. Here, the operation of the cid /
law might. and sometimes did. cause /
matters to 20 from bad to worse.
Reason fer Federal Reserve.
II was TO correct these defects that
the federal reserve system was Great
ed. This system does not differ great
ly in principle from that of the most
nations of Europe. They
have a central bank with branches;
we will have u regional banks under
one central control.