The sun. [volume] (New York [N.Y.]) 1833-1916, 1914-11-14
RESERVE BANK DISCOUNTS.
An Examination OF some Peculiar Ideas
About the Varying Level OF Rates.

To THE EDITOR OF THE SuN--Sr: who
is supplying all the peculiar information
which has been emanatng from wash
ington lately on certain contemporary mat
tiers OF great financial interestY Ju6siBs
from the views which the Treasury De-
partnpnt has ventilated in the last year
or so, II might not be a bad guess that
somebody close to Secretary McAdoo Is
the source of inspiration.
However that may be, advices from
Washington have teemed with absurdities
relative to the problems which Secretary
McAdoo and Sir George Paish are sup
posed to have been discussing. ono new
scheme after another has been trotted out
as the probable product of an agreement
to be reached between these two dis
tinguished diplomats for the benefit OF the
financial universe. 1t has not at any time
been obvious that they could contrive an
effective arrangement OF any sort or that
IL was necessary for them to undertake
anything. but apart from this phase OF
their intercourse the projects which have
been mooted have been preposterous.
The point Is worth making because the
exhibition OF financial Stiffness at WASH
ington has Just taken new turn. II Is
impossible to believe that the Federal Re-
serve Board. which has shown so much
sagaclty In framing regulations for the
conduct OF the reserve banks, can In any
way have sanctioned the idea now pro-
pounded as to the relative level OF dis
count rates to be established in the differ
ent reserve districts. The chances are
1t is again the Treasury which Is poison
ing the wells OF popular knowledge.
We are told that it is a foregone con-
clusion that the reserve bank discount
rates will be generally lower for the
Southern districts than for the East and
the West The explanation Is vouch-
safed for this that money Is comparatively
easy In New York, Boston and the West.
while II is very tight in the cotton pro-
ducing States. II Is a reasonable pre-
sumption that reference to the West Is
meant to include only the Chicago dis
trlct Certainly the open money market
In the Northwest and tho far West is, as
always, on higher level than in the more
Eastern centres.
This is not the first time in the last
week or so that the same notion as to the
variation OF the discounts at the reserve
banks has been set forth In Washington
advices. The allusion to the distress
which the cotton situation Is causing the
South Is another indication that RESPONSE
bility for notion so ridiculous must be
fixed on the Treasury Department.
There is no doubt that reserve bank
discount rates may vary for different sec
tons OF the country. Uniformity was
considered while banking and currency
legislation was being deliberated in Con-
gress last year and rejected as unattain-
able. We may expect accordingly to see
fairly extensive range Of discount fig
ures from one end OF the land to the
other We have always seen the same
thing In the range OF Interest rates in the
open money market as distinguished from
the official money market which the dis
count facilities OF the reserve banks will
afford
In all probability the official discount
rates will parallel pretty closely the line
which would be made on a chart by the
open money market rates. Temporarily
the reserve bank discounts may rule even
lower than the average interest rate in
the different sections in order to accom-
modatc the transition of banking from the
old system TO the new. Eventually official
discounts Will tend TO rule above the open
market rate, and IL Is certain that in a
critical time like this tho reserve banks
Will not court the dangers OF undue credit
expansion by cheapening tho cost OF credit
below the terms which result from private
negotiations.
OF one thing We may be sure. This is
that In general the d!spa rity between re-
serve bank discount rates will not be OF
the kind asserted in the Washington des-
patches. To say that discounting will be
cheaper in the South than in the East is
sheer nonsense. This Is the same thing
as saying that money is to be dearer In
the lending centres than In the borrowing
centres. II the South needs funds as II
clearly does, there is only one way to
NN''''~N
mont OF higher rate OF interest than is
obtalnable elsewhere.
Not FOR a moment can IL be supposed
that the Federal Reserve Board has en-
couraged the foolish proposition I am ex-
aiming. II must be the Treasury De-
partment, which has given so many other
indications Of its inept conceptions OF the
nature Of business especially OF tho bank
ing business
To make lower discount rate in the
South, where money is wanted, than in the
North and East. from which the money
lust come, would involve an effort to force
money to move in "A direction counter 20
It's natural tendency. Water does not flow
up hill. although 1t can be pumped UP hill.
Some kind of pumping process would
have to be instituted to reverse the cur
rents OF money In accordance with any
scheme for giving the South tho benefit OF
lower discount rate than the Boston or
New York reserve district for example.
but II resort Is had to any pumping de-
vice the consequences TO the country's
system would be disastrous.
AS matter OF fact. II Is something
which simply cannot be done. and the
Federal Reserve Board has too much sense
to Try II. no matter what somebody in the
Treasury Department may think about It.