The sun. [volume] (New York [N.Y.]) 1833-1916, 1916-03-30
swelling . Redundant Currency.

Swelling . Redundant Currency.
Why are the Federal Reserve banks
putting out circulating notes like the
national bank notes and like them
secured by Government bonds?
This question. which we ask for
the third time. Is not answered by
the communications which The Sun
has received from the Treasury De-
partment and elsewhere. nor by the
unilluminating comments of our
neighbor the World. Such response
as our inquiry has SO far evoked has
dealt with the figures of the Gun
try's huge supply OF currency and
their significance. 1t misses or avoids
the point of our Interrogation.
The currency figures were adduced
In discussion Of the original question,
but rather to shape the inquiry rs
bearing on the future than tn debate
the immediate portents of imitation.
The facts about currency conditions
are that the circulating medium Of
gold. silver and paper in the United
States rose from S34.55 on March I.
1915. to S3S.54 on March I, 1916. and
that this was the largest gain for
any year In the past century except
the increase from S1O.23 In 1862 to
S11.S4 In 1863. The situation is re-
deemed somewhat by the prevailing
gold character of the recent increase.
but when there Is an abnormal cur-
rency Of gold the excess urges n con-
traction OF paper money.
Nor does II make much difference
whether the existing situation Is de-
scribed in terms of imitation. We
shall agree to speak Of the currency
ms merely in n state Of plethoric re-
%dundancv. but the question still re-
mains: Why are the Federal Reserve
banks apparently operating to agra
vatc this condition by paper money
increases?
Through the Kansas City Reserve
Bank, the nearest tn the centre of the
cheap money deluSion with which pol
itics has been afflicted for decades,
the reserve bankin: system has dur
Ing the month Of March been adding
It's own bond secured currency to the
other varieties and to the total of the
monetary circulating medium. All the
circumstances of the money market.
of financial conditions generally. and
especially of the stock of currency.
call for II contraction of paper money.
1t will not be disputed that the re-
serve banking system was established
10 facilitate currency contraction
when such contraction was desirable
but 1t Is not working that way.
More than that. the reserve banks
are apparently planning through the
Owen bill. recently introduced into
the Senate to amend the Federal Re.
serve act. for n larger freedom of or.
| binary reserve note issue in the fu-
ture. The Owen bill, which purports
tn represent the ideas of the Federal
Reserve Board. provides, among other
things. for changes in the restrictions
placed on ordinary reserve note issues
that will conduce TO easier note O.
panslon. Yet nothing Is more certain
than that advantage will bc taken of
opportunities for expansion of note
issues when liberal facilities are nf-
fordcd. and that the result will hc
nm Increased difficulty of contraction
when the currency Is redundant.
1t is not THE suns present pur-
| pose 10 start controversy on the do,
gree or danger Of financial initiation
which may now be detected, but IL
direct attention To the processes con.
trlbutory to the further imitation of
n money supply already abnormal to
which the Federal Reserve system
seems to be lending Itself. Whether
the reserve bank organization is nm
engine Of imitation depends in the last
analysis on what It does.