New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1916-11-02
Wednesday, November I, 1916

The financial mechanism is run
ming wild. Control of credit has
been taken out Of the hands of bank
ers and left to the imagination.
"The money market" says the Ma
tional City Bank, sis controlled by
the importations Of gold, and no ma
terial change in rates is to be ex-
pected while they continue on the
present scale" That is to say, our
money market is dominated by our
war customers, who introduce the
gold into our bank system, where 1t
becomes a legal reserve against
credit expansion. Since the first Of
the year receipts of foreign gold
have amounted TO S4S3,500,000.
But that is not all. Under the
Federal Reserve bank act the
amount of reserve legally required
to be held by the banks was re-
duced, SO that the amount Of credit
that could be loaned against q dollar
of gold money was increased. Thus,
two influences have been operating
together to increase the supply OF
credit and make it cheap to borrow
ers. One has been the increase of
gold by importations from abroad,
over which there is no control, and
the other has been the power of
credit expansion contained in the
Federal Reserve Bank System.
John Shelton Williams, Controller
of the Currency, who thinks credit
at the bank is the largest single
source of human contentment, says:
"The banks and trust companies are
now lending to the people $3,243, OOO,-
600 more money than they were
/ lending three years ago before the
/ inauguration Of the new currency
system"
A correspondent who shares Mr..
Williams's ecstasy over the prosper
ity of high prices, rebukes us for
lack of faith, in these words:
Credit is commodity and the
greater the supply thereof must be
the better, as in the case of any
commodity.
Such is the belief of great many
people. And it will be unfortunately
believed that the National City Bank
is thinking only of its dividends
when it says:
The country is doing business at
this time undor conditions 1chich,
superfciaHy considered, are cotcu-
+ lated to encourage people to 90 into
debt.
Money! is easy aud interest rates
arc lov, while the profits Of bust
ness arc unusually large.
There is temptation TO borroW
money to b1,y the stocks of COM
pnnies that are making phenomenal
earnings, and to enlarge industries
which are making such earnings.
There is a demand for goods
which scarcely stops at price, and
1cith money easy and cheap there
is i,,dlcenent TO increase the out
plt, but every attempt to do so
means further demand for labor
and materials, and thus tends TO
mt our entire industrial system on
higher leUcl Of costs.
Similarly, the high prices for
farm products i0iI naturally en-
courage farmers to borro,C money
to buy more land.
That is what happens when it is
easy to borrow. People go into debt
They speculate. They lose the in
stinct for values. They forget to
bargain. They do with credit as it
is human TO do with any commodity
that is overabundant-they waste 1t.
There is only one cure in time, and
that is to make credit dearer. That
means to raise the rate of interest.
The patient will resist. Bankers
alone cannot control the rate of in
terest, TO put 1t up, and if the Fed
eral Bank Board should undertake
to cooperate in any such heinous
performance people would believe
that the means to prosperity and