The Mitchell capital. (Mitchell, Dakota [S.D.]) 1879-1918, 1916-12-14
THE GREAT EXPANSION OF
CREDIT.


least one legitimate cause for a high
er level of prices. This Is found in
the steady stream of gold shipments
to the United States. which have
continued almost without Interrupt
ton for about year and half. AS
a result, the amount of money in
this country has been increased from
approximately $3.50, 100000 to ap-
proximately $4.750, 100000. The
amount of gold is now $3.50, 0O0,-
900, an increase in gold of $500, O0O,-
900 in ten months.
Now an abundance of money means
that money is plentiful; and, as with
any other commodity, plentiful mon
ey means cheaper money. In other
words, an article of given value buys
more money than it did, and of
course it takes more money to buy
the same article.
According to the official returns
for all the banks OF the country, there
were, on June so, 1914 and June 80
1916, respectively, SSH and S7.32
of loans outstanding for every dol
lar of gold in the banks of the coun-
try. Thus it is apparent that, as a
general rule, an increase in the
amount OF gold means an expansion
in credits of about eight times the
amount of the gold increase.
Thus, when a bank receives an
additional $1,000,00O in gold, as a
deposit, it at once attempts to in
crease the volume Of its loans, in or
der that the money will be earning
something for the bank. National
hQ1ll.c lyao rs
cent of reserve on hand, and state
that these banks may legally put out
in loans from $3.50 to SS.33 for every
dollar of gold or other legal reserve
money which they have.
Naturally with so great an eXpan-
sion of gold and of credits, expendit-
ures are multiplied. Investments are
made more readily md purchases of
all kinds are made more literally.
This creates in turn constant and
steady demand for goods of all kinds
end q strong demand always means
higher prices.
One remedy, which should be APP
piled, is the reduction OF the circu-
lating medium. Congress can do this
by providing for the retirement of
all greenbacks, amounting to some
$3.50, 100000. II further contraction
is nossible, it ought to be made. 1t is
distinctly unhealthy financial con-
dition when the available credit of
the country exceeds legitimate OPP
portunities for the use of credit. 1t
also encourages all sorts of market
manipulation and piratical price
Jockeyfng. 1T is as certain as any
thing can be that, following the ciose
OF the war, the United States will be-
gin to lose its excess holdings of gold.
1t probably will be gradual, but none
the less certain and continuous. The
time to prepare to meet such drain
is right now, by taking every possible
measure to reduce the amount OF the
circulating medium.
Another phase of the financial
condition of the country is found in
the desire of banking interests to
stop the inflow of gold from the En-
tente belligerents by selling to them
on credit obtained through unsecured
loans to those countries, floated in
the United States. That would I'M
doubtedly be highly agreeable to
Great Britain and her allies. But,
for all except the first loan made to
them, security has been demanded.
Now the Entente is admittedly run
ming low on available securities for
collateral for such loans. That is why
the banking interests are proposing
the acceptance of Unsecured loans
from these powers. But it is doubtful
if they could be floated, after seeur-
ity had been asked for similar loans
and at time when the Entente is
loaded with more obligations than
ever before And in the recent warn
ing of the federal reserve board
against the Acceptance by banks of
any great amount of British and
French treasury notes, unsecured, is
found evidence that the government
would not look with much favor up
on the absorption by the banks OF
big loans, without collateral, to the
warning powers.
So it appears that there is nothing
for the United States to do but to
go right on taking the gold sent to
this country in payment for trade
balances. But that is all the more
reason why preparation should be
made to meet the inevitable period
when the war ends and this stream
of gold is stopped.
A-eeM
Nobody knows how many millions
j. Pierpont Morgan has made out of
the war, but all agree that the
amount is colossal and he makes it
all just because he is the son of his
father. That's the way financial
dynasty works out.
3-SNE
Potatoes are selling for less in
Berlin than in the United States. But
) Germany protects her people from
extortion by those who distribute
foodstuffs.
@-AeMg
To be sure the prosperity figures
of the United States are imposing.
But once more it is true that it is
Chiefly the rich who are growing
richer.
y L 4 II Is. 49,