New-York tribune., 1918-01-23
War Economies
Urged by Federal
Reserve Board
Annual Report Shows Part
People Can Play in Pre-
venting Price Initiation

WASHINGTON. Jan. 22.-Effect Of
credit expansion on the general rise
Of prices and the part the American
people can play in counteracting in
flation by wartime economies were en-
phasized to-day by the Federal Re-
serve Board in its annual report to
Congress-.
Explaining that even though credit
expansion is not entirely responsible
for increase in prices, the board says
lit regards it as one OF its most impor
tant duties to prevent, as far as prac-
ticable. expansion Of banking credit
from running an uncontrolled course.
Goods and credit" says the report,
"must be saved to the uttcrmost of our
ability in order to check the upward
movement Of prices and in order to
free for the use Of the government
the goods and savings required for
the winning Of the war"
The present condition Of a greatly
expanded currency will be improved,
the board believes. "as the public per-
forms its duty of absorbing the gov
ernment loans out of savings"
Before the third Liberty loan, the
report adds, Federal Reserve banks
must reduce their investments to
strengthen reserves and avoid further
expansion that has accompanied the
last two Liberty loans. The board
does not say specifically how it pur-
poses to do this.
Opposed Short Term PAPER
Among the many radical influences
of the war on the money markets. the
board explained that one of the most
pronounced had been the effort Of
certain interests to have the Federal
Reserve system absorb ninety day
notes or other short-term paper ac-
cepted with the privilege Of repeated
renewals. The board had persistently
opposed any such effort to destroy
liquidity of the banks assets, on which
the system was based, the report said,
but it admitted that the difficulties of
private and corporate financing we're
so great as to justify action by Con-
gress.
The most serious problem, corpo-
rate financing, has been removed by
government operation of railroads,
says the boards report. but the situa-
tion is still serious.
"The board, therefore. respectfully
suggests early consideration by Con-
gress of the problem of corporate
financing, in the belief that no salts
factory solution will be found that
does not involve some degree of gov
ernmcnt intervention. The board Is
Of the opinion ethat some plan for gov
ernment Intervention or aid can be
worked out which would meet the re-
quirements of the situation satisfac-
torily."
Referring to the enormous strain on
finances during the last year of the
governments war loans and to the
aid given by the Federal Reserve sys-
tenn, the report says:
Federal Reserve Notes
"The Federal Reserve note will more
speedily attain the position originally
intended for it. From being an occa
sional emergency currency, used to
supplement deficiencies in the supply
of other existing forms of currency, it
is becoming the most important con-
stituent of our circulating medium, re-
spending promptly and naturally to
currency requirements from whatever
source proceeding, thus giving to our
whole currency kind and degree of
elasticity it had never before pos
sessed."
Earnings of the twelve Federal Re-
serve banks in 1917 we're reported as
S15,SO0, 900 gross and $11 100000 net.
with declared dividends of about &c.
100000. The boards expenses have
been little less than S250.000, and the
cost of administering the gold settle
ment fund has been only $4,000, or
1-3 cents per $1,000.
Tl& entrance of state banks and
trust comapnies during the year
strengthened the system greatly, says
the report. Although the gold reserves
increased enormously in quantity, the
proportion of reserves to deposits fell
in proportion to the expansion of
credit.
No radical amendments of the re-
serve act are suggested, although
few minor changes are recommended.
They include election of directors of
Reserve banks by a simpler method,
provision for printing bigger denom-
nations Of Federal Reserve notes, pro
vision for Incorporation of foreign
trade banks under Federal Reserve
charter and permission for national
banks to establish branches in their
cities