New-York tribune., 1918-10-23

upon the course of trade and prices
after the war. A great many per-
sons imagine that somehow these
credits have been created wholly by
war conditions, and that when these
conditions disappear the credits will
60 with them. These arc the per-
sons who argue that, as high prices
are obviously the result of the wars
demands, as soon as these demands
are satisfied prices will recede to or
below pre-war levels. Therefore the
large volume of loans which these
high prices have necessitated will be
rapidly reduced. They seem to i'm
agjne that these credits were created
out of nothing and that into nothing
they may return. This process of
reasoning is of interest, because, if
l. were true, then no one need have
the least worry about public finance
and the floating of Liberty Loans
would be another waste Of time. The
government could print all the
money it needed for the war or any
thing else, taxes could be abolished
and the millennium ushered in.
The reason is. that there is no es-
sential difference in their effect be-
tween pure fiat money and bank
leans. This becomes clear enough
if, instead of the banks entering the
loans as credits on their books, they
gave out actual printed notes. Then
any one could see that the effect is
Identical So, if these credits have
no influence on prices, then there is
no reason why the printing presses
should not be kept going merrily so
long as there was need. OF course,
in reality the effect is tremendous.
and, therefore, the prices in many
! lines will fall and perhaps the whole
price level, the essential part of the
credit structure, will remain. That
essential fact is. of course. the thing
which alone could give these credits
solid and confidence-giving base,
the gold reserves. We know that
these gold reserves were increased
by billion or more, and even under
the old rules this allowed for five or
six billions Of new credits.
But the Federal Reserve law, as
amended, so reduced the required re-
serves that the amount of available
credits, from a given base, could be
easily doubled and more. Only in
part have the banks of the nation
taken advantage Of these new credit
resources; but they are getting ac~
customed to the smaller reserves
and the great enhancement offerings
which they make possible. Banking
has been exceedingly profitable in
these two or three years and compe-
tition for these large earnings has
been keen. It is scarce to be mag
ined that, when the war is over, the
banks are going to draw in their
sails and go back to a pre-war basis
of doing business. Yet that is lust
what many people seem to think,
when they talk or write of q huge
reduction of bank loans when prices
go back to their old level, In point
of fact, every bank will strive more
or less to maintain it's present
level Of loans, for there its profit
and future lie. If great fall in a
great staple, like corn or cotton, re-
tires a large amount Of bank credits
based on war prices, that credit is
released for some other line Of bust
ness which, through the war, has
been held in check. 1t is automatic
unless we imagine business going to
the bow-wows, and that is not so
very clearly in sight.
In other words, the flow of cur
rency or credits, which is now strong
in certain channels, may be reduced,
but the volume of the wholesmay not
be greatly affected. The release of
funds in one field will tend to
cheaper interest rates and make
loans attractive to other lines that
are more or less shut out now. Bank
ers will strive, as always, to keep
their loans at the safest possible
maximum. That means encourage
ment and aid of many ventures and
projects now frowned upon. For one
thing, our export trade. 1t is a
large field.
1t seems to be forgotten, too, that
the same initiation of the currency
or credits that exists in this country
exists more or less in all The whole
world is upon war-price basis, and
the same adjustments must take
place in other lands as in our own.
It is not as if we stood alone or
faced competition with countries in
which no imitation had taken place.