New-York tribune., 1918-02-20
War Initiation
Mr.. Thomas w. Lamont Replies to a
Recent Tribune Editorial
To the Editor Of The Tribune.

To the Editor Of The Tribune
Sir: 7 have read with interest your edl-
tornl referring to my comments on the war
finance corporation bin, now before Congress.
Now, Of course, have the same horror OF
fiat money that The Tribune has. And
am just as strongly opposed to any measures
likely to result in increased prices for
articles Of daily consumption. But as to
certain degree Of imitation in war time, no
country has ever been able to avoid it,
Great Britain has handled her immense
finance problems wonderfully in the last
three and half years, but no one prctcnds
that she has been able to avoid certain
degree of imitation.
Nor have We. The main question Is how,
to tho greatest extent, to avoid it. The
Tribune and l both in wanting to
be guided by that principle. We differ, how
ever, on this point: / believe that under
the proposed measure we shall suffer less
imitation than we should if all the extra
money required in the form Of capital to
furnish goods and services to the govern
ment were to be borrowed from the banks.
Under normal circumstances I should GER
tainly not favor an act which made it pos
sible, by a circuitous route, to issue clrcu-
lating notes on the security Of bonds of
industrial and manufacturing companies, or
notes of banks secured by such collateral.
Nor should favor the issuance of circulat-
ing notes on notes of banks Of customers
of banks secured by United States govern
mcnt bonds. Yet, you know, the latter
method precisely is already being adopted
to the extent that Reserve banks are lend
ing to member banks customers notes,
secured by Liberty bonds. and against de-
posits created through such loans are issuing
Federal Reserve Bank notes.
AS to Bond Secured Currency
The trainers Of the Federal Reserve act
never contemplated, believe, that we should
again have what might be tantamount to
bond secured currency. Yet the power OF the
Federal Reserve Bank to make loans to the
banks against subscriptions to Liberty bonds
is one of tho chief factors which have made it
possible for the United States government to
borrow the huge amounts of money already
raised through the two Liberty Loans. Only
the fact that the banks felt they could go to
the Federal Reserve banks and rediscount
customers obligations, secured by Liberty
bonds, made it possible for these banks to ex-
tend the necessary credit to their customers
and, in turn, to roll up the great amount Of
which they obtained
SO far as the war finance corporation bill
is concerned, you will probably agree that it
is vitality important that those industries
whose operations are necessary for the Sue
cessfu prosecution Of the war should obtain
credit to extend plant facilities when neces-
sary. Where do you propose that they shall
obtain such capital? The investment mar
kets, q practical matter, are substantially
closed to them to-day Therefore, their only
other course would be to go to the banks and
no To
create on large scale the very inflated posi-
tion which you and ! decry. To my mind,
there will be far less imitation if investment
money can be "coaXed" into the short term
obligations of the War Finance Corporation
than there will be if the ammunition concerns
and other necessary borrowers find that they
have to rely on the banks for lending them
all the money they need for plant account
Winning the War Comes First
The principal task we have before us is that
OF winning the war, and I believe it is far
better that the Secretary of the Treasury,
who has shown great courage and skill in
these various situations as they have
arisen, should be clothed with fairly wide
authority, as IN the proposed measure, rely
ing upon the Federal Reserve Board to use
its powers in preventing undue expansion.
The rates presumably discriminating to be
liked by Reserve banks this "Gnance"
paper are calculated to control both cxpan-
sion of loans and imitation of notes.
Moreover, it seems that in no single in
stance will the proposed corporation become
a direct lender Of funds to industries until
those industries have made every effort to OBJ
tain their requirements from such investment
resources as may still remain available
HAS any plan Of caring for the abnormal
situation been offered better than the one in
question:? If so, have not seen it.
THOMAS W. LAMONT.
New York, Feb. 18, 1918
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