New-York tribune., 1918-11-08
The Reserve Board Speaks Out

1t is agreeable to find the Federal Re-
serve Board at last awakening to the
dangers and the reality of huge infla-
tion of banking credits and the disas-
trous effect of this upon the business
and industrial morale Of the country.
The board has evidently been of a di-
vided mind. Mr.. Paul Warburg spoke
out very definitely last winter, before his
retirement, and so did DR.. A. C. Miller,
in several addresses. But the fact re-
mained that the board as a whole did
nothing in any way to curb this inf1a-
ton, nor does it seem to propose any,
thing now more than to repeat vague
warning, couched in a phraseology so in
volved that for the average man it has
little plain meaning. It is true that in
its November Bulletin, from which we
quoted yesterday, the board does seem
to take a definite stand against the curl
Gus heresy which is not lacking in parti-
sans even in banking circles in New
York, and to which Mr.. Hamlin, of the
Federal Reserve Board, gave definite
voice early in the year, namely, that
little or no initiation exists Remarking
that credit initiation has been a general
characteristic of all the countries at
war, the board now goes so far as to
say very definitely:
"The great gold strength of the United
States, largely due to the heavy acces-
sions to our national stock Of gold in the
two years preceding our entry into the
war, has, it Is true, placed this country
in an exceptional and peculiar position,
and to this extent the character of the
credit imitation experienced in the United
States differs from that existing in other
countries and has been less easy to real
ize. But it would be a mistake for us TO
proceed on the assumption that imitation
in the United States Is, therefore, differ
ent in its essential character from what
it fs elsewhere. Here, as elsewhere, the
decline in percentage Of reserve holdings
to outstanding liabilities reflects the rel
ative increase of the latter rs compared
with the means of their direct CONVEX
sion demand, and the problem pre-
sented is the problem of controlling the
growth Of banking credits"
This is clear and positive If this
stiffening of the boards attitude is due
to the accession of Mr.. Albert Strauss
we shall count the latter a very great
gain. The plain facts are that the Fed
eral Reserve Board was created, as
much as anything, to stabilize the
finances and the currency of the United
States. And by currency we mean
everything that serves as money, the
main form being checkable deposits in
the bar:ks. And to date the board has
practically exercised it's vast powers in
no way to check the tremendous expan
sion which has taken place, and has been
going on in the last six months more
rapidly than ever. So far from that. it
has been party to policy which has
encouraged expansion through an arti
ticially low discount rate and unrestrict-
ed freedom of redscount The result
has been an expansion of rediscounts of
nearly two billions within year and
half, and the knowledge that this gate
way would always be wide open has been
a powerful influence in promoting the
concurrent expansion the credits of
the regular banks.
On its financial and economic side the
war has been kind Of vast economic
laboratory in which series of experi-
ments upon the effect of currency and
credit imitation upon prices has been car