New-York tribune., 1918-11-07
Intensive Saving
To Liquidate
Bank Credit Urged
Reserve Board Calls Atten.
ton to Decrease of
Gold Cover


the month of November contains much
of interest with reference to the bank
IN, situation as affected by loans on
ing power thereby created. This sub
Ject IS fully discussed in the boards
review of the month, which analyses
the effect on prices of the failure of
our population to save, as evidenced by
The increase in loans on government
securities. The board urges a resort
to more intensive saving in order to
absorb the new bonds more rapidly, and
IN order that the credit granted by the
standing, and thereby tend to increase
pr'ces. 1t gives figures as to the rapid
increase of deposits and investments
by the banks, and says:
precisely what effects may be ex-
pected from this process of credit ex-
pansion should be definitely under
stood in order that the nation as a
whole may choose between the policy
of steadily adding to its outstanding
them by regularly reducing its indebt-
edness through saving and the cancel
lation Of its borrowing at the banks.
The Work of Imitation
The board in former issues of the
increase of current purchasing power.
whether in the form of actual cur
rency or in the form Of credit, faster
than the volume of available goods"
and this is manifestly the process
which is now going on as result of
methods of subscribing and pay ng for
government bonds, which are not based
upon real savings.
Probably the feature of the present
IJ
which meet requires correction is this
increase III disposition on the part of
tine public to rely too largely upon the
banks as sources from which to obtain
the necessary funds for use in financ-
ing the requirements of the govern
ment.
!he vital relation between prices and
credit expansion is restated as follows:
Bank credit when granted by COM
OF or for the purpose of liqudating
commercial transactions of early ma
turtles serves as means of facili-
tatlng the flow of commodities from
producer to consumer and the return
ot purchasing power from the consumer
to the producer through the various
channels OF circulation. This process
enables goods to act as means of pur-
chase and payment for other goods, and
when the maturity of the average loan
granted Cor credit allowed) is no
longer than that of the productive
processes in which the community is
engaged the effect of it is only that of
1acllltatlng and promoting production
and distribution. When the loans
granted or credit extended by the
banks are IN excess of the normal value
OF the goods offered for exchange there
Is brought into existence all additional
or surplus volume of purchasing power
which has the same effect upon the
responding addition to the money sup
ply. Credit expansion becomes inha-
tion when the increase of prices it pro-
duces brings no commensurate or off
setting increase of production.
During the last year there has been
a decrease in the percentage of gold
cover to the aggregate banking liabili-
ties OF the country. This decline has
not been occasioned by any falling off
in the aggregate gold holdings of the
American banking system, which. in
deed, have shown some increase. It is
due altogether to the rapid increase in
ne outstanding volume of bank liza
bllltes. 1t is this feature of the situ-
alton which gives to the decline of the
gold percentage it's significance. That
is to say, the decline of this percentage
Is an important index of our changing
position, not because of any inadequacy
of gold, but because of undue or dis
proportionate expansion of the credit
structure which the gold reserve of
the nation in required to support and
protect in consequence OF inadequate
saving by the people.
Americas Unique Position
THE great gold strength of the
United States, largely due to the heavy
accessions 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 char
acter Of Che credit imitation experienced
in the United States differs from that
existing in other countries and has
been less easy to realize But it would
be q mistake for us to proceed on the
assumption that imitation in the United
States is, therefore, different in it's
essential character from what it is
elsewhere. Here, as elsewhere, the de-
cline in percentage of reserve holdings
to outstanding liabilities reflects the
relative increase of the latter as com
pared with the means of their direct
conversion on demand, and the problem
presented is the problem of controlling
the growth of banking credits"