New-York tribune., 1918-03-17

would be dWlndllng to small hgureS
before the next bond issue should
be made. 1t now appears that we
shall enter the campaign for sub
scriptions to the third issue of bonds
with a considerable volume of such
loans still outstanding. Credit ex
pansion to finance the war already
exists.
Effects of
Rediscounting
The notes given against loans Sc
cured by Liberty bonds are redis-
countable at the Federal Reserve
banks. To the extent that redis-
counting is done, the expansion of
loans passes on to the Federal Re-
serve banks, and the effect on COM
modify prices remains the same.
Should the situation require it, Fed
eral Reserve banks turn over this
rediscounted Liberty Loan paper to
Federal Reserve agents and take out
Federal Reserve notes against it,
paying these out. In the last analy-
sis then, when subscriber to gov
ernment loan borrows from his bank,
ultimate payment for the goods and
services which the government needs
may take the form of Federal Re
serve notes, and again prices are
stimulated. The banking fraternity
will be loath, as a practical matter,
to avail itself extensively of this
last-named method of turning loans
into currency.
Fallacies Of
Hun Finance
New government loans are COM
ing along. If a large proportion of
subscriptions to future bond issues
shall be made by means of loans at
the banks, and the bulk of such loans
shall not be paid off between bond
issues, we shall be following course
as vicious as that followed by Ger
many, where an inverted pyrimad of
credit paralyzes that country's nor
NAL business activities and darkens
the sky of its economic prospects
after the war. 1t is bound to be
harmful to the whole situation to
have such loans accumulate-to re-
main unpaid or unreduced. With
the advantages of our Federal Re-
serve banking system, no doubt the
banks could carry such a burden for
long time; but they should not be
required to do so. In financing the
government they should be agencies
only. Their possession of deposits
is vlcarlous; they should not be prin-
clpals, actually or substituted, in
such transactions.
Dodging
The Issue
No good is accomplished by saying
that mistakes have been made, that
we must finance the war by infla-
ton, that the banks are able to
carry the burden and should do it.
Such an attitude merely begs the
question to the extent that it is not
true. Grant, if you like, that it was
mistake, shortly after the begin
nlng OF the war, to regulate the
prices Of some commodities so low
that profits have been seriously
limited and to that extent are not
available for investment in govern
ment bonds. 1t might have been
better at the outset of the war ia
have fixed prices at about the level
then prevailing SO as not to have
restrained production, and then to
have used regulation merely as q
means of applying the brakes. The
fact remains that on the whole
profits continue to be substantial
and that too small proportion of
them has been invested in govern
ment obligations. Grant that the
taxation so far imposed is heavy.
The imposing Of these taxes cannot
be called a mistake, for already the
most careful students are wonder
ing whether it will be necessary to
defray still larger part of the cost
of the war out of taxes.
Great Demand
Is Inevitable
The truth of the matter is that the
government of the United States
States must and will obtain the
money or the credit necessary to
finance the war; if not in one way.
then in another. The difference be-
tween the $2,5O0,O0O,OOO raised
by war taxation plus the amount of
government loans which can actual
ly be absorbed out Of savings on the
enc hand, and, on the other, the total
annual requirements for the wars
expenditures, is bound to find it's ont
let through some form of credit az