New-York tribune., 1918-02-10

IN discussing the war finance
.rnoration bill before the Senate
s;nance Committee, the Secretary of
.he Treasury is quoted as saying:
an no sense does the bill contemplate
,Ae issuance Of uncovered paper. We
,ac ultimately come to that, but the
oossibility of such a contingency is
INST easily met by the system pro-
rosed in the bill" This is a remark
sble statement, for it is tantamounr
4 "a an admission that the government
Y 4 prepared to carry out policy of
admitted initiation to finance the
var. even to the last desperate ex-
o4diert of issuing fiat currency. We
u not believe that the bill would do
,nv such thing as Mr.. McAdoo
. ,aims for it; on the contrary, the
,ndency would almost certainly be
bring about a condition which
tight make the issuance of fiat
snev inevitable. The bill provides
sr an expansion Of s4,00O,000,000
N Federal Reserve note circulation,
an increase of more than 800 per
cont. The notes now in circulation
are covered by approximately 70 per
rent in gold reserves. An increase
Of s4,000.000,000 in circulation
would, with the present gold re-
Serves, reduce the covering to but lit
tie more than 80 per cent, whereas the
Federal Reserve act requires re-
serve of 40 per cent against notes in
actual circulation. And gold re-
serves cannot be greatly expanded.
1t is therefore apparent that if the
operation should be carried out to the
full extent permitted by the bill, it
would be necessary to let down the
bars, and that would, in the end,
mean a Russianizing of our cur
rency, with a rise in commodity
prices the like of which has never
been seen in this country. Petro-
grad dispatches last week told of
the financial and economic demoral-
Mation brought about in Russia by
printing press finance. Before the
war the amount of paper money in
circulation was about SSOO,OOO, 900,
amply backed by gold. Now it is
more than S9,000,0 100000, with little
or no increase in gold reserves. The
increase in prices resulting from
this debasement is almost unbeliev-
able. 1t is estimated that manu-
featured articles are selling at from
thirty to forty times pre-war prices.
Representative L. T. McFadden.
Of sylvania, put the case against
the inflationary feature of The
MeAdoo bill better than it had been
stated before when he said: "To
aeate an institution that will have
The power to issue its notes to the
extent of $4,000,0OO,O0O, such notes
to be made for a period of from one
to five years, and gives the privilege
Of rediscount by the Federal Re-
serve system and thus through this
process permit the issuance of Fed
eral Reserve notes which circulate
as money, is nothing but the worst
kind of imitation and will lead to
ultimate disaster and ruin.
eff these needs. which this bill
aims to cover, ere for capital re-
quirements' they should be re.
stricted to capital and no increase
Vt credit facilities should be permit
I'd which will provide SO much inf1a-
ION. Capital or credit used for the
purpose of permanent investment,
consumption or waste always has
led and always will lead to imitation,
not used for the production of use
fu and necessary commodities will
nave precisely the opposite effect,
L would suggest that if the Ad-
hlnistration believes that imitation
OF this character is necessary to
hnance the war, the more direct way
would be to issue United States notes
direct. Why attempt to deceive our
selves? This bill is just as wild a
scheme as the issuance of United
States notes would be-"
Mr.. McFadden was banker be-
lore he became Congressman, and
''as knowledge of finance and eco
homlcs such as is rarely found in
our chief legislative body.