The Richmond palladium and sun-telegram. [volume] (Richmond, Ind.) 1907-1939, 1919-05-02

is just that. The banks are requested both to
buy great quantities of bonds and to facilitate
subscriptions by their customers through loans.
Both these operations create and put into circula-
tion great amounts of bank credit. When the
bank advances, say 80 per cent of the cost price
to the customer on the basis Of the purchased
bond as collateral it does so by creditng the pur-
chasers account with deposits and these are I'M
mediately transferred to the government, which
draws against them If needed to make purchases
Of materials, etc. Obviously If the sub
scriber simply draws against his bank balance al
ready existing and not freshly created by Dor.
rowing, he simply transfers purchasing power
from himself to the government and does not
add to the sum total and does not raise the price
level. It is unnecessary to point out the evils OF
initiation or to see that the price level is unduly
high; that it is highly desirable that no fiscal op-
erations should push it higher or even maintain
it where it is; that the crying need of the hour
is speedy readjustment to peace basis, to q
stable price basis; that the country of the allies
which first arrives at a normal basis will have q
tremendous competitive advantage in world
trade. To ask the banks to perform large part
in subscriptions to the Fifth Loan will therefore
continue the present hesitancy in the business
world.
'The third reason for a small participation OF
the banks in the loan is that the credit should be
conserved and devoted to facilitate commerce and
industry rather than government loans. During
the war various expedients were employed to
limit the expansion Of bank credit; it
resulted in smaller demand for commercial
credit except for essential industries and left the
banks freer to subscribe and help others SUBJ
scribe to the Liberty Loans.
1.-THE situation is now largely changed: The
need for loans for the government is not abated,
but there is an insistent need that industry be
readjusted. revivified and stimulated and that
the present hating and hesitant period be cut
as short as possible. The business world in other
words is quite as needy of credit as the govern
ment; the banks should be permitted, as far as
possible, to perform their proper commercial
functions and be relieved of the added burden
of carrying the fifth loan. This stric-
ture upon business can be obligated only by hav-
ing the loan largely subscribed by the people
from their savings. Goading the banks to do
their full duty to the business world and at the
same time shoulder the Fifth Loan is to court
danger
From financial, social and political point of
view, it is Objectionable to ask the banks to as
sumo the loan. If they do take it, it is understood
that they take it only as temporary investment,
as they are able to do so without too great sac
rifice they will keep unloading these bonds on
the market; this will keep down or drag down not
only their own price for long time to come, but
also all other competing securities. The people
should subscribe the loan and remove the bonds
from the market and hold them as permanent in
vestment. Wide holding of the Liberty Loan
will stabilize the price of these bonds; and be-
cause the volume of these bonds is so large, the
future securities and many markets will be large
~ determined or influenced by the number of
these bonds"
Even the person who has only documentary
knowledge of business activities will see at once
that If the banks are compelled to invest their
money in these bonds, the amount which the
banks will have on hand to loan to persons need
ing money for private or business affairs will be
limited. One service of bank to the community
is its ability to loan money to persons who need it
for business or other purposes If this money is
invested in bonds, and tied up, the banks will not
be able to make loans readily Or looking at il
from another standpoint, if person who has a
500 bond wishes to borrow some money and
wants to put up the bond as collateral at the
banks, he will find, if the banks are overloaded
with bonds, the banks will not have the money at
hand to make the loan. This would force the
bond holder to seek money elsewhere and he prob
ably would be forced to sell his bond to the man
who has ready money, which would drive down
the price Of bonds. The best way to stabilize the
price Of the Liberty Loan bonds is for persons to
hold their bonds and to purchase Victory Bonds
SO that the banks will not be forced to use ire
mendous sums of money to subscribe the present
Fifth Loan.
Costs