The Topeka state journal. [volume] (Topeka, Kansas) 1892-1980, 1920-05-24
CAREFUL GUIDANCE NEEDED.

CAHEtOL GUIDANCE n EEDED.
Officials of the federal department
of justice are setting up claim to a
share of the credit for the decline in
prices that is now in progress.
If Mr.. Palmer's department be po-
tent to start a price reduction, why
has it not done so months ago? The
primary cause of the slump is cur
tailment of credits by the banks and
this has been aided by a powerful
public sentiment, based on the belief
that the time had arrived to call
halt.
The downward movement now is in
full swing and it is doubtful that any
| thing can stop it until something like
normal conditions has been reached.
When the time comes that is considA
cred desirable to stop the decline the
federal reserve board can do it. In
the meantime those individuals who
attempt to stem the tide may get hurt.
Falling prices never are an unmixed
blessing and a too rapid decline may
prove calamitous. A warning along
this line was sounded recently by
Francis H. Sisson, vice president of
the Guaranty Trust company of New
York. Mr.. Sisson said:
The chief danger in the present
situation is that the desirability for low
prices as an end in itself may be so
exaggerated as to lead to the attempt
to force prices down thru harmful
measures for the control of credit.
The motion seems to prevail that war
time and postwar rise in prices was
fho aoE- &I,a
country. Prices moved up irregularly
with consequent reimbursement, some
individuals gaining while others were
! injured by the changes.
Even when 1t is granted that resort
in some degree to measures tending TO
raise prices was necessary during the
war, it is thought by some that the
evils incurred by the rising prices
may and should now be matched by
the supposed benefits of falling prices.
Those who look merely at the me-
chanicaI aspects OF the exchange of
goods find SO much money and credit
on the one hand measured against so
much of goods on the other-with
prices expressing the ratio between
the two Accordingly, the desired
lower prices may readily be obtained,
it is thought, by arbitrarily reducing
the volume of money or credit. espe-
cially the latter. Such action has
been repeatedly advocated.
There seems to be no question that
undue speculation should be curbed
by restricting further the credit en-
ployed in such undertakings Beyond
this, however, there is a distinct dan
ger in attempting arbitrarily to re-
duce general prices by curtailing
credit to business Undertakings. 1t is
to be emembered that such credit is
the outgrowth of business demands.
1t is not as if a given volume of credit
i NP
ness needs. forcing itself upon an un-
resisting business public.
/ The proper function of the credit
machinery is to adjust the volume of
credit 10 the actual needs of legiti-
mate business. Accordingly, the in
fluences determining the credit sought
and granted should have their initia
tive in the field of industry and trade
If the control of credit is such as
arbitrarily to fix the volume of credit
extended to business undertakings, 1t
may, indeed, succeed in lowering
prices of goods already produced and
awaiting consumption-inasm as
one line of production largely absorbs
and utilities the products of another,
and since the curtailment of credit
tends to a slackening of business &C
] tivity-but there is no assurance that
the lessening of industrial output &C.
casioned thereby will correspond to
the actual state of demand and the
needs Of the business community.
/ If Mr.. Sisson's view be correct, it
is fortunate that the machinery is in
the hands of the reserve board for
reversing the downward movement of
prices should it gain such Roadway as
to make it dangerous to the general
business and prosperity of the coun-
try. The board should be a balance
wheel to the financial machinery.