The Birmingham age-herald., 1920-10-23

their losses as the alternative of pay ,
 ing high rate for money needed in
 commercial enterprises. For the fed-
 eIal reserve banks to have maintained
 ra tes sufficiently low to have held the
 market up on such securities would
 have meant not only the carrying Of inc government-sec loans already jin the banks but would have induced
 the creation of others and defeated the
 elasticity of their own currency as well
 as prohibited the needed accommoda-
 tons to banks for other purposes. IL
 is perhaps only fair to say that if any
 mistake was made by the federal re-
 serve banks in connection with the
 absorption of war securities by the
 public and the consequent partially in-
 elastic note issue that, 1t was made much earlier, in an atmosphere of patriotism and at a time when even artificial means of stimulating S1e sale Of government obligations seemed justified. In the subsequent cold ligh. Of analysis. of a declining market. t is easy to conclude that the lower rates on the bonds as well as those main
 t9ined by the banks on bond paper
 and the borrow and buy argument of slesmanship were both unwIse
 Again, the federal reserve system with the increase of rates fixed in recognition of diminishing supply Of credit and for the purpose of preyent~ ling the too free use of the redisco mt | ing privileges of the federal reserve banks, was held blamable as contributing | to the high cost Of living and the argu- l ment went forth that what was needed
 most in this broad land of ours to bring things back to a normal condition was Ian abundance of cheap credits Surely I you will agree with me that it is rot within the province of the federal re-
 serve system to undertake to control or tregulate prices, but to leave the price level to competition under the law of supply and demand. The immediate objective of the policy of the federal reserve board and the federal reserve banks should be that of undertaking to safeguard the situation as it relates to the reserve position of the federal | reserve system and in so doing to bring about stabilization of general business conditions which may be re- 1 flected in lower prices and a conse- quent lower cost of living. At the time to which I refer we were frankly lconfronted with the economic need Of deflation and the industrial need of an increased production.
 The situation seemed well night ir- jreconcilable. It was aggravated by an universal extravaganza. which may
 have been the result of the relaxation
 from the tension in which we had been
 held by the anxieties of the war. We
 had hoped that by some natural means production might be made to overtake
 consumption either through the in Icrease of the one or the lessening of
 the other, if not through the channels | of both, with the resultant effect of
 the natural growth of thrift and ocon> omy. We were not being favored by
 any cessation in the cost of production. We were caught in the vicious circle of increasing prices and wages. Many of
 us were somewhat alarmed by the in-
 creasing tendency toward further de- | flation, particularly as the situaoion Icontained many surface indications of
 prosperity. There is now very sub> stantial belief that it would have been better if the federal reserve system | had exercised it's capacity to check the further expansion of credit at an ear 1 Her date. It was. of course, natural
 for those charged with the administra> tion of affairs to have waited before taking what would have been regard l ed as drastic steps in such a situation. 1 "The last stage of criticism IS the one 1 to which I have already alluded, as the need of further credit at whatever cost l to the reserve position of the federal re- serve banks, that, production in the in- duStries may be not only maintained but | increased even to the extent of financing | permanent improvements; that roads and public buildings may be constructed; 1 that funds may be provided for housing campaigns heretofore sustained by the in- yestng public and that the fluctuation .n
 the stock market may be controlled through the application of credit facii- l ities not now easily available to those who must rely upon the call money mar | ket. In short, that any curtailment of ] the expansion of credit should not fall
 as burden upon any of the activities to | which mankind has grown accustomed, | unless perforce it be those engaged III
 and that these should be prescribed specifically and undeniably through the 1 issuance of an edict by the federal re- serve board.
 l "One would almost conclude from the comments expressed, both publicly and ! in private, since the federal reserve board took the position last May that
 the gold reserves of the federal reserve banks should be protected by a more l discriminating policy in the distribution of credit, that the lending of money had l become type of governmental aid to | be obtained through the channels of po- litical influence or by convincing the 1 federal reserve board acting as sort of financial priority board, of the more UT | l Such mental attitude ignores the fun damental purpose of the federal reserve act to afford rediscounting facilities l through member banks and denies the practice of initiating borrowing trans actions with local banking institutions. ] Even when the need is recognized as be- l ing an urgent One and it is known that l the affairs of the industry have ap- preached crisis, the lending power of l the federal reserve banks cannot be 1 soundly invoked save through the appli- cation Of member banks, and under the legal obligation of the federal. reserve l bank directors to administer it's affairs l fairly and impartially and without dis l crimination in favor of or against any member bank and to extend to each member bank such discounts, advance ments and accommodate tions as many be
 safely and reasonably made with due re- gard for the claim and demands of other
 member banks.
 1 ''The cattle industry is in jeopardy 4 just now because it has grown to de-, pend upon an open market for cattle lraper sustained by banks outside or 1 the area of live stock production, and which under existing conditions of l decreasing supply of available credit has been in a measure withdrawn thereby forcing upon the market the young cattle and the mothers Of fuA ture herds.
 [ The cotton crop of the south has l been produced this year at great cost.
 The representatives of that industry !convincingly maintain that the market | price is now under the cost of produc-
 ton and that the growing of cotton
 f~1 !, Ivrft