Grand Forks herald. [volume] (Grand Forks, N.D.) 1916-1955, 1920-11-25

tsEOtss 0oAptte tremendous ,~tncIea9e6
In commodity prices and wages. It is
noteworthy that the COS: Of money
ihaA ~JtncreGaDd, on the average, only
Eos per cent. In the face OF greatly
tincreaeed operating expenses and loss.
"a iuevitals in business reaction, the
banks have been ultra-conservative In
fixing rates. Money has been the
cheapest element In business enter
prise. And the charge that the banks
have contracted credit to the detri-
ment OF legitimate and essential bus
mess activities is not sustained by
facts. According to the figures of the
comptroller Of currancy. on June 80
last the total loans and discounts of
oil banks amounted to nearly thirty
one billion dollars. an increase OF APP
proximately six billion dollars over
the loans and diseounts on June 80,
1913.
Neither the banks nor the govern
ment can create credit. Credit 10 the
product of enterprise and operation in
commerce. and is limited and defined
by the nature Of such operation. 1t
10 the means bytwhich real wealth is
transferred; it lis a medium Of <
change-and not wealth, itself. Wealth
consists OF goods and service. And it
should be remembered that the vast
destruction of wealth ~occasioned by
the war. such as l have pointed out,
can be replaced only by creating new
wealth-not by creating more credit.
We can make up the deficit only by
producing more goods and service.
1T is the function of the banks
to vitalize credit by productive pro-
ceases and by m and make it
Of use to the community. The first
and highest duty of bankers is to put
available credit in disable form and
to distribute Inc apportion it for the
good of the whole community. In
dis%charsing this duty. bankers must
exercise their best Judgment and al
ways give heed to the condition Of
their reserves.
The process Of liquidation has ap-
parently not been completed and a !
prudent regard for the safety and
strength of u banking system makes
necessary the continuation of those
policies which have proved effective.
1T must be recognized. Of course,
that a general reduction in commodi-
ty prices cannot be effected without
hardship to many elements of the bus
mess community. 1t is not alone spec
ulators in commodities who are al
verseiy affected by price recessions.}
Any business which entails the carry
ing on hand of stocks of raw materl-
ais or finished goods generally incurs
the risk Of ~depreciating values of
these stocks while in their possession, |
When prices are rising, profits are in
part the result of appreciation in the
values Of such holdings, and conserse-
ly, in a period of declining values the
risk Of monetary loss is incurred. In
a period of rising prices, the credit
demands abe progressive and tend. if
met, to stimulate further price ad-
vances. Experience shows that f~luctu-
atoms in sen~al prices move in cy-
Clos. During a p%rotracted upward
movement banks must be prepared
for the anticipated reversal.
Accordingly, the banks must neces-
sarily exercise restraint upon the ex-
panding volume Of credit when it
threatens to exeeed the limit of safe
ty. In the very nature of the case,
moreover, it is not the function of the
banking system to endeavor to pre-
vent a RECESSION Of prices which the
state OF production and consumption
requires"