The daily banner. (Cambridge, Md.) 1897-2008, 1920-06-15
The Expansion OF Credit

THE expansion of credit set in
motion by the war must be checked.
Credit must be brought under sf-
fective control and its flow be once
more regulated and governed with
careful regard to the economic wei
fare of the country and the needs OF
its producing industries.
''Def1ation, however, merely for
the sake of defation and a speedy
return to 'normal-def1ation merely
for the sake of restoring security
values and commodity prices to their
prewar levels without regard to
other consequences, would be an an
sensate proceeding in the existing
posture of national and world affairs
1t must never be forgotten that
productive industry is profoundly al
fected by credit conditions. Mod
ern business is done on credit. one
of it's life-giving principles is credit.
The mood and temper of this busl-
ness community are deeply affected
by the state of credit and may easily
be disturbed by ill-considered or pre-
cipate action. A system of credit
control must always be judged by
what it does to maintain healthy
condition of mind on the part OF all
sections and classes of the producing
community. The ultimate test OF
the function of goods. True in gen
eral. the truth of this observation
deserves to be particularly empha-
sized in the present deranged state
of world industry and world trade
when production is the crying need
Of the hour everywhere.
Too rapid or too drastic def1ation
would defeat the very purpose or
we'll regulated credit system by the
needless unsettlement of mind 1t
would produce and the disastrous
reaction that such unsettlement
would have upon productive indus
try.
Radical and drastic detiation 1 is
not therefore, in contemplation, nor
is a policy of further expansion.
Either course would in the end lead
only to disaster and must not De
permitted to develop. The credit
situation in the United States Isl at
bottom sound and safe. Our eco
nomic and financial position is Ses-
sentially strong. There need besno>
occasion for apprehension as to our
ability to effect the transition from
wartime to peace-time conditions II
reasonable safeguards against the
abuse of credit are respected. There
is. however, no need for preclpltate
action Or extreme measures. Ex-
tremes must be avoided, the process
of adjusting the volume of credit to
a normal basis should be erected IN
on orderly manner, and Its raplq1ty
must be governed by conditions ana
circumstances as they develop. Much
will depend upon the cooperation or
the business and general community.
Indeed without such cooperation
progress can be neither rapid nor
substantial. Much will depend also
upon the rapidity with which the
unabsorbed portion of the outstand-
ing issues of war securities passes IN
to the hands of permanent holders.
AS the national debt is thus absorb
ed and as it is reduced through the
operation of the sinking fund, the
loan accounts of the banks should be
reduced correspondingly until the
proper balance between the volume
of credit and the volume of concrete
things, which credit helps to produce
and which are the normal basls5 OF
credit. is restored. This equ1i10-
rum. it can not be too frequently or
too emphatically stated, can be re-
stored only by speeding up the pro-
cesses of production, by the ordrel
distribution of goods, by the avoid
ance of wasteful consumption, and
by the increased accumulation OF
savings. These are the fundament-
al economic processes upon Whlcn
the proper functioning of the Fed
eral Reserve Banks must depend.
The Federal Reserve System can do
much to assist these processes Dut
it can not of itself and alone compel
them. Eff1cacious action along these
lines involves the intelligent and
earnest cooperation of the business
and general community. While the
Federal Reserve Board will always
be mindful of the interdependence OF
credit and industry and of the lnhu-
ence exerted on prices by the general
volume of credit, the Board never
theless can not assume to be an
arbiter of industry or prices. lts
primary duty, as the guardian or the
Nations ultimate banking reserve,
is to see that the banks under lts
supervision function effectively ana
properly as reserve banks.
By direction of the Federal he
serve Board.
w. P. G. HARDING,
Governor.
To the speaker of the House OF Re-
nraCantatiVoS