Gunnison news-champion., 1920-12-10
BRAkE SET BY RESERVE BOARD

BRAkE SET By RESERVE BOARD
Eachange:-
About a year ago the Federal Re
=rr.e board -; about putting brake
lPg4 imitation. Il undertook to
-gUP OF II least hold in check. the in
rr'ass Ia bank .0aus. Bank loans rep
res NJ purchasing power. II bank
Iaut- man It's credit 20 the extent
1f $4,000, 10 creates that much new
purchasing power. and when the man
checks It over 20 someone els, and II
goes into another bank as q deposit.
/ II De- still purchasing power And the
$1,000 w!ll continue 10 cIrru.ai. a.
/ pu. .chasing power until s0mr0ne else
. uEes II 20 pay q debt When Il u
actually eItIHguisheL. III" deposits and
InaUs 0f some bank will both 70 down
ln The sum Of 10000 That $4,000
created hy q loan .s just the same in
purchasing power and effect on prices
Jas $1,000 Of paper money put into
. circulation.
Peup.e'age prone 20 confuse capital
and credit and 20 think that credit will
,aEr the place of capita! 20 q much
gu-atsT extent than II can. Credit is
purchasing power. You can buy
things with credit but you cannot
MAKE things with credit. You can
not actually produce things with cred
Il. CTed., Is Intangible; Il consists Of
faith, confidence. But capital is some
thing tangible. IL consists Of lands,
buildings, machinery, materials. II
take labor and capital TO produce
things, ana II you increase the amount
OF credit. Of purchasing power in cir
cu.auun, without increasing the sup
p.y q labor and capital in the same
proportion all that you viii accomp-
hsh Will De to drive up prices.
he situation today Is what we
might expect. We could not expect
to spend 1000. 900 900 on a war and
feel no ~ effects from it, That
wouldn't be reasonable, would it7
Then let " not b. too impatient about
il. the whole world has been destroy
ing capital and eNpendInR credit, dis
counting the future, spending their
earnings before they were made, and
it Is not 10 be wondered that money,
a. We call il, or credit, Is tight, We
are Obliged 10 realize, when We con-
sgdcT the matter, that this lCvel Of cx
panditgrc has entailcd real costs that
is credit which has been protusc!y cre-
ated must be offset and supported by
real capital.
II a family situated in a somewhat
/ independent position. As on q farm,
I should meet with calamity, we know
7 precisely what that family would have
4 to do to get back into a prosperous
/ condition again. II would have to
I get up early in the morning and work
/ late At night and produce and save
and restore the capital that was lost.
And the principle IS just the same for
an individual as for a nation, but it is
/ not so easy to make people see it in
/ the case of nation as in the case Of a
single family.
The condition of the last few years.
with full employment and rising prices
I has not been such as TO impress peo-
{ pie that they were suffering losses or
that economy was necessary. In ordin-
airy times these symptoms mean pros
Z peiity. but during the war and since,
they have meant waste and scarcity.
In normal times you will see a great
amount of building going on. You
will say it means prosperity-but If
the town has been swept by fire and
burned to the ground you would not
say that the activity of the people in
getting some shelter over their heads
and replacing what they had lost was
sign of prosperity.
War Prosperiy Always Fictitious
The war prosperity, then, was not
real prosperity. Ii was prosperi-
- based on borrowing, supported by
the taxing power of the government,
and the pledge of taxation for years
to come, and this so-called prosperity
has placed US upon very high level
of wages and prices. In the opinion
of bankers and experienced business
men, and of economists and students
of the subjects generally. it is dan
gerous level on which to do business.
Now, why is it n dangerous level on
which to do business? Because it isl
a situation brought about by abnormal
and temporary conditions. Since the
cause was temporary one, it is just
as inevitable that whensit has passed
and its influence has passed that prices
shall turn downward, provided. of
course, that you have the same stan
dard of values as before.
Now, if that reasoning is sound, it
is imprudent and dangerous for al
business man to come out of the period
of war prosperity upon the level of
costs and prices and go charging and
booming along as tho conditions were
going to remain the same always II !
was certain that they were not going
to remain the same and it is dangerous
for business man to have heavy in 4
ventories and q heavy amount Of in
debtedness under such conditions. Ifl
a man has a large stock of goods or |
materials and Is out Of debt, he can
stand shrinkage, but il he is in debt,
his debts will not shrink cents worth !
and il they are heavy, they may break |
him.
Every business crisis ever known
n this corn.ry or elsewhere, has come
in just that wuy--from over-confi- |