The news scimitar. (Memphis, Tenn.) 1907-1926, 1920-05-28
The Federal Reserve Bank
and the Automobile
Business.

BUSINESS.
Elsewhere on this page appears an
editorial reproduced from the Nash
VILE Tennessean. which is a fairly ac-
curate statement OF popular miscon-
ception OF tho attitude OF the federal
reserve board toward the automobile
industry.
II the federal reserve board has au-
thority to enforce decree forbdding
the financing Of automobile transac-
lions, II likewise would have the un-
disputed authority to enforce an order
against any other business that In It's
judgment did not merit approval An
order such as the one complained Of
In the Tennessean would be more sig
nificant than its application to one iso-
lated industry, II would b. an assump-
ton of authority pregnant with posi-
bllity for tyranny and oppression: an
authority which the reserve banks do
not desire, do not deserve, and could
not have under the law.
Yet In spite Of the facts the rumor
has spread by word Of mouth that the
federal reserve board has sent word
down the line that the back Of the au-
tomobile business must be broken in
order to stabilize industry! Nobody has
received any such order. nobody has
read any such order, and there has
not beoa and could not be any such
order.
What happened was this: The ex-
traordinary demands made upon the
banks for financing legitimate business
unless restricted in some measure
would place upon them an obligation
In excess Of their resources. and Of
their own accord the banks restricted
their credits as much as they could
without interfering with the normal
flow OF business.
That there could be no discrimination
against the automobile business Is made
clear by the act creating the federal
reserve banks. 1t would perhaps be
enlightening 10 quote from the section
describing when notes of member banks
arising out OF actual commercial trans
So provides:
upon the Endorsement OF any of its
member banks, which shall be deemed
waiver OF demand. notice and protest
by such bank as to its own indorse-
ment exclusively. any federal reserve
bank may discount notes, drafts and
bills OF exchange arising out of actual
Lot fra t.
drafts and bills OF exchange issued or
drawn for agricultural, industrial or
commercial purposes. or the proceeds %
which have been used, or are to be
used. for such purposes; the federal re-
serve board to have the right TO de-
termine or define the character OF the
paper thus eligible for discount. within
the meaning Of this act,
Nothing in this act contained shall
be construed to prohibit such notes.
drafts and bills Of exchange, secured
by staple agricultural products, or other
goods. wares or merchandise from be-
ing eligible for such discount; but such
definition shall not include notes,
drafts or bills covering merely invest
ments or issued or drawn for the pur-
pose of carrying or trading In stocks,
bonds, or other investment securities
except bonds and notes OF the govern
ment OF the United States.
Notes. drafts and bills admitted &c
discount under the terms Of this para
graph must have maturity at the
time OF discount OF not more than &c
days, exclusive OF days Of grace; pro-
vided, that notes, drafts and bills
drawn or issued for agricultural pur-
poses or based on live stock and hav'
ing a maturity not exceeding slN
months, exclusive OF days Of grace, may
be discounted in an amount 10 be lin.
tied to a percentage OF the assets Of
the federal reserve bank, to be ascer-
tanned and fixed by the federal reserve
board"
In other words. the federal reserv,
bank will rediscount a note. draft OF
bill OF exchange, the proceeds OF which
have been used or are to be used II
producing. purchasing, carrying or mar
keting goods in one or more OF the steps
OF the process OF production, manufac.
ture or distribution, but It will not re.
discount a note, the proceeds Of which
are to be used for permanent or fixet
Investment or Investments OF pureN
speculative character
Again. the reserve bank will reds.
count a note secured by the pledge o.
goods as collateral, provided 1t is other
wise eligible, but it will not rediscOun
the note Of a merchant who desires tI
invest the proceeds in the building II
which he conducts his business, Al
notes rediscounted by the federal re,
serve bank must have maturity Of no
more than 30 days, with the exception
OF notes drawn for agricultural pur
poses, and no note FOR stocks or bond!
or investment securities, except gov
ernment bonds, will be discounted.
BY the process Of elimination It vii
be seen that the automobile is included
In the list Of favored industries TIL
automobile truck is as essential to in
dustry as the wagon Of other days. TIT
tractor in many Instances has succeeded
the plowhorse. The use Of the Wort
pleasure" in its application to the pas
senger automobile passed away with th'
novelty OF the new and strange vehicle
Furthermore, the automobile industr!
Is legitimate and essential There ar
more than $4,000 dealers in the United
States. In Memphis alone there are 8
dealers. Two million persons earn thei
livelihood in the automobile industry. l
is the second largest industry in tn
world.
In some quarters there is a NANTES
disposition to discourage the sale Of au
tomobiles on the pretext that it is send
ing money out Of the country. Their