Little Falls herald. [volume] (Little Falls, Morrison County, Minn.) 1889-1950, 1920-12-24
HEAR TALK ON CREDIT
PROF. BI.AKEY EXPLAINS PRES
ENT CONDITIONS AT BOARD
MEETING

MEETING
, Members of the Little Falls Board Of
Commerce had the opportunity Mon
day evening to hear an enlightening ad-
dress on current topic "Credit,'
given by R. G. Blakeley, professor Of
of the state university, at
the quarterly meeting of the board at
the Sand Cafe. Preceding Prof. Blake
ey's address, the members, about sixty
five in number. partook of fine din
ner.
Prof. Blakey discussed the credit
question from every phase and angle
and he gave such clear illustrations
that there was little doubt left in the
talk as to the cause Of the present
stringency in the money market. He
took up his subject without any pre-
liminary and his first statement was
that the present serious problem as re-.
lating to credit was caused by the re-
cent war, that it is world problem
and that in order to appreciate the
situation we must understand it tho
roughly. He likened the world of to-
day unto a great plantation without a
manager, everything running amuck and
without any stabilizing influences and
things not correlated as they should be.
"Price,' according to Prof. Bhkey,
is the Indicator which governs business
and industry in the world today. If
the price of something gets high it is
scarce article and that there is an
abnormal demand for it. On the other
hand, if the price is low, it shows that
there is not a demand for the product
and that production of same must be
cut down. With the price of com
modify as an indicator it is wonder
that things 90 along as smoothly as they
do, Prof. Blakey stated: He said that
the regulation Of prices on all commod'
tiles by the state or government as pro
posed by some people would not be
practical as it would mean that the
Government or state would have to
govern the output and fix the price and
in case that there were over-product1on
the state or. government would have to
stand the loss.
The speaker said that miscalculation
lis responsible for abnormal conditions
to a great extent, all being in business
to make money and consequently having
to calculate ahead, it being inevitable
that miscalculation is going to be made
in some instances. The war has upset
calculations and in the case Of farmers
the weather also governs the output: The
question Of big profits makes people &C
into the line of business that brings the
biggest profits and when great mum
ber do this the result is that soon there
are too many in that particular line OF
business-it has been overdone. Instan
ces were cited by the speaker to show
how this occurred during. the recent
war, many branches Of industry being
neglected and almost abandoned for the
more profitable lines or for which there
was a greater demand at the time, re-
sulting in shortage of the commodi'
ties. the production Of which. was cur
tailed. -: $780,,
Discussing the money situation, Prof
Blakey said that gold as basis for the
money system is essential as the supply
of gold is limited and cannot be in
creased in great quantities by 1egisla
tion as is possible with paper money
The United States is on gold basis:
he said, but Canada, England, France.
Italy and most other countries are of
from the gold basis, having issued notes
in excess Of the gold reserve, which ec'
counts for the drop in the value Of the
money Of those countries. Prof. Blekey
explained how some banks stretch thci'
Money or, as he termed it, "deal in
Cradit.'' He said :hat they do this
by giving bank notes in rlace of gold
and put out more notes than they have
gold reserve. This is dangerous prac'
tiae because if some Of those who have
accepted the bank notes or currsucy n
piece of gold come in and demand the
go(! they are unable to produce it and
must close their doors. The same is
true where money is loaned out aud
i, stead Of being paid out in gold is
placed to the credit of the borrower
and he is allowed to use check ac'
count. In this case, the borrower issues
the paper and the value of same de-
pends upon whether the borrower can
meet the payment Of his note to the
bank.
The federal reserve system was in
augurated, Prof. Blakey said. to mobil-
ize the gold of all the banks: In this
way it takes less gold as each bank does
not have to maintain such a large re-
serve but can draw upon the federal
reserve bank when necessary, up to
certain limit. This makes it possible
to increase credit, if necessary, and
this has been done. Before the war this
country received over billion dollars
in gold from Europe and this put the
country in position to increase credit
as the amount of gold had increased al.
most so p. c. The government borrowed
money from the people and gave bonds
in exchange. It being pointed out by the
government that these bonds were as
as good as money the people have gone
ahead and borrowed money on them and
in this way the bank credit has been
extended. The result was that prices
kept: going up and the people had the
credit with which to buy. Before the
war, there were no federal reserve
notes in circulation and now there are
over three billion dollars worth ont.
After the armistice, the federal reserve
banks were afraid of unemployment and
consequently there has been an infat-
alton of the money value, SO as to pre-
vent panic. A year ago, the federal
reserve banks issued warnings to the
banking institutions throughout the
country Of the danger of extending
credit too far and now they are tight
ening up as the limit has nearly been
reached.
The slump in prices came last sum