The Washington herald., 1920-03-30
CHECK PLANNED
ON HIGH PRICES
M. F. Phelan
Pushes Bill for Control !.
OF Bank Credits.

Better control over credits by the
Federal Reserve system as one of
the most effective measures gov
ernmental agencies can use to aid
In the reduction of high prices Is
the purpose claimed for q bill to be
considered in the House this week.
The bill was introduced by Rep
resentative Phelan. Of Massachu-
setts, ranking Democrat on the
Banking. and Currency Committee,
and favorably reported by that COM
mittee. Specifically It provides by
an amendment to the Federal Re-
serve act that the Federal Reserve
banks. subject to the approval of
the Federal Reserve Board. may
graduate interest rates on various
classes Of discounted or rediscount-
ed paper.
Pkelan Explains.
The idea behind the measure"
said Representativ Phelan, sis TO
require banks using the Federal re-
serve system for a great volume OF
credits to pay something for the ex-
cess above the normal volume.
IF the Federal Reserve banks de-
sire. they may establish what may
be classed as a normal volume Of
credits. based on some standard,
such as capital and surplus OF an
individual member bank; or, possi-
bly,, fts reserves or some other fair
standard.
mitted to get this normal volume
Of credit at the prevailing normal
rates. but may be required, IL the
Federal Reserve bank sees Mt to
make the regulation. to pay a some
what higher rate for whatever
amount of credits IL desires above
the normal volume.
THE purpose of this Is to pro-
vide means whereby credits can be
better controlled and undue eXpan-
sion of credits checked. Under the
present provisions of the Federal
Reserve act, whatever rate Is es-
tablished on a particular class of
commercial paper prevails, no mat
ter what volume of credit any par
ticular bank gets. Under this
amendment, those banks that want
a larger volume of credit may be
required to pay something addition
al for the excess accommodation
afforded them
This will permit the Federal Re-
serve banks TO hold down the vol
ume of credits or put on the brakes
at any time without actually shut
ting down altogether on the credit
OF any particular bank. Under the
present law. il a member bank is
getting a large volume of credit
and the Federal Reserve bank wants
to put on the brakes, IL must either
raise the rates for all banks indis-
criminately or must refuse to give
the particular member bank any
more credit. which might prove dis
astrous.
The proposed amendment would
permit the Federal Reserve bank to
give the member bank more credit
and at the same time put on the
brakes by increasing the rate OF in
terest. If at any time a Federal
Reserve bank should exercise this
power, it would be an indication to
the member banks that there Is ap-
preaching too great an expansion OF
credit; the members banks would be
put on their guard and would be-
come more watchful as to how they
themselves should extend credits.
THE best commercial paper mem
Der banks can handle is paper the
proceeds of which are used for pro-
duction or distribution of necessi-
ties. Exercise of the proposed
power. therefore. it is expected. will
result in a little more care in the
extension of credit for production OF
unnecessary thirgs or luxuries and
the extension of credit to those who
use the credit for dealing in stocks
or securities or in holding commodi-
ties for speculative purposes.
1T is one of the most enecttve
measures which can be adopted to
aid in the reduction of the prevail
ing high prices, although it is my
belief that the most effective way
to secure such reduction is by the
action of the people themselves
through increased production and In
i-.rr