Evening star., 1920-04-03
TWO B|GPR0BLEMS
RESULT FROM WAR
Production and Lower Prices
Discussed by New
York Bank.

York Bank.
fFrom the April Circular Of American Ex
change National Bank Of New York city,
The country is confronted with two
major conflicting needs: First. it
needs increased production to meet
the apparently Unsuitable demand for
goods. and. second. 1t needs to put a
stop to advancing prices. A solution
of the first problem would automatic
ally solve the second. but the trouble
with the situation is that the second
problem must apparently be solved
hrst. In other words. the cart must be
placed before the horse. The ques-
tion is. can it be done?
There is a diversity Of opinion, the
weight or which is against the propo-
ett1on that we can go ahead prOduc-
lively while we stand still financially
or the factors in the situation is the
stronger. it being contended on one
hand that the needs of finance will
control. and on the other that the de-
mand for goods will control. in either
of which events there would be no
of the conflict of interest, but
a mere development to a logical con-
In other words. if we pursue pro-
duction to the point at which it will
overtake advancing prices and turn
them back. we will wreck the f1nan-
cial machine or be forced to change
to another en- route, while if we make
the preservation of the financial ma :
chine the first consideration we will
nave TO shut down production.
The Middle Ground.
Those who believe that a reconcil-
iation of the conflict of the two fac
tors is possible have taken the middle
ground of slowing down the financial
n the hope that we will be
able to work out the problem without
serious injury, or at least with a min
imum OF damage. This solution is op-
posed by the extremists on both sides,
the advocates Of the financial factor
contending for a ruthless return to
normal and the advocates Of the
production factor contending for full
speed ahead at the risk of fiy-wheel
explosions, rocks and everything else
Now, the advocates of production
to the utmost regard finance as a
sort of servant which is bound tc
come along when production beckons
"a servant without interests of his
own. But the advocates of finance
consider it to be more of guide
philosopher and friend of production
with distinctly personal interests
which cannot be ignored when pro.
duction undertakes to set off on g
joyride that may land them both ir
a wayside ditch. These opposing con.
ceptions of the function of finance
cannot be reconciled, SO it appears
that when the futilfty of half-wa,
measures has been demonstrated, we
will again be forced to make a choice
between them.
Exhausted by Wars Demands.
Briefly stated. the causes which leo
to a divergence of interests were the
practical exhaustion of the financial
resources of the country by the de-
mands made upon it by the war, and
the concurrent decrease in the pro.
duction of peace goods and deteriora'
tion of productive machinery due tC
the diversion of labor to war pur-
poses. The war forced the expansion
of the credit resources of the coun'
try approximately to their limit de-
spite an unprecedented increase ir
these resources. The adoption of the
federal reserve system in its pres
ent scope alone increased our credit
resources beyond anything ever con.
ceived before, to an extent that woulo
have met the reasonable demands fol
expansion for years to come.
The influx of gold incident to oul
increased exports practically doubled
our credit basis, yet the demands
made by war financing absorbed it all
1t is conceivable that we could have
gotten through the period with mucf
less money. However, the ease Witf
which we could command credit lee
us to be careless and we went aheac
blithely paying whatever was de-
manded
Now we face the day of reckonins
and we find that we are scraping the
bottom of what We thought was ar
inexhaustible bin of money. The
allowing the unliquid government
war obligations to get into the fed
eral reserve system upon the sam
basis as liquid commercial bills. II
the theory of the federal reserve sys'
tenn had been followed we would have
avoided our present predicament
However, we are confronted by the
facts Of the situation, and no sus-
tenance is to be drawn from regrets
War Profits Demand Service.
We spent our money celebrating
the Fourth Of July, and now on the
day after the celebration we lack the
car fare to take US to our work. II
we had worked as usual" on the
holiday, the problem confronting us
would have been far less puzzling
But most of us stopped making the
voted ourselves to the production OF
things needed for the celebration
That part of us found the work re-
munerative in the extreme and is nov
engaged in demanding more every
day goods with the surplus it earned
As there are less goods now Una.
there were before the war and fewer
machines for producing them. the
new demand has never been satisfied
But it persists and apparently hopes
to attain it's desires by offering more
and more money. There is limi,
to that sort Of thing, of course. and
in the end the price the demand ii
sources-that is. unless its con
seriousness of new power enables Il
to command more surplus.
This statement Of the problem
leaves it without a solution. 1t il
apparent that nothing can be gained
by shutting off production. through
denials of credit. as the subsequen
release Of credit would carry US righ
back where we were-or nearly there
The advocates of unrestrained pro
duction seem to have the best of tn
argument. unless there is some mid
die ground.
There are things that can be dom
that will ameliorate the situation
such as the repeal of the excess
profits tax, the adoption OF volun
tary restraints upon prices along tn
lines adopted by the United State
steel Corporation, and an appeal t
the workers to produce more good
for the money they receive. Thes
amelioratives ought to widen tn
margin for further expansions o
credit within the existing system
and might make enough room for tn
development of production to tn
1lrif he,