New-York tribune., 1920-02-26
Sees Danger in
Credit Expansion
And Loss of Gold
James S. Alexander Saws
That Gold Basis Is Be-
coming Inadequate i'm
View of Credit Conditions


uublic yesterday on the credit strain.
contends that tac ratio of the gold
hsse to the credit structure Of. the
country is approaching point that
il lower than experience shows hest
serves the credit requirements of the
nation.
After explaining how the Federal
Reserve system permits smaller ratio
than otherwise would be deemed es
sential the banker points out: "These
improvements IN the system, of course
do not mean that the gold ratio can he
reduced indefinitely, nor do they mean
that the nature of the credit structure
esn be ignored. 1t is my belief that tho
situation has reached a condition where
further expansion should, if possible.
be avoided IN view of the non-liquid
nature OF q large volume OF loans to-
day.
Business Men Must Helm
The falling gold ratio and the credit
s.ringency which we see as result
are sufficient warning that the time
has come when this obligation of the
banks must be taken most seriously.
Il shou also be realized that th.. w.
sponsbAity is not solely theirs. ara
tha. to make readiustment comniote
snd fundamental business men mus
cooperate by not detracting credit from
productive employment.
Il believe that the readiustment NJ
the present strained credit situat;o,
must come from this direction and MOI
In any erort to increase or maintain
eur supply of gold at the present VOL
ume as support for more credit thau
actua! essential business REQUIRES We
have more than our share now. Eurone
Should not SEND us more. and we NAV
expect some OF our gold to flow out 70
steer parts ot the world, where the
os.ahce ol 'faoe IS against Us. In the
ions run that should better our own
business since II VIII serve to set up
N the world more solvent and moro
active customers OF this country
Having asserted that the chief canso
o. the present strain on the credI,
SITUATION IS the fact that the yolure
Of credit mas expanded until the GOLD
BASIS IS becoming inadequate in view
o. CONDITIONS affecting the liuuidi4v of
credit the banker emphasized the
pubic character Of the banks present
lespons ibility Mir. Alexander's state
meat was prepared for the March Issue
o o commerce Nonthly," published by
c.o.1 expansion IN the United
@a'es' ne sad, has reached point
sieie !. must be given oarnes. thought
as serO&s public problem The banks
ant the business men OF the ronn+,.,. -,.rs
lhere.9Fe' have 4 definite public re.
spohs1O'-lty IN making and usinp loans
ii view or the conditions and snocial
sNisehcles tnat exist TODAY.
cuns'aered individuality, the hanks
"a eA'en0ing credit are in theory hand
ing 9'iFats means. but viewed col.
Ne".e.. 'neE are actually making use
'. enc ol the nations greatest re-
Svuigea, si. s'hce the sum total of bank
s,ee,s ;-s.i'.. eo's'itl ltes the country's chief
instrument OF business. Tho banLs
and inelr total volume OF loans ,rSs ,',,,S.
mus De thought of eollcctively if one
~ 10 nave true perspective Of tbe
,rssene-ai rs-a par' they play in the na+ion,s
Nv -"se as our coal mines and re
ssl e. must be considered as whole
IL estimating the nations natural 70
sources. 80 - "l i"-
Lower Rates
Une index of the basic situation ;s
.u1Ne ..e III lne seriously altered ratio he
ss"een 'he total stock OF gold coin and
,s. .--1 on i'll the United States and the
%.M Noi ~lne OF other money and hank
ceposlts subject 10 check. Roth -
A ll q Tr.,
IeElS o. business because OF thn nv
sisst snsheh ana uneXprossed faith Of the
puoAc that underl ing them is enonoS
1 s. s.'u -"' me redemption of all OBJ lioa-
mG"s incurred IN either OF them which
bus ness. o'oiSe o.
I'M. Inc figures for the five wears n,e-
mVIs 70 'he time that our participafion
.bs ''e var oegan to make itself felt in
.' c'eaN situation show an average
,".' srN 1sIo OF about II per cent Of t5e
w.. w. vi o'her money and deposits sI1b-
i ia1s S"ecK me ratio about June 30
war coms.. mm.cn came after & full year of
soi. I. eohcluons had made themselves
4 Ia.' ill., STOOD at only l4.9 per cent. Sim
.'@r hgures for June 80, 1919. show Il
SSs"n WV 20 ~ per cent, and on Scptem-
W.. 1 ISlS, 1t had fallen to III ner
following the beginning of the war
=. europe, the table shows y steady ana
.saa,' .spIG increase IN the countrv's. gold
1 1So~a' 'Sns' que to turope's expanded pur-
4 ,,salss 80 mere, Tor which she could not
nd SS'E pay by her own commodities
asaI u Ioi which, therefore. she paid
sya, 4" goid while she had the gold
,,s ". 70 send. Up to our entry into
NV @ war therefore, although the vol
sa'e OF credit materially Increased
.eVertheie it maintained fa3,,l-,
I .aus Icy ana thoroughly satisfactory re-
base. 'i'1 increasing gold
,,51 But on June 80, 1918. although tbe
s,a s.,a Dase continued to show some in
sase' II was at slower rate Yet fro
t;nnson t;pansion in credit showed propor-
,,.;'ety greater increase, SO that tn.
m T.'o OF goid TO credit fell off sharnly
WV "me tendencies remained onera-
's III The figures for June, 1919.
credit Expands; Gold Diminishes
, S'il more significant change takes
ss"Ve IN the relationship shown by the
- SSafeS Tor September l, 1919. Here
Ss ne gold base has been somewhat nm
t'Hlned ~ by the stoppage Of the fow
NJ s0ld INTO the United States from
Of of'ar countries and by reverse flow
n soid out Of this country following
I bs removal of our gold export ems
ns,t MO sast June. Nevertheless che vol
TS" Tns o' credit continued To cxpand.
I ~ asUs' "niie the gold base grew smaller
/ ~ efeaif struct0te grew greater"
4 .sI "a suggesting the rem edv Mr.. Alex
sace~ said:
/ II. believe to-day that it is the pub.
b as we'll as the private. duty Of
! ba,,s bnns TO draw the line most carefully
1 a"eeh loans for essential enterprises
| mna. ehose Tor non-es essential employ
l H. ana to favor the former class in
/ Of n'efest OF maintaining the strength
4 '" The general busineec st.uot;ox,