Evening star., 1921-05-01

means to save the business interests of
the country. There have been meetings
of committees of bankers to outline
plans for the extension of old lines of
credit and for the advancement of new
loans to keep concerns going. There
have been consultations. complete re-
organizations. reductions of assets. and
losses have been sustained by all con-
cerned. including the bankers. Scheme
after scheme has been proposed before
method of refinancing could be found
which would be feasible.
Those charged with the manage
ment of banks have burned midnight
Oil porting over the problems of
customers of every class. Their of
ficers experts and accountants have
frequently been called away from
their regular duties to help work out
the problems of customers
Under normal conditions at certain
seasons of the year country banks
scattered all over the country are
purchasers of commercial paper, in
the aggregate very large. Much Of
TINS is made up of small amounts
placed with small banks. Whenever
a concern which has had paper out
IN thls way has experienced difficulty.
unity Of interest demands action on
the part of all note holders. To eff
rect tins. banks in the centers have
been compelled in many instances to
take up these scattered notes, thus
Increasing the strain and drain upon
thelr llquid resources. The alterna-
i've IN these cases would have been
10 force payment and compel failure.
me country banker. too, has had
ms problems. They have been very
nara ones Tor him to handle. He was
encouraged to expand loans to en-
aple customers to buy government
Donds and to increase production
win inc severe drop in prices of farm
products last fall. the country banker
round his loans very heavily expanded
ana experienced great difficulty in in
ducing farmers to sell their com
modities'
Can Compel Payment.
continuing, Mr.. Reynolds said:
mere is no doubt that the re-
serve banks can compel liquidation
ana there is no doubt they should do
so. but the speed with which Iiuuida-
tion should come and the harshness
~ me process are questions to test
.ne uiacret'on or the men controlling
ihe system. There is apparent some
laIk OF understanding of the present
poiicy. A study of the conditions of
the reserve banks shows that they
nave used their resources freely to
hold the situation in hand / believe
that they will henceforth be used TO
insure quick and safe journey
through the period of readjustment
believe that no undue curtsil
ment will be imposed on the redis-
count privilege. But the farmers and
many country bankers do not grasp
Ine ldea that contra ction is necessary
hes nave been taught that the re-
serve system is a friend in need.
When one is without money he
Is sure ne is in need; he cannot al
ways see that refusal to lend to
him under such circumstances is
friendly act. The farmer has only
one turnover year Forced liuuida-
tlon-too strong pressure-alarms him
Great care must, therefore, be taken
1t puts the system to new test. 1t
must be applied psychologicallv as
well as logically.
The federal reserve system will
continue to be an important factor
one or the most important-in our
financial conduct and also in our
business activities. 1t has proved it.
sell TO be a system sound in principle
and practically workable.
Hands Or Reserve System.
i would look upon any suggestio
to tinker with it's structure or make
serious notifications in it's form with
doubt and misgivings. Since it came
into operation there have been nu-
many of them have been unsound,
some have been wild and some vicious.
1T has been as much good luck as
good Judgment that has prevented the
adoption of some of these sugges-
tions; for instance. one which would
nave nave made obligations secured by
other than real commercial paper
eligible for rediscount There came
up at intervals others which would
impair or destroy the strict CONNER
cial character of eligible paper.
Those who would end the farmers
eternal credit struggle look with
longing eyes at the reserve systems
capacity for expanding credits. Those
VINO would improve housing condi-
tions have the same hunger. Those
who think that there is one mys-
ferrous process by which the govern
1hent can make everybody rich are
always at work
IN its integrity as co-operative.
commercial banking scheme the re-
serve system is to be guarded with
as much care and as much jealousy
as the Constitution itself. Sometimes. it
seems to me. it must be guarded most
against it's friends.
But the reserve system, as a COM
mercial banking scheme. and its
form of control and administration,
are poles apart. AS to adminiSsra-
ton, the question is not so much one
of method as of men. The policies
of the system should be indicated by
of common veal.
Its officerS-both of reserve board
and reserve banks-should be chosen
with an eye to their particular fit
ness, because it is an instrument Of
tremendous power for i'll as well as
for good.
1T has been wonderful test. In
twenty years of peace-time business,
we could not have learned the capaci-
ties of the system so thoroughly as
we have learned them in the five
years just passed
I'VE know that we can expand our
credits under it to the limit of our
liquid resources and beyond; we know
now that we can contract our credits
under it with safety, however great
the pain may be. But the system in
its administration can be no better.
think. than the men charged with
the weak. We must have competent.
experienced men who
can undertake such work without Sc
we're financial sacrifices and without
looking forward to subsequent and
rewards.
Must Stand Alone.
THE federal reserve system was
created to mobilize the banking re-
serves of the country and to permit
expansion and contraction of credit
as business required. 1t is SO well
esta blshed and so well proved that
as matter of principle it seems to
ne it should be disassociated from
Every other government department.
1T should have the widest possible
range for its activities, unhampered
by any political influence. 1t can
work with government without be-
ng dominated by government. Pub
ic opinion will safeguard the admin
stration of the system. which must
De placed beyond suspicion of bureau
ratio methods, and beyond the play
,f paternalistic impulses.
LAS banker ] am firm believer
n the fullest possible play of eco
1omic forces"
Guardians OF Yellow Metal.