Grand Forks herald. [volume] (Grand Forks, N.D.) 1916-1955, 1921-11-19

HN~o hNFS f'NfScS3 N INK AaI(&It
state Commerce commission further reductions of a
general nature which viii total some $3oo, GEO ,O0o
which the roads desire to make if their requests ior
further wage reductions are granted.
REDlscoUNI RATES
In an open letter to the editor Of the St Paul
Pioneer Press, John H. Rich, chairman and fed
eral reserve agent OF the ninth federal reserve dis
trlct with headquarters at Minneapolis, discusses
a recent Pioneer Press editorial in which unfaror-
able comment was made on the rediscount rates in
the ninth district, as compared with the rates in
the eastern districts. The ninth district rate has
been higher and remains higher than eastern rates,
the difference between the two having usually been
one per cent. Since the recent reductions were
made, the far eastern rate is ~ per cent, the rate
in the middle west 5 per cent, and that IN the re-
naming territory. including Our own section, 5H
per cent. The Pioneer Press article maintained that
TINS difference imposed a needless and unwarrant-
able burden on borrowers in the northwestern ter
rtory. Mr.. Rich insists that this is not true, and
IN support of his position he sets forth some per
tlnent facts relating to the management of the
federal reserve system and the fixing OF interest
rates.
1t is pointed out among other things that the
rate charged by the federal reserve district organ
~ization to its member banks does. not necessarily
bear any relation to the rates charged to individual
borrowers. The federal reserve bank, as is gen.
orally understood, makes no loans to individuals.
1t loans only TO its own member banks. The rate
OF interest charged to those banks varies with the
supply of money available and the demand for it.
Both the supply and demand ~fluctuate and their
Z fluctuations are not necessarily related to the in
terest rates charged to the individuals by the priv
ate banks.
While Mr.. Rich docs not put the subject in
exactly that form. It may be said that the federal
reserve reflects rather than establishes the prevail
ing interest rates in the territory of which it is
the center. Mr.. Rich discusses some of the fez-
lures which govern interest rates. He points out
that higher rates have always prevailed in the com
p~aratively undevcloped west than in the east for
reasons which ought to be easily understood. If
interest rates were uniform throughout the country,
as it is sometimes eontended that they should be,
money. would be invested in the territory nearest
home. While there is a greater need for credit in
the newer sections Of the country, that need would
not be met because there would be nothing to at
tract investments into the farther western territory.
The effect of this on western development is easy
to understand. Because there has been a greater
need for credit in the west, those desiring it have
offered to pay higher rates for it. Not only has
the need been greater, but the security has some
times been less certain, and almost always less we'll
understood. These conditions have necessarily adj
vanced the rates to a point which the investor be-
lieved compensated him for the hazard which he
was assuming.
We believe that the position taken by Mr.. Rich
in this matter is sound, and that the rates estab-
lished for this district are not excessive as COM
pared with eastern rates when ali the surrounding
conditions are taken into account.
On one other point Mr.. Rich gives some in
formation which is decidedly pertinent at this time.
This is with reference to the profits Of the reserve
banks. During the war period these profits have
been quite large, and this fact has led to some
agitation for a reduction of rates on the ground
that the reserve banks are not established for the
making Of profits, and that the piling up Of profits
by them is decidedly contrary to the public inter-
est Mr.. Rich explains that the profits are due not
to excessive rates, but TO an unusually large de-
mand for funds during the critical period Of the
war, and the time just following that period; that
the banking law provides that the reserve banks
may create SURPRISES out of their earnings, and that
after the surplus in 2 given reserve bank has reach
ed an amount equivalent to their subscribed capital,
there shall then be added to the surplus account
not more than 10 per cent of the annual earnings.
Beyond that point all earnings 60 to the United
States government as a franchise tax. The reserve
banks have in many cases now reached the pre-
scribed limit, and hereafter their surplus will in
crease at 2 much slower rate, and any earnings in
addition to that will be returned to the people in
the form Of franchise tax paid to the federal gov
eminent.
At . rough guess there must be forty or fifty
lawyers in the state, any one of whom would make
a creditabie judge. And with this fact 4 matter of
common knowledge our two senator's have recon-
mended for that position two men, neither Of whom
would be thought OF by more than a small fraction
of the people If the problem were merely TO find =
man fitted by training, experience and tempera-
ment 10 be 4 Judge. The chief recommendation Of