The daily banner. (Cambridge, Md.) 1897-2008, 1921-08-06
.)ROCRESSS|vERATE:
POLICY EXPLAINED
Necessary to PeG2!iz5 Heaviest
Borrowers, HzTd 9g Says.
DANCER IN LENDING POWERS
Reserve Board Head Declares Col
lapse of Prices Last Year Was Not
Caused by Restriction of Credit.

Washington. AUG. 6.-The ehh and
flow of monetary credits through the
federal reserve system WAS further &c
s,ribcd before Il congressional com
mission hv Governor Harding. of the
reserve board.
I'VE have Twelve reservoirs of money
in the Reserve Banks" he said, and
we can put Il pipeline from one To an
other of them. when needs become to"
great for loc&l money supply. always
remembering that he loans com" in
and are secured by local member
banks.
The federal reserve board can out
line Il credit policy. lalt ii is very diff
ficult To enforce it because tt this Hl"ih-
Der bank proposition. There ar" ID
600 of them. and they TAX" EtA rr>l'"h-
sibility in The first instance.
IS ,me of them held unfold lending
power. while ,therS in credit Sirin@rnrN
20 into In F'derAl Reserve l':li:.l and
get widely. even dangerously EXTENDED
power. That wa> why we had to eS-
tahliSh the progressive ralc. /" penal
iZe the heaviest borrowers. hut we
hope We'll never have t" pun progress
Sive rates in effect again.
There is prevailing impression
that the break in general prices during
1920 WAS due To the restriction "t
credit. and that the reserve board was
responsible Tor the re>1ririion, Rep
reSentative Mills. Republican, New
York. said
"There is no; lining in it," Governor
voted in 1929 To preventing IL collapse
of our hanHing system.
at is not our duty to- enhance or
reduce prices. bat credit is based on
prices. and in 1920 we had most sig
niticant signs that Il break wa> com
ing"
What do YOU think would have hap
pcntd if you ha,' not dopted II rcstrir-
ton I,olicy:" aSHen Senator Lenr""t,
Republican. Wisconsin.
You can tell what Happened in ca
ba." Governor Harding rr:ly'l. There
would have come collapse. aggravated
by banking Insolvency..
suppose the board had restricted
earlier" Senator Lgnroot said. Would
not the rise in prices have been lessen
pd:"
That's probable" Governor Hard
ing said I'll be frank with you. Had
interest rates been put up earlier. the
runaway movement of prices and spec
ulation might have been checked. And
if might have been better
Representative Summers. of Texas,
suggested that the word had been
passed out from the reserve banks
during 1919 and 1920. telling bankers
to beware of prices and credits on farm
products particularly
Nothing went out from The reserve
board that is Inconsistent with my
statements" Governor Harding re-
piled, hut | want you to understand
that in human psychology Il country
banker. declining To loan, wants To re-
tain friendship of the customer if he
can. No bank wants to make Il person.
al enemy. The banker passes the buck,
and SAYS the Reserve Bank has called
in all loans and he can't lend. That
lets him out, but creates that wide
spread sentiment You cite.
Governor Harding insisted it had not
been the Z Icy of the reserve board
or its idea. To reduce prices, or to
spread the idea the: were going to fail.
You must know the pressure which
came upon us to issue general state
mentS.' Governor Harding said. "but
we never issued one unless silence
would have made matters worse"