Yorkville enquirer. [volume] (Yorkville, S.C.) 1855-2006, 1921-11-15
FEDERAL RESERVE SYSTEM
An Intelligent Criticism Of Recent
Operations.
The EFFECT OF SO.CALLED DEFLATION

Institution of Splendid Possibilities for
, Good if it Will Follow and Help
Business Instead ,of Trying to Con-
troll the Same.
BY Samuel w. Mccall, Ex-Governor OF
massachusetts.
The Federal Reserve system was
designated to furnish circulating
medium which should expand and con-
tract in response to the demand of
trade. We were apt to think of it as
something self operating. and furnish
ing a natural expansion and contrac-
tion according to the beautiful law of
it's being. This natural process, how
ever, is one of it's beneficent possibili-
ties 1t is in effect a. governmental
machine deity and it's real beneficence
depends largely upon the wisdom of
those who direct its workings.
Something more than, a.year ago it
was decided that we should have de-
fiationF and instead of waiting for de-
flation to come along naturally, chiefly
as n result Of a shrinkage in demand,
cit was decided that il should be hasten
ed, that the loans TO business men
should be contracted, and to borrow a
phrase of the time, that labor should
be lquidated. Thus. there came
about forced contracting of currency
and what comes tosthe same thing, of
credits, and we saw to an extent a
substitution OF the arbitrary action of
men for the'plaS of natural forces,
The result was chiefly effected by
the autocratic enforcement of high
interest rates against the banks upon
their redscounts, and this was re-
fiected in turn m many instances in
still higher ratesrGharged by the banks
directly against their customers. The
reports of the Federal Reserve system
show very clearly the extent 10 which
this process was carried.
During the year prior to the close Of
September, 1921, there had been a con-
traction in the currency notes of about
$s00,000,000 and in the total bills.
meaning government bills and redis-
counts of the banks, there had been a
shrnkage Of nearly $1,700, ,000, 900, or
more than half of the total amount. l
think we should look in vain for such
another proportionate shrinkage in a
single year under any system coming
as a result of the laws that govern
trade and not stimulated by any
forced process.
After the Civil War the country
witnessed the results of initiation and
overexpanslon. Gold was selling at q
premium of so points and everything
else was upon an inflated basis. Mr..
McCulloch, then secretary Of the treas
ury, an official of solid merit who has
been surpassed by none'o of our modern
secretaries excepting John Sherman,
determined on the policy of taking in
financial sail, but he proceeded with
great caution.
He retired $200O.0OO of greenbacks
each month, with the approval of con-
gress, until the total amount retired
amounted to $44,O00,000. Then wide
spread clamOr arose against what was
regarded as drastic contraction, and
congress reversed the policy.
Later it even voted to increase the
outstanding greenbacks to S40O,OOO,OOO,
and this action called for the great
veto Of President Grant. Here was
contraction of only S44,000,000, eau
tiously made, and one of its results
was the'arousing of the imitation senti-
ment which so nearly put the currency
of the country upon a most unstable
basis.
The contraction of currency and the
arbitrary enforcement Of high interest
rates which has been witnessed has
accelerated the fall in commodity
values and as a result, business men
were squeezed under this government
al press and the country was filed with
thousands of lame business ducks from
Passport to Los Angeles. The distress
by no means extended To concerns that
might ordinarily be called weak but
great corporations and firms which
had long been prosperous were made
To suffer severely.
We saw Mr.. Ford barely rlakiEg his
escape and only rs Il result of his re-
markablc business capacity. No class
has been hit harder than the farmers,
with the value of some Of their pro-
ducts, like wool, cotton and hides, dis
appearing almost entirely. NO one
surely can deny that there las been
very much liquitGt.on of labor with
TIE throwing Of some five millions of
men out of employment.
1t is difficult. to believe that all this
is the result of that natural elasticity
that was supposed to be illustrated by
the Federal Reserve system. Even II
we had had no excessively high taxes
on noEe Of the ordinary reactions from
war what other results could have