The Birmingham age-herald., 1921-09-25

position. But in no case within the knowledge of the federal reserve board has any federal reserve bank undertaken to say to a member bank what particular loans it should call or ask to have reduced.
 T will give you a concrete ex- ample. In another state, not in this federal reserve district, there is national bank which has for long time been a large and continuous bor- rover at the federal reserve bank, the amount of it's rediscounts being sew eral times greater than it's capital stock and it's fair proportion of the ioanable funds of the reserve bank It seems that this bank has made fre- quent promises to reduce its discount line to a more reasonable sum, but as it collected notes it would con stantly send in others for discount
 q hold in my hand a notice that this bank appears to have been send ing to some of it's borrowing custo- mers, which reads as follws
 Your note for $-falls due.
 "'Our federal reserve banS owns this note, having rediscounted 1t Tor us. As it has been renewed several times, they are INSISTING ON A PAYMENT of $ or more. It IS ABSOLUTELY NECESSARY to ar range this note on the day of US maturity. Yours truly,
 CASHIER.
 ''The cashier of this bank recently wrote the federal reserve bank as follows:
 We wish to assure you that we appreciate your help and could not have gotten along without 1t. we are more anxous to reduce our line than you are to have us do 1t. TO show you how desirous we are to get our line down I am enclosing a no- tice which we have lately gotten out and which is producing excellent re- suits. Now be patient with us just little longer and we will show YOU that we can reduce our line to a respectable size. We thank you just the same"
 ITO this the federal reserve bank replied promptly:
 We are pleased to note from your letter of September that you anticl- pate being able before very long 10 materially reduce your large borrow ings from us inea gradual manner We do not, however, feel that you are Justified in sending notice to DOT rowing customers as per the Iori which you enclosed, aS 1t makes that are entirely uncalled for. The papers that you have hau under rediscount with us and Whlch We accepted as being eligible Tn or der to extend to you needed ala, rep resent loans that the officers or your bank have passed upon from the standpoint of the credit worth in- volyed. and, no doubt, with the con
 hat nnllaGtth1llIN when due, and, therefore, when the time comes for making collection, It would seem that, being conversant with local conditions, ways anu means for making collection could De devised by the same officers withou. laying the burden upon the 1euerai reserve bank This bank has never set forth to your institution what loans it should or should not make nor has if stated that any particular note or notes that 1t has held under rediscount from your bank should De collected We have extended accom- modation to you over a long periou which, in our opinion, was the tiiile when credit was needed in oroer eo aid your customers in their commer cial industrial and agricultural op- erations. but when the harvesting and markeLlnS pCiioo NAA there seemed to be little or no re- duction in your borrowings, we deemed it advisable to bring to your attention the desirability of efforts being made to get out rom your se- riously extended position. The ue sired amount of curtailment in the of your individual GUS toners is a matter that should pc out by your directors ana oi- ficers, they bearing in mind the eA tended position of your institution and it's accuracy. We would ask therefore that you discontinue a' once using the form. of notice ,e ferred to and that you also recall the notices of similar tenor that have already been sent to your customers.
 No doubt the federal reselte hoard will receive many complaints growing out of this incident
 There Is perhaps even greater con fusion in the pubic mind reSdrulns the issue of federal reserve notes tndii there is regarding the rediscountlns functions of the federal reserve banks. The impression seems to pre-, vail very generally that the federai reserve board has power to expand or contract the currency of the coun try at will and some believe that II mas exercised this power in reckless and arbitrary manner. While the law that the federal reserve hoard shall have the right, actlhs the federal reserve agent, to grant in whole or in part or to reject entirely the application or any req eral reserve bank for federal reserve notes. it has never exercised this right. On the contrary, it has al ways approved promptly every appn- cation which has been made for the issue of federal reserve notes. One of the purposes of the federal reserve act, as stated in its caption, Is to tur- nish an elastic currency, Dut there are many whose idea or elastlcity IS stretching.
 ..Currency to be really elastic must be susceptible of expansion or the reverse. as the needs of industry and commerce may require. Many believe that there was a preordained contraar tion of the currency during the year 1920. determined upon in order to re- duce prices.
 The facts, which can be readily as certained from the figures which were published every week during the year 1920, show that this impress sion is absolutely unwarranted. The federal reserve board said in its an- nual report for 1919:
 "The expansion of credit set In mo- tion by the war must be checked. Credit must be brought under effec- tive control and it's flow be once more regulated and governed with careful regard to the economic well fare of the country and the needs Of it's producing industries. Deflation. however, merely for the sake of de- flation. and a speedy return to nor nal, deflation merely for the sake of restoring security values and com modity prices to their<pre-war levels without regard to other conse- quences, would be an fnsensate pro