The Birmingham age-herald., 1921-12-18
Acute Stage Of Reaction Passed, Says W.P.G. Harding New Era of Prosperity Way and Revival Not Far Dis tant, Federal Reserve Head Tells Washington
 Chamber of Commerce


 replenishing her supplies must con tinue to draw heavily upon the pro- ductive capacity of the United States, just as had been the case ever since the year 1915. This impression was deeply engrafted upon the minds Of the public and for a time European needs were so urgent that they had 10 be supplied at any sacrifice. At the same time a substantial part Of the sum which during the war the United States had agreed to advance to foreign nations was still unexpend- ed and these funds were used during the year 1919 in payment of goods ex- ported to Europe.
 Many Made Mistake
 Many shrewd business men looked forward confidently to several years of commercial and industrial activity and made their plans upon the as- sumption that prices would either advance or remain stable and that a return to the pre-war level or a serious decline in the immediate fu- ture was most improbable. Farmers incurred obligations for additional land at a valuation based upon the commodity prices then existing, mer- chants extended their business and manufacturers prepared to increase
  additions to their plants, regardless of the fact that such additions could be made only at costs much higher than normal.
 "The consensus of public opinion was that we had entered into an era of high prices and that there would be for some time a serious shortage of goods. Many jobbers called in their salesmen and were obliged 10 scale down the orders which poured in by every mail. Prices advanced week by week and many producers and merchants were reluctant to sell. for advancing prices were accompa- nied by higher wages and greater production costs.
 Credit was freely used, not only in production at high cost but In withholding goods from the market, and inventories and bank statements everywhere showed an expanded con- dition which would have been re- Rarded as unthinkable a few years before.
 Bring Reduced Consumption
 "The effect of high prices in this country was reflected finally in re- duced consumption and in the latter part of March, 1920, those who had dreams of a long continuance of the conditions which had existed up to that time were rudely awakened by the collapse of the silk market in Japan. Public opinion began to un- dergo a change and public opinion Is a powerful force, more potent than banking boards, than legislative bodies and government itself The curtailment of buying became more and more noticeable. What has since been referred to as the buyers uh the country and An quick succession the drastic reactions in commodity prices began to take place. Many who had been eager to buy withdrew from the market, and many who had been reluctant to sell became anx- ious to dispose of their goods.
 Banks began to find that loans which they had thought could be re- paid at any time desired could not be collected in the new circumstances and must be carried, along, Recourse was had in increasing degree to the federal reserve system, which re- sponded to all legitimate demanas, and which should be credited with preventing what would otherwise have developed into most disastrous money panic.
 "During the year 1920, whom these drastic changes in price levels were taking place, the total earning as- sets of the federal reserve banks, which include rediscounts for mem Der banks. increased from sS,o3s,ooO'- 900 at the end of January to sS,Ss6,- 0OO, 900 at the end of October. At the same time there was not only no contraction in federal reserve note currency, but on the contrary, there was an almost continuous increase In the volume of federal reserve notes in circulation, the amount in- creasing from 2,s44,o0o,0oo on Jan uary 23, to 3,4o4,ooo.ooo on Decem- her 23. 1920. a record high mark.
 Federal Reserve Standard
 "These figures should be impressed unon the minds of the public, for the reckless and unwarranted statement is often made that the federal re- serve authorities deliberately set out to bring about deflation and to ac- complish this purpose caused sharp curtailment of credit and drastic con traction of the currency. f, '1carly in September there was much reioicing throughout the southern states because of the marked advance in the price of cotton. This advance is not due to any increase in the loans of the federal reserve banks nor to any expansion of the currency. As a matter of fact the amount Of federal reserve notes In circulation on September 15. when cotton was selling at about 2l cents a pound, was about $500, 900. 900 less than when cot ton was selling at Il cents A pound early last spring. The advaS7s in inc price of cotton was duo to eco- homie causes and to the operation or the inevitable law of supply and de- mand. After the report of the de- partrnent of agriculture early in Sep tember, the world awakened to the fact that the present cotton crop is abnormally small, and it was thought at one time that less than 100000 bales would be produced. AS the gin ners' reports were made. it became evident that the department of agri- culture had under estimated the size of the present crop of cotton and the price declined 1 or cents pound.
 Cause of Cotton Rise
 "This decline took place notwith- standing the reduction which was made about the same time in the dis count rates of all federal reserve banks, including those In tho south. The fact should be emphasized tha, the net advance which has taken place in the price of cotton has been due not to credit or currency ex- pansion but rather to the deflation