Evening star., 1921-08-08
DEFENDS POLICIES
Of RESERVE BANKS
Gov. Strong of New York
Answers Charges of
Discrimination,

federal reserve system Disseminated
control was begun today before a con-
gressional commission by Benjamin
Strong, governor of the New York
reserve bank.
1T is the desire of the bank to take
up the series of charges and asser-
tions made before you by John Skel-
ton Williams. ex-controller of the
him on his own ground and to dispose
of them finally and conclusively
Mr.. Williams has said that it was
the policy of the reserve bank to di-
vert the supply of money. funds or
them-into New York to furnish funds
for speculative purposes. i shall try
to show what the policies actually
were"
Gov Strong. at length, described
credit movements since the founding
of the bank. declaring that from 1917
to 1918. ''inflati on was unavoidable to
the degree that people of the United
States did not-could not-finance the
war out of savings
To supply $4,000. 10000 per year.
he said. that armies might fight, "it
was necessary either to take 20 per
cent of all the labor and all the ma
terial of the United States or to mani
ufacture credit and by high prices
stimulate production to the point"
War necessitates the choice of
evils he declared. mot the selection
of the best policy. Expansion was un-
escapable. Economy sought by every
variety of organization that might
help educate the people of the United
States was not attainable to the de-
gree of necessity"
DO you suppose the United States
could have permitted a loan desired
for military purposes to fail because
of an interest raue?" Gov. Strong de-
manded, referring to charges that the
reserve bank had aided imitation.
That would have invited disa Ster."
Was War Necessity.
Rediscount and credit rates might
have been raised and prices possibly
held down. he agreed. but he held that
war necessity controlled.
The policy of the New York bank
was to limit expansion in every way"
he said, but first of all to meet the
governments necessities. The COM
petition between the government and
the civil population for the supply of
the country's commodities could not
be checked entirely
After the armistice. he continued.
a drop in demand for commodities
took place. but was replaced by
veritable orgy of speculation. rising
prices, that eliminated about the
summer of 1920.
I'VE got our first warning that
break was coming from the silk mar
worldwide, and due to natural
causes"
Expected Collapse.
steps to meet a collapse of values?" |
Senator Lenroot. republican, Wiscon-
sin, asked. |
'.As early as August, 1918, we began |
to consider the prospect" Gov. Strong |
replied. "and in August. 1919, we took |
some steps to meet it," =,
There followed the greatest de- |
cline in prices that has been noted in |
modern times" he said. which since |
January, 1921. speaking broadly, has |
been arrested
when the public stopped buying I,
goods in 1920" he said. lit was like |
stopping the outlet of an elastic pipe. !
Of pressure of production behind. |
Goods heaped up through all the
line"
Now. what happened to prices?"
he exclaimed. They dropped like a /
row of birds standing one behind an
force up bank loans to carry the sta
tionary stocks"
Asked About Rates.
Money and stock markets are first
in anticipating stringency, Gov
Strong remarked. "and at the bank
where the goodness of cred
is must be estimated, changes are
noted first"
Senator Ienroot pressed u,,aSfion |
as to why rediscount rates had not
been raised earlier.
I'VE could not leave the Treasury
,ut of consideration in 1919" Gov.
Strong answered. for the war was
lot over from a financial point of
view" Reserve banks and Treasury
policies he described as being I'm
adding that while credit
nfiation might have been checked
earlier by interest rate lifting, Il do
lot want to ,criticise the Treasury.
because its difficulties were great"
Work to New Level.
Prees m sna sred! oy aow stronr sIs sss
Ind as banks get out of debt to the
'eserve bank their surplus funds
commence competing for use, and
We get a new and cheaper credit cost.
md we have now entered the Cycle {
Il recovery" he added. We find in
Lustries first checked first resumed.
We find wool mills turned out 106 per
ent of normal in June.~that cotton
Mills are turnfng-out, nearer normal
while flour manufacture
8 exceeding previous outturns.
Sales Increasing.
Steel is the last industry to de-
line and the last to resume.
Retail prices have come down, and
olume of sales is increasing"
"Rediscount rates in New York have
cen reduced, but not in western dis
riots, like Kansas City and Minneap-
lis. Why?" Chairman Anderson
sked.
II believe that the expansion which
ook place in the western and SOUTH
rn district is still a marked factor
n the banking position" Gov. Strong
eplied. That competition to lend
vhich has developed SO early in New1
'ork lis not 50 apparent there YETI