New-York tribune., 1921-06-27
Effort to Curb
Reserve Boards
Power Attacked
Guaranty Trust Co. Says the
Remedy Lies Rather in
Readjustment of Underly.
ing Industrial Conditions

ReadJuSCmenC or undeflylng lnduStrlai
conditions, rather than Of the finan-
cial and banking situation, is the prime
requisite for restoring business activi-
ties, says the monthly survey Of the
Guaranty Trust Company, made public
to-day.
"Instead of a proper concentration of
effort on this primary task" says the
survey, "a number of legal measures
are being proposed which would render
this readjustment more difficult. Some
of these proposals have as their pur-
pose the arbitrary limitation Of the
discretionary powers of the Federal
Reserve Board.
"There has been introduced in the
House of Representatives, for instance,
a bill which would prohibit Federal Re-
servo banks from charging member
banks in any transaction with them a
greater rate of interest than per cent
per annum. The passage of this bill
would automatically deprive the Fed
eral Reserve banks of the power they
now possess for controlling imitation.
The inevitable result would be to re-
create conditions under which money
panics might be precipitated; and one
of the chief purposes for which the
Federal Reserve system was designed
is the prevention of such panics.
Likewise, it has been proposed to
amend the Federal Reserve act with a
view to restricting the authority of the
Federal Reserve Board in curtaiIing
credit. Such an arbitrary legal regula-
tion would be fraught with possibilities
for mischief, and worse. The advance
notice of forthcoming restriction
upon eligible paper, under conditions
which this proposed amendment would
create, would induce rush of demands
upon the member banks for credit ac-
commodations. Prospective borrowers
would wish to obtain accommodations
before the restriction should become
effective. Instead of aiding in stabil-
ization of credit conditions, therefore,
the effect of such an amendment would
be to weaken the Federal Reserve sys-
tenn as preventive of financial panics
Whatever its shortco omings, the Fed
eral Reserve act has proved to be prov
idential for the United States. It pro-
vided banking system which was
strong enough to withstand the great
est credit strain ever experienced in
this country, and which not only sue
cessfully functioned during the dan
gerous imitation period, but also has
subsequently met the acid test of the
even more dangerous defiation period
to operate so helpfully if in every de-
tail the power of the Federal Reserve
Board to regulate credit is minutely
prescribed by law.
1.-THE influx of gold into the United
States continues. The net balance of
imports in May was $57,0OO,OO0, rails
ing to about $320,00O,000 the net gain
through importation in the first five
months of this year. For eight con-
secutive months imports of the metal
have exceeded exports.
.The recent accumulation Of gold in
this country through importation is to
some extent reflection of the made
quate provision of credits for financing
thls trade every reasonable effort
should be made to obviate the neces-
slty for foreign countries to dispose
largely of their gold holdings.
Wnlie this inflow OF gold has helped
to improve the reserve position of the
FEDERAL Reserve banks, it represents
on the whole withdrawal of the metal
from countries which need to strength
en- their currencies. The effect of This
upon exchange rates is not precisely
measurable, but it is certain that the
movement cannot continue at the pres
eht rate without adversely affecting
= Nv idE DIS Cn1S country Is
concerned there is probably more cspse
Tor apprehension on this score, in view
OF the possible further impediments
to our export trade, than for fear Of
an imitation of our currency and price,
IN consequence of the accumuiating
gold supply. ''i's
For the most part production ami
trade show continued hesitation. In
some localities. however, the volume of
retail transactions, allowance being
inade iof the lower prices, equals or ex-
ceeds that of the corresponding nar;oa
last year. Appreciable Improvement Is
found also in some lines of manufac-
turing. Those industries which were
among the first to undergo readiust-
ment are giving evidence of increased
activity.
Improvement in underlying condi-
tions upon which a sustained revival
OF business must be based, however,
continues. Wages are being further