The Topeka state journal. [volume] (Topeka, Kansas) 1892-1980, 1922-07-13
TOPEKA STATE JOURNAL
Information Bureau
EREDERIo J. HAsKIN. Director,
Washington, d. O
RESERVE BOARD APPOINTMENT

P. G. Harding of Birmingham, Ala,
as a member of the federal reserve
board. The reason for this interest
is that the act of reappointing Mr..
Harding, or failing to do so, will in
dictate what the policy of the federal
reserve board for the next few years
is likely to be.
1t is seldom that the appointment
of one official occupies such a key
position in relation to a broad ma
uonal policy. The reason is that Gov
ernor Harding stands for a definite
credit policy and that factions which
are opposing his reappointment stand
for an opposite policy. Governor
HardingS term expires on August 10
and so far the president has declared
that he has not yet taken up the mat
ter. 1t is known that bankers and
business men have written him urging
that he name Mr.. Harding and that
agricultural Interests have written
him opposing the reappointment of
the Alabama banker.
The issue is one of unlimited cur
rency issues and extensive credit for
farmers versus restricted currency
held absolutely to the gold standard
and restricted credits. The farmers
want the former and Governor Hard
ing stands for the latter.
The events which brought the issue
before the American people are IA
mllar to most citizens but have been
presented under the color OF the op-
posing rrejudices. There has been
bitterness between the factions which
on some occasions has led almost to
blows on the floors of congress and
in committee rooms.
The boom years of 1919-20 brought
ABOUT a tremendous expansion of
credit thru the reserve banks which
are regulated by the federal reserve
board, of which Mr.. Harding has been
governor during and since the war.
During the war the discount rates at
federal reserve banks were kept low
by the influence of the secretary of
the treasury. The treasury had bonds
to sell and desired to sell them at the
lowest possible rates of interest. The
secretary is ex-officio chairman of the
federal reserve board. His influence
was strong enough to keep the dis
count rates down. He exerted it be-
cause he knew that if these rates were
increased the interest rates the gov
eminent would have to pay on bonds
would have to be increased also. With
low bank rates, business men, farmers
and others borrowed more money
than they would if rates had been
high and therefore circulation of
paper currency rose higher and higher
books of the banks increased progress
sively.
A Change of Policy.
In the winter of 1890 Governor
Harding announced the emancipation
of the board from the treasury in
regulated independently Of the treas
ury bond rate. Rates were increased
with the result that within two or
three months 100000 was
squeezed out of the stock market. This
billion had been borrowed by stock
market traders to speculate on the
Exchange. When their interest rates
were raised they paid back the money
and reduced their operations. This
was the first effect of the new policy
The billion dollars was freed to be
lent to farmers and productive Dor
rowers-
Next the board intimated to the
member banks that they should in
crease rates and reduce loans to prof.
teers in food and other. essentials
Especially was it desired that people
who had stored up food to hold for
higher prices and had borrowed mon
ey to enable them to make this spec
ulation should be brought to terms
If these SPECTATORS in necessities
could borrow no more money they
would have to sell their food at re-
duced prices This resulted and il
constituted the first successful step
taken by any governmental agency to
reduce the cost of living.
But the time had come for reac-
ton. The Japanese silk market col
lapsed and the beginning of depres-
sion extended to this country. A
PHILADELPHIA and New York mer-
overnight reduced every article in his
stores 20 per cent. The buyers strike
spread and the overall movement
came into evidence. people wearing
overalls in preference to paying the
high clothing prices.
1t was inevitable that all prices
should fall speedily. This included
food prices. AS the summer wore on
food products became cheaper and
cheaper.
Reserves Were Threatened.
Food comes from the farms. 1t
takes a year to make a crop. When
the farmers had bought their seed
and hired their planting and cultivat-
ing labor, the high prices were still
prevailing. When the time came for
had been cut in two. They sought to
borrow money at the banks to enable
them to hold their crops in the hope
of another rise in the price. The
banks extended credit up to the point
where reserve requirem ents were
threatened. Then a halt was called.
To go beyond this reserve require
ment by lending more money to farm
ers and others-for business generally
also was demanding loans-would
mean to take the American currency
off a gold basis. The reserve board
had before it the spectacle of the Ger
man and Polish marks and the Rus
sian rubles, as well as other foreign
currencies. They saw what happened
in those countries when the gold basis
was lost by the issuance of currency
beyond the reserve requirements and
decided that it would be better for the
United States to draw in its belt for a
few months than to put the dollar IN
the same class with the mark and the
ruble. Reserve requirements were
not suspended. altho money was spent
right UP to the point where further
loans would have meant suspension.
Hundreds of millions of dollars were
sent out of Wall Street to be lent to
western farmers and business men.
Credits were extended as far as there
was real credit to extend. but the end
came. There was no more credit. no