The Birmingham age-herald., 1922-05-11
America Has Not Once Failed to Rally From Panic, Harding Says
Governor of Federal Reserve System Reminds Delegates of Period When Bottom Fell Out and How NormaIcy Is Coming

America has never failed to dem- onstrate it's tremendous recupera-
 tive power and so long as humanity
 endures, the processes of production.
 distribution and consumption will be continuous and will return to nor
 malcy" in proportion to the amount of business energy and acumen ex-
 pended along with the judicious use of printers ink, W. P. c. Harding. governor federal reserve board, and former president of the First Ma tlonal bank of Birmingham, declared
 before tho Southern Wholesale Dry Goods association yesterday. Present conditions in the United States and abroad, especially in
 leading European nations were com pared. That conditions in Europe are growing more stable was indicated by the fact that the pound sterling had advanced from s3.92 to $f44 during the past twelve months. The results obtainabfe from the flood of American tourists to Europe. in en- abling those countries to buy more American exports was also pointed out in this connection.
 Reviews Currency Plan Following a most detailed and ex- pfdHdtOTy TcVltW ol tHC Cut ACAiSS and credit situation from Civil war days until the inauguration of the federal reserve system. with an en- Tightening history of the operation and unusual demands on that system throughout its eight years of exis- tence, the distinguished speaker dwelt in an exhaustive way upon the war. war and post war business conditions and the correlated activi- ties of the federal reserve banking system.
 No Price Effect
 That the issuance of federal re- serve notes have never been used to effect a change in prices since they aggregate only small percentage of the national credit volume com pared with the check instrument; that they are not issued directly to the public but indirectly through the reserve banks in amounts equal to notes and bills discounted or gold or gold certificates as collat- eral: and that their function in the banking system Is to furnish addi- tional credit as business expands,
 production and distribution increas-
 es and there is a need for more credit, were also treated.
 Currency Decrease
 Notwithstanding the decrease in
 volume of reserve notes in circula- tion, in which connection 1t was shown that the loans of the rederai
 reserve banks to their memper
 banks has decreased to about $l,- 50o, 900 900 due to the relaxation or
 the credi. strain in 1921, the total
 deposits of National banks aggre-
 ated s15,39o,43S00 on March 10 or
 this wear compared with $14.560,S52,- 900 on September 6, 1921, showing
 an encouraging increase in the ac-
 tivities of the industries and retail trades.
 When Cotton Fell Out During 1920 when the most oras- tic changes in price levels were
 taking place, the total earning as acts of the federal reserve banks, including rediscounts for member | banks, increased from $3,03s,ooo.ooo in January to s3.396, 100000 in Oc- tcber. At the same time there was not only no contraction in federai reserve note currency, but on tne contrary there was an almost con tinuous expansion In the Voiu.ne VI federal reserve notes in circulation' showing an increase of from S2,S44,- ooo 100 in January to s3,404, ,00O,ooo in December of that year, record high mark" 1t was stated by Gov ernor Harding, who said that these figures should be impressed upon those who have been led to believe that the federal reserve authorities deliberately set out to bring aoou' l deflation and to accomplish this
 nurpose. caused sharp curtaiiment or credit and drastic contraction or tne currency.
 Giving as the chief reason TOT .ne rapid advance prices in 1919 anu IVY; tba great influx into this country ol tnreirn gold without an increase in tbe. Volume of goods available TOT domestic consumption, the speaker hrourht out the fatal results obtained among the warning nations py .ho
 turning loose of floods Of paper
 money. which according to me adopted law of Gresham, woulo m evitably bring a financial disruption. as was illustrated by the rapid oe- cline of the German mark and the
 Russian ruble.
 Three cs of Business
 The necessary of understanding the three Cs of business was emphasized and they were defined. Capftai az the permanent fund of productive wealth, Credit, as the reputation or solyency and character whlcn eh- titles A man to be trusted in buying or borrowing, and currency, as tnae which Is current as medium or eA change, or which is in general use as money or as q representative or value.
 Occasion was taken to treat the va rious periods in our national mone- tary system, including the silver. gold and paper periods and the legis- iation that has gradually brought about our present system of money and banking.
 Development of System In connection with its operation.
 the history of tho development of the
 federal reserve system sance N
 actually began operation in 1911. was
 taken up in showing the how. until
 the United States entered the great
 war in 1917, the stabilizing influences
 of the new system were so great that
 events which otherwise would have
 been disturbing produced not the slightest tremor in banking circles.
 Acid Test
 Governor Harding then followed up his statement that the real test or the federal reserve system came after the armistice was signed. with re- sumo of the many difficulties ana misapprehensions including. the American idea that Europe would re- quire great productive materials from America in re-establishing herseii. the natural belief on the part of our
 sarewdest business men that at least four years of increased business ac- tivity were ahead. that higher prices would prevail with the goods short age. freer use of our credits in high price production and the maintenance | of goods on the market. all of which brought about a reaction not diff cult to look back upon as logical and ir>vitahlA