Evening public ledger. [volume] (Philadelphia [Pa.]) 1914-1942, 1922-03-06
FEDERAL RESERVE SYSTEM
CAN STAND HEFllN'S ABUSE
The Alabama Demasogue 10 Madly
Charging Il with Responsibility for
the Sluup In Farm Prices

TT Is gratifying to note that the Senate
i is showing no disposition to co operate
with Senator Hcfiin. of Alabama. in his
attack on the Federal Reserve banks.
1Iefin is making an especial effort to get
an inquiry into the responsibility of the
banks for the circulation OF a speech in de-
fense of the system made by Senator Glass
last January. lie charges the banks with
an attempt to influence public opinion and
to conceal the truth by the circulation of
the speech He wants the members of the
Federal Reserve Board hailed before special
committee to answer his accusations. The
Senate. however, is listening to his Trades
with what patience 1t can muster and then
ignoring him.
He is especially aggrieved against the Fed
eral Reserve system because of the fall in
the price Of cotton. He is charging the
Reserve Board with ordering dehation in
1920 In order to assist the spectators in
cotton. and insists that its course caused n
loss of more than 81 900 600, 900, to the
farmers in that year because dehation
brought about reduction in prices. And
he insists that the banks did not go to the
relief Of the farmers in the year when the
prices began to fall
As there are many persons outside of
Alabama who are congenitally hostile to
banks and are in the habit of charging them
with all economic ills. 1t may be worth while
to examine the facts in the case.
In the first place. It may be said that
there has been deHation of Federal Reserve
currency to the extent Of at least 81 ,OO0,-
600 .OOO That this could take place Is n
vindication Of the theory on which the
Federal Reserve System is based. One of
its purposes was to create an elastic cur
rency system that would expand when
needed and contract when the occasion for
it had passed The defect of the old ma
tional- bank system was that it provided no
way for adjusting the amount Of currency
to the needs of the country. The amount
in circulation was stable Periods of scar
city were followed by periods of plenty.
When there was no use for the money in
the country at large it gravitated to New
York. where 1t was used in speculation.
The system produced panics for which there
was no cure.
Under the new system the amount of
currency was expanded during the war to
meet all the demands of business. And
when the war was over and conditions JUS
titled IT the currency was contracted. But
Senator Hctiin is wrong when he says that
the def,ation occurred in 1920. the year
when the prices of agricultural products
'bcgan to fall. 1t was not until 1921 that
pansion of the currency and also an expan-
sion of loans to assist the farmers In passing
through the crisis which had ovcrtnkcn them.
The Reserve banks lent only SI99 600 900
on farm and dairy paper in 1919. and in
1920 they lent 81 .9S0, ZOO. 900. These
figures are in the records of the banks and
they cannot very we'll be ignored. Some
other reason than the withdrawal of credits
and the drfation of the currency must be
found to explain the fall In prices of agri-
cultural and other commodities.
Senator Glass has n reason. and he finds
it in the economic conditions of the whole
world. The slump of prices began in the
silk market in Japan. 1t extended to other
countries before it reached the United
States. And It was due primarily TO what
has been called n buyers strike. Prices
had been lifted by profiteers until the
people refused to pay them. They began to
stop buying luXuries. and the habits Of
economy thus started were extended to n
curtnilment in the purchase of necessities
As result there was an enormous supply
of goods and small demand. Every pro.
ducer suffered and the farmers worst Of ALL
Not even the extension of credit given 10 the
farmers through the Federal Reserve system
could save them.
And so Senator Glass insists that the
falling prices caused dctation of currency
and contraction of credits instead of defa :.
tIOn and contraction causing falling prices.
Til" currency was retired because there was
| no longer need for it in the business Of the
country.
The Federal Reserve System has justified
| itself in the sev"rcst possible test No one
! anticipated the war when II was established
| bur it had been thoroughly thought ont and
so adequately adjusted TO meet every con
! ceivable crisis that It stood the strain md
! provided all the credit and currency that
| was ncccssarv 10 float Government lOnns of
! S2i 600, ,OOO. 900. t" finance great war enter.
prises and to prcS"rv" tn" Solvcncy of the
! general industry Of the country.
| II would BE- most discouraginp If such n
| demagOgu" rs S"na,or Il"fiin, who is trying
to mas" III" Alabama cotton planters be.
| lieve that III" new banking system is re
sponSiblc for their troubles, were to be takcr
seriously by his colleagues. But fortunatcl,
they are treating him according to his de,
| serts