Evening star., 1923-04-01
WEEK SEES HALT
IN SPECULATION
Fear of Higher Money Causes
Greater Caution-RaiIroad
Stocks Still Sluggish.
DROP IN GOLD RESERVE
Advancing Tendency in Wages
One of Most Vital Issues on
Business Horizon.
DROP IN GOLD RESERVE
spec,aI Dispatch 10 The star.

Special Dispatch The star.
NEW YORK. March 3I-To The ex
clusiuu Of almost every other topic
the financial community during the
week just past ha been concentrated
on the annual spring conference il,
Washington u the twelve federal
reserve banks with the Federal IL
serve Board Every scrap Of iufor-
nation, every report Of rumor plaus-
ible or tic reverse has been seized
upon by an eager and creduIous
audience.
Not content with the speculations
Of the Washington correspondents
seekers alter news delugcd the board
inquiring what action. if any was
10 he taken III regard TO discount
rates. This Went to such an extent
that thu hoard finally tartIy inquired
It on th"sy who had sent m tcie-
grams the source Of their iuforma-
tIcn adding THAT when the board had
anything - say a duly authorized
announcement would hc made
Now. interest jim the policy nf th,
federal reserve system j. mauifcstil
justified. but There Wa~ never aHE.
reason t. believe that a formal decision
a.. to rediScount rates would hc givc'f
out from Washington. when as /.
matter Ut faGt AN application in til"
change in the rate would have IT,.
originate with one or more Of tn"
federal reserve banks ana then b.
passed upon by the board.
Halt in Speculation.
When thE. conference adjourned
therefore, the financial community
has just about as much Information
as to the intentions Of the governors
As 1t had when the conference con
N"ned. The only result of the con
ference VAS to halt speculation il
both stocks and commodities
1t is interesting Ia observe how
deep and lasting an impression was
made by the action of the banks III
119. In fact the effect upon tn.
speculative fraternity was 50 great
that il has com" To believe. at least
1t 50 appears. that any further ;td
Vance III the redisCouut rates woula
IN itself stop At once. and completely
any further rise in The price Of either
securities Or commodities.
And Yet. conditions are today total
y different from those prevailing iu
tn" late fall Of 1919. At that tim,
ratios Of reserve t. liabilities wer.
around 80 per cent. and now il is
around 15 per cent. The action taken
conserving the systems resources.
There is no necessity now, notWith
standing some further increase in dis.
counts
Function of Reserve hoard
1t fs also n fair topic for disruSSi.,-i.
q to exactly wnat i the function of
the reserve bank system IN the nattrr
of its redi>couut rat" policy. Shal!
! the rate be fixed al that point which
will simply protect banking resources
| or shall it be fixed With q view ["
checking what appears 70 the bank
! ing authorities to he excessive spec
| ulation and undue expansion?
There are a few students hcretical
enough To assert that patcrnal au-
| thurity over the entire economic situ-
alton Is outside the province OF thr
! federal reserve banks and the mem
: bers Of the Federal Reserve Board. and
unfortunate as il may he. political
/ considerations will probably influence
the answer TO the question At any
! rate. either speCulator or investor
VIII" oVerIo"ks the political factor Will
J make d mistake.
/ The interest for all in the prob
/ ability OF an early advance in redis-
count rates is. OF course. the effect
/ upon prices. There iS. however, an
! other factor To hc taken into con
+ siderdti"u In addition tu the price
advance. which is the natural reac-
/ tiou from the collapse Of a couple of
| years ago and the Inevitable accom-
lpaniment Of expanding business. there
! is also to be reckonedN with the cf-
! feet Of the enormous supply Of gold
i which haS stecnt1uiated within the
! mai gold supply acts to raise prices.
| or. at least, TO keep them from falling.
/ The weekly bank statement shows a
/ total decrease in gold reserve Of Sl0.-
/ 500, ,0oo. but even 50, the total is still
/ S,I00.000 above what il was t year
| ago. When any OF this surplus will
hoo fn flo ft-r 81 tn - b.r -,
! it is 50 badly needed. is any mans
guess. Until that time comes this OBJ
| staclc to price reaction ought not L"
1 be overlooked.
! Merchants show Caution.
| The business situation remains as il
| was about week ago. Perhaps about
! the most significant developments is tn"
! tion could be easily checked by any
! large amount of bidding against each
other by employers Of labor. The most
| hopeful feature i the conservatism and
| caution with which practically all
merchants and manufacturers are nper-
ating. Railroad earnings during Fehru-
AIRY We're not quite 50 good. COmpara-
! lively. as those Of the month preceding.
| Probably. however. this was due
/ largely 10 unfdVOrablt operating cOndi-
! tions II is an error to take this as the
| reason for the reluctance of investors
| To accumulate railroad stocks. 1t is
more likely that the real reason for the
J failure of the long predicted bull market
! in the rails To mdteralize is the fear Of
more government interference. Only
! this week the Interstate Commerce
! Commission notified the railroads that
] they must report the amount 10y which
net earnings exceed per cent on valua
! tiun and that half that amount must be
! turned over to the government.
II is hard to arouse speculative en-
] thusiasm in the securities of any cor
! pnration the excess earnings of which
/ do not accrue to the stockholders
! There is no limit 10 profit of an auto
/ mobile manufacturer except that i'm
| posed by trading conditions. No one
suggests that the government order Il
/ reduction III The price of cars because
/ automobile companies are making too
J much money. But if the railroads show
! good earnings there is an immediate
| outcry for lower rates and if they show
| poor earnings il is ascribed to inefficient
J anagement Under the circumstances
| is it surprising that no one wants to
! speculate in railroad stocks?
| Copyright, 1921