Evening star., 1925-06-13
AUTHORITY LAUDS
RESERVE SYSTEM
Burgess Declares Its Auto
matte Mechanism Has Pre-
vented Great Initiation.
BY CHAS. +. SHAEFFER.

No mysterious banking policy, but
the automatic operation Of the Fed
erai Reserve mechanism. prevented
the great initiation to which even
up TO n few months ago many Euro
pean economists believed this coun-
try was doomed" declares " Ran
dolph Burgess. assistant agent at the
New York Federal Reserve Bank, In
a statement in defense Of the system.
Mr.. Burgess points out that this
country has had no great initiation
since 1920, although in that period
we have absorbed more than one
and one-half billion dollars Of gold. Il
is natural, he continues. that observ-
ers without intimate acquaintance
with our credit structure, and seeing
only the results. should aScribe them
10 some mysterious banking policy.
The actual facts of the case. he as
serts, are these.
THE war expansion left the banks
heavily in debt At The Federal Re
serve. Most Of the incoming gold was
used to pay off these debts and not for
credit expansion. Once the gold was
lodged with the Federal Reserve it
could only he put 10 work by new
borrowing. and banks and business
were in no mood for credit expansion
based on such borrowing. This is the
principal reason why the gold flow
has had so little effect on our eco
nomic status. II could nor have
turned out so without the Federal Re
serve system
Conditions in Former Days.
Before the system WAS created. he
points out. loans and deposits and the
gold supply reacted directly on each
other without any cushion in between.
Under present conditions Federal Re
serve credit serves as a buffer
ON the basis of the centralized re
serves which it holds. the Federal
Reserve may make loans to member
banks against proper security and the
balances created by these loans have
the same effect in supporting credit
as gold. Toward the end of 1920 gold
imports began in large volume. The
normal tendency would have been 70
increase the volume of credit Mr. Bur
CESS holds, but as gold flowed in
member banks paid off their loans o.,
the reserve banks. Federal Reserve
credit thus acted as cushion in
breaking imports and making posi-
BILE a continued readustment Of ba nix
deposits TO the needs of business.
Sales Methods Opposed.
Cooperation by the American in
vesting public reporting the sale of
o-called bankers shares and
United States units" Of the Ford
Motor Co. of Canada. Ltd. is re-
quested by the National Better Bust
ness Bureau of the Associated Adler-
tising Clubs Of the World in cur
rent bulletin
y number Of concerns dealing in
these shares" The bulletin explains
Il k.r.1.-
Gus parts of the country. One method.
it adds. is Ito take an actual share
of stock of the Ford Motor Co. of
Canada. Ltd. and divide il into 100
units, selling each unit at $3.50. there
by making the cost of one share s559
and upward
The National Better Business Bu-
reau has raised serious objection TO
this procedure inasmuch az one share
of stock can be bought in the open
market at this time for less than $500,
Several months ago Howard NJ
Cool. director of the local bureau, is
sued warning against these units
at that time selling at $500. when the
stock could be bought in the open
market at around $500.
Allowed to Buy Railroad.
The Illinois Central Railroad today
received qualified permission from the
Interstate Commerce Commission To
purchase for $4,000, 600 the line of the
Gulf and Ship Island Railroad in Mis-
SiSSippi.
The Gulf Island line under the
agreement. will be taken over by the
Mississippi Valley Co. a subsidiary of
the Illinois Central. but the Illinois
Central must provide for the protec-
tion of the FernwOod, Columbia and
Gulf railroads. which operate indie
pendently in the same territory. b.
giving them reasonable joint rates and
facilities. If the Fernwood Co. after
consolidation of the Illinois Central
and the gulf carrier, is unable TO pav
its expenses, the Illinois Central must
assume responsibility for continuing
services over the line.
Local Securities Prices.
The following latest bid" and ask
ed prices for unlisted securities ara
quoted for the guidance of holders of