Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-01-01
BY DAVID LAWRENCE.

a clearly imam 1929. This is moi
saying that business worked
IN harmony with the Government Of
that the Government discovered AM
new community of interest with bust.
ness, but simply that a clash of view.
points became far more apparent anC
the need for reconciliation more evi.
dent in the year just closed than al
any time since industry was modified
for war purposes.
The outstanding cleavage was in the
realm of credit, where the warning OF
the Federal Reserve Board, issued IN
February. was received with hostility
which created widespread cynicism and
in some instances total disregard. The
battle between the Federal Reserve sys-
tenn and the spectators ended in Octo-
Der in disastrous rout, not merely for
the spectators but for the innocent
bystanders.
Business had several other clashes
with the Government. among them the
organization of the Federal Farm Board
which naturally developed difficulties in
the Governments aid to agricultural
groups and co-operatives which invaded
operations previously conducted by mid
dlemen. Also serious differences of
opinion have arisen with respect to the
award of mail contracts to companies
which bought some of the Government
lines on the theory that the mail con-
tracts would be form of subsidy.
Perhaps the most spectacular incident
was the tariff controversy, in which
business was split into many camps, as
was also the governmental side The
lack OF harmony as between groups in
side the Republican party and the diff
ferenceS of opinion between the Presi-
dent and Congress have not served to
develop mutual confidence as between
r,A f111
problem is by no means settled.
Conflict Over Speculation.
The most vital conflict, however, was
with respect to the use of Federal Re-
serve credit for speculative purposes.
The Federal Reserve Board took the
position that the Federal Reserve act
obligated the Federal Reserve system
to conserve its credit ito accommodate
business and commerce" and that any,
thing which interfered with such &C
commodation was properly within the
jurisdiction of the board or at least
within the domain of its moral influ-
ence. The technicalities of legal power
were not much discussed, but no doubt
exists, now that the Federal Reserve
Eoard did exert pressure on the mem
be- banks of the Federal Reserve sys-
ten and prevented the lending of funds
through the rediscount privilege if such
funds were to go into speculative uses.
The Reserve Board established a pre-
cedent, however, which will be impor-
tant for many years to come. It set
forth that the Federal Reserve system
could and would find some way to con-
troll the uses of credit. The funda-
mental principle that the Federal Re-
serve system should furnish elasticity
has always been accepted, but the warn
ings issued by the Federal Reserve
Board in February were regarded as I'M
warranted interference, because it was
found that a large part of the funds
used in speculation did not come from
the Federal Reserve member banks, but
from corporations and individuals who
were lending their own money at their
own risk. The question has since arisen
as to the true position of a corporation
which lends its stockholders money in
the call-money market and operates
very much as bank, but without the
supervision which the Federal and State
governments exercise over bank de-
poSitS.
1t is true that the bankers were dis
turbed by the shrinkage of deposits.
due to the fact that corporations and
individuals had loaned their money for
use in the stock market or actually
specialized therin.
Like all years since the war, there was
IN inclination to reach out for some
method of finding a formula whereby
the money market could be held at a
proper equilibrium. It Is admitted now
that the making of cheap money in
1927 was responsible in large part for
the speculative era.
Federal Reserve Bill Policy.
During the year 1929, on the other
hn iaCA
cided to make use of the so-called bill
policy. It means the purchase of bank
ers' acceptances, which are instruments
OF credit, certified by two or more banks,
and which represent transactions in
transit. The old form of commercial
paper has diminished materially in
quantity. and it has been found that the
purchase of Government securities in
the open market by the Federal Reserve
has only limited uses in adjusting the
credit situation.
The purchase of bankers acceptances
by the Federal Reserve system was be-
gun in June, but the bills were rare
and 1t has taken some time for accept
ances to be more widely recognized.
There was also an awkward interrela-
tlonship between the price of the bills
and the discount rate. For a while the
bill rate was slightly in excess of the
crash the much-desired readjuStment
in rates came. The discount rate was
promptly lowered, and the rate for
bankers acceptances fell below the dis
count rate.
As the year 1880 approaches, the
credit situation is in better shape than
IT has been for three years. The bill
policy is believed to be an effective
method OF control, SO that money can
again be cheap and yet the quantity of
credit held within the proper channel
The call-money market, it now is be-
lieved, will be far more affected by tie
funds made available through Govern
ment sources for non speculative uses
in times of stress than it was hereto
fore. On the other hand, there prob
ably will not be much need of worry
about excessive use of funds for specu-
lation for months to come.
Dramtic Aid to Business.
Overshadowing everything else that
the Government has done during the
year 1929 was its dramatic entrance
into the psychological situation which
followed the stock market decline. The
fact-fnding agencies of the Govern
ment were set in motion to discover the
true effects of the catastrophe. 1t was
found that while there was some varia-
ton from the employment of the year
preceding, while purchasing power here
and there fell of, the situation as q
whole averaged up very we'll so far as
1929 itself is concerned All the figures
will show it to be a record year, but
this is due largely, of course, to the
peak reached in the first 10 months
and the fact that in the last two month.
industries were not inclined to shut
down except for seasonal reasons
President Hoover, by summoning thu
business leaders to Washington, 70
cused attention en- the soundneSs o
the fundamental situation and helped
u tra1,sfnr the rnt,l,liI,