Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-03-23
ECONOMIST BELIEVES WORLD
GOLD SUPPLIES ARE ADEQUATE
Chase National Bank Official Takes Issue
With Statements in Report of
Geneva Committee.

| expansion, unchecked by the need 10
protect gold reserves, since only d few
countries were on the gold standard
and those countries had excessive gold
The consequences have been q con-
gestion Of bank credit and q diversion
OF bank credit 10 capital and specu-
iative uses, with resultant grave reac-
ton. We should welcome the return to
the pre-war situation, in which central
banks did have to consider their gold
reserves In framing credit policy.
Llquidity Of Credit.
The volume of bank credit today is
far greater than it was before the war.
The volume of bank credit today mas
outgrown both the volume Of production
and the rise In commodity prices by a
gigantic margin as compared with pre-
war times. The world was, as q whole,
adequately supplied with credit in 1918.
Today the fear is expressed that the
world faces a credit shortage. What Is
the explanation of this anomaly? The
answer is to be found primarily, not in
the figures for bank deposits, but in the
facts lying behind bank loans and in
vestments. Bank credit is far less liquid
today than it was in 1918. For ofle
thing, during the war bank credit was
swollen to an incredible degree by the
placement of gigantic Government loans
for war purposes. Part of this has been
wiped out throHgh currency deprecia-
ton, and much Of it has been unfrozen
through the gradual Improvement Of
Government credit and through the
partial reduction of Government debt.
Today there are countries as the United
States, where the Government loans in
banks constitute one of the most LIQUID
elements In bank credit, and constitute
true secondary reserves. But, second,
following the war we overworked bank
credit to an astonishing extent as q
substitute for investors capital and
corporate savings, and other normal
sources Of capital, in the process of re-
habilitating the stricken regions Of the
world. Where banks, before the war,
were called upon to supply short loans
TO meet the peak borrowing needs Of
manufacturing customers. they were
called upon in many countries In Europe.
TO supply plant, equipment and working
capital as well, in the period that fol-
lowed the war. Third, even for these
needs, the volume Of bank credit was
excessive, partly because Of an abnormal
concentration OF gold in the United
states, and partly because of cheap
money policies based upon our excess
OF gold. Not only here, but also in very
many other countries, bank credit
multiplied so rapidly that commerce and
manufacturing could not and would not
use it, and it overlooked into real estate
mortgage loans, installment finance
paper, and, above all, into the securities
markets In the form both of bank
ownership Of bonds and of bank loans
against stocks and bonds.
Excessive Credit Spells Liquidity.
Ard now we come to the most
fundamental flaw in the gold delega-
tons proposals. Bank credit remains
liquid most easily when It Is not ex=
eesslve. Bank credit expanding in ex-
cess OF commercial needs goes into real
estate loans, slow advances to manu-
faeturers for capital purposes, excessive
loans In. the securities market, excess
sive bond purchases, consumption loans.
long international credits in financing
one-sided export trade In the face, of
tariff barriers, and the like. The prac.
tical consequence OF any early adoption
of proposals such as those made by the
gold delegation would BE- renewed
excessive credit expansion, and further
dim1nution of the liquidity of general
bank credit, leading to a real shortage
CT gold, because gold would be almost
the only liquid asset that q money
market had. To my mind, the most
important thing the gold delegation has
said is the following: "If any such
measures as we have mentioned are
actually adopted, great care will have
to be taken to see that they are not
in advance of actual needs and that,
on the gold economical, a structure of
credit is not built which exceeds the
normal growth Of production and trade
in gold-uSing countries"