Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-01-10
WISE REGULATION
OF CREDIT URGED
Warburg Details Lessons to
Be Learned From Bust
ness Depression.
BY JOHN =. SINCLAIR.

nj JOknEN r 0ktNOAAANs
Special Dispatch to The Star.
NEW YORK, January 10.-Paul M.
Warburg, chairman of the Bank of
Manhattan Trust Co., believes that the
United States should learn five lessons
from the present depression;
l. The Federal Reserve policy should
be more unified and dynamic.
2. Central banks should work more
closely together, not only for the effect
which discount rates have in regulat-
ing prices, but because of the psyche
logical effect which they may exert
from time to time in the proper direc-
ton on excessive optimism and de-
pressing peSsimism when those forces
threaten the worlds economic stability.
8. Industries should build up on the
lowest leveb of prices on which they
can prosper, rather than upon high
prices which may be exacted from the
public Stabilizing production and con-
sumption in an industry is of no avail
except on moderate price level.
A. In business way, the world is in
terdependent. and business cooperation
is necessary If the world is to over
come the dead point in the state OF
stagnation from which 1t struggles to
emerge"
S. Bankers and financial leaders
have not only a sacred trusteeship
toward the investors and depositors, but
also in seeing that primarily, bank
credit is used to finance productive
processes of industry and commerce
and not to finance the issue or sale OF
securities.
Fixed assets and working capital
should come out of savings. not out OF
bank credit, says this New York banker,
and the fact that too much of it came
cut of bank credit in the last five years
has been one of the major reasons Tor
the delay in business recovery.
Mr. Warburg is the real head OF the
Bank of Manhattan Trust Co. and IN
addition is a power in the international
Acceptance Bank, Inc; the International
Manhattan Co, Inc, and the New York
Title e. Mortgage Co, He was active
in the formation of the Federal Reserve
system and helped formulate its early
policies.
He said many other things in his an
nual address-among them that the at
tempt to maintain high prices through
high tariffs and other artificial means
was largely responsible for the depres-
sion.
Purchasing Power.
C. e. Neill, general manager of the
Royal Bank of Canada. says the reason
for worldwide decline in commodity
prices has been very much misunder-
stood The general belief that 1t was
due to overproduction, he says, is wrong.
THE fact is overlooked that the total
purchasing power of the world is gov
erned by the total volume of production
valued at current prices and purchas-
ing power can be increased only by in
creased production" says Mr.. Neill.
Commodities pay for commodities.
l. af
and all exchange is ultimately barter.
Demand and supply are therefore re-
ciprocal."
So it follows that these worldwide
drops in money value of goods are "a
monetary problem and could be pre-
vented" This is a most important
statement, If true.
But let this Canadian banker con-
tinue:
"Over-production of agricultural prod
ucts in relation to manufactured ar
ticles would justify a decline@in the
price of farm products as compared
with the products of industry, but when
the average of all prices declines, this
can only be explained by an under
supply of that in which prices are ex-
pressed, /. e., money; and it would seem
that If the effective supply of money
Is kept in the right relation to produc-
ton of its commodities, the phenomena
Of a declining average price level will
not occur"
Mr.. Neills interesting suggestion is
''that a syndicate of British financial
interests might create an organization
with substantial capital which would
have the complete confidence OF the
money markets in New York and Paris,
and through such an organization, Dor
row at reasonable rates, for the pur-
pose of re-lending to other markets
at rates commensurate with the great
risk involved"
To those students who say that the
Federal system exercises no dominant
influence in the price field. General
Manager NELL replies that such opln-
ions indicate a belief that the stability
of the worlds medium of exchange is
practically at the mercy of all the ele-
mentS and that man is incapable of
handling the instruments of his own
devising.
Il cannot subscribe to such views
The situation can be remedied. 1t must
be remedied," he said.
Here we have two statements-one
from Paul Warburg able New York
banker, and the other from C. E. Neill,
general manager of the Royal Bank.
Canada's largest. giving two different
points of view. Which is right?
McFadden Protest.
About the time Mr.. Warburg was dis
cuSsing banking and credit conditions
with his directors, Representative Nc
Fadden, chairman of the Banking and
Organizing Committee of the House of
Representatives, was paying his respects
in nc uncertain terms ITO the per-
nicious influence Of international fnan-
cial interests on the policies of the Fed
eral Reserve system"
Coolidge and Andrew Mellon were
two of the worlds greatest optimists, +"
said Mr.. McFadden. land their leader
ship deferred the Federal Reserve
Board from putting on the brakes"
Mr.. McFadden maintained that the
orgy of speculation as well as the mad
rush TO complete consultations of in
dustrtal and banking organizations in
1927 and 1928 was due to the Federal
Reserve Boards policy in reducing the
redisNpunt rate to 3l2 per cent.
Experts. economists and other
theorists have too large influence in
the executive departments of the Gov
eminent" continued Mr.. McFadden.
Let us rely on the common sense of
the elected representatives of the people
rather than on economists with far
sighted plans which lead us into diff
cultieS instead of leading us out.
The average man on the street, as
he reads the various comments from
banking and business leaders, who en-
terrain such Numerically opposed ideas
and draw such different conclusions as
to methods of procedure must himself
feel discouraged and C onfused. For
primarily Mr. Average Man is not inter-
ested in theories. What he wants is
something to eat!"