Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-01-27
CENTRAL BANKING
HAS SEVERE TEST
Financial Authorities Dis
agree on Methods to Be
Used in DepresSions.
BY CLAUDE A. JAEGER.
Associated Press Financial Editor.

NEW YORK, January 81 The
Nations banking authorities hope that
central banking in America will have
attained its majority by the time
another business depression threatens.
History of business cycles indicates
that another major depression is prob
ably several years distant, but testimony
of banking leaders before the Glass
Subcommittee of the Senate Committee
on banking and currency indicates that
serious thought is being given to the
errors of the past, and the course of
action to be taken in the future.
Undoubtedly too much has been ex-
pected of the central banking or Federal
Reserve, system. 1t was developed
during the abnormal conditions of the
war years. Its deflation policy of 1920
81 was dictated by conditions growing
out of the World War The present
depression and the orgy of speculation
which preceded it has given the Federal
Reserve System it first severe peace
time test. Some enthusiasts felt that
the reserve system had virtually re-
moved the threat of cyclical depressions
in peace time, something no banking
system had ever accomplished.
Critics Are Numerous.
1t has had outspoken critics both at
home and abroad Some prominent
London bankers are frankly of the
opinion that such a speculative credit
crisis as developed in New York in 1929
could not have happened in London,
in view of the long period of develop
ment which central banking has had
in Great Britain, conservative policies
which have been adopted.
The easy money policy of the Federal
Reserve System in 1927 has been re-
garded by several bankers as an error,
one which started the 1928-29 orgy of
speculation. George L. Harrison, the
present governor of the New York Re-
serve Bank, said before the Glass Com
mittee last week that he thought it
would have been better to raise the re-
discount rate in 1927. In his two
volume work on the Federal Reserve
System, Paul M Warburg, now chair
man of the Manhattan Co., says that
the plan was embarked upon to help
Great Britain with its restoration of the
gold standard, but with the idea OF
quickly reversing the policy when signs
of imitation began to appear. He thinks
the mistake was in failing to reverse
the policy soon enough.
Wall Street decidedly does not admit
charges that this 1927 easy-money pol
icy was the work of New York bankers
alone, recalling that the Reserve Board
in Washington ordered a cut in the
Chicago bank rate after the directors
of that bank had refused to reduce It,
Opposes Easy Money.
Albert H. Wiggin, head of the Chase
National Bank, now the largest bank
in the world, has long expressed oppo-
sition to excessively easy money. Testi-
flying before the Glass Committee yes
terday, Mr.. Wiggin expressed the opin-
ion that present rediScount rates.
per cent at New York-are too low.
Mr.. Wiggin, in his recent annual re-
port to Chase Bank stockholders, ex-
pressed the belief that the easy-money
policy. adopted by the Reserve after
the Stock Market crash of November,
1929, had delayed liquidation essential
to economic recovery and had prolonged
the depression.
supporters OF the present easy-money
program, however, feel that at what is
obviously the low period of a major
depression easy money can only prove
beneficial. They say cheap credit, now
that the boom is thoroughly liquidated,
can only hasten recovery, once it gets
under way. They point out that con-
ditions in 1881, when a ma jor BUSH
ness depression has already run it's
normal span, can scarcely be compared
to 1927, which was year of minor in
terruptien in a period of unparalleled
prosperity.
1t developed at the hearings in Wash
ington last week that members of the
directorate of the New York bank were
prepared to advance the rediscount
rate not only from 5 to 6 per cent, but
to Z or per cent, if necessary, during
the forepart of 1929, when their weekly
requests for permission to raise the
rate from to 6 per cent were success
sively vetoed by the Reserve Board
The developments before the Glass
Committee NAV have an important
bearing on what will be done to keen |
the next prosperity boom from getting |
out OF hand. It is now widely recoe- |
nized that the way to prevent periods |
OF extreme depression is to prevent un- |
sound practices in periods of prosperity |
Bootleg Loans.
Gov. Harrison of the New York Re-
serve Bank, suggests action, by legis-
latlVe means only If necessary, to bar
so-called bootleg" loans, or loans from