Evening star., 1932-05-08

on the part of Congress to legis-
late particular state OF nina HUo
existence.
AS the bills author. Representative T.
Alan Goldsborough Of Maryland, sees
the current economic difficulties, they
are the result large/y of lack OF conn
dence on the part of bankers as class.
He believes this condition can pe COT
rected by law. .o
His bill. passed in the House by the
overwhelming vote of 289 to 60. WouIo
amend the Federal Reserve act so tnat
the Federal Reserve Board ana the
Federal Reserve banks would oe au-
thortzed and directed to take all avah,
able stems to raise the present oenateo
wholesale commodity level OF prices as
speedily as possible to the Level eXlsung
before the present defation' ana alteI-
ward to use all available means 10 llSli'-
tain this level" .-,.. .,a rr,ce
1aTel can be raised if the Federal Re-
serve Board will publicly announce tndV
! II has received mandate from Coh-
gress and is going to purchase IN tIle
omen market S100 100000 worth OF 20.
ernment bonds every week ana auJuSe
redisroInt rates until the general price
level rises to approximately the level OF
1926.
A Mandate From Congress.
"All that is necessary he said. rs
for il to become known that the Gov
ernment is buying and is going to keep
| on buying securities at this rate. Grao-
ually the bankers as class Will regain
| confidence in the economic structure
and will begin to extend credlt again
| to the producer. The producer VIII
start purchasing raw materials and en-
| ht,yr
community will be increased and COM
modify prices will rise
The Federal Reserve experts are
heartily in accord with Mr.. Goldsoor-
! ough in every particular save one. They
readily agree that rise in commodlty
prices is supremely desirable and admit
| that for some time they have been
buying Government bonds on the open
market Just as Mr.. GoldSborough wants
them to do.
The bill, they believe, is admirable in
purpose, but has one fatal defect-lt
won't work They do not believe there
| is any way in which the Government
can force credit upon the country If
there is not already in existence de-
mand for that credit.
I The bill has two features, an emer-
gency and permanent feature. The
emergency feature contemplates rise
in the general commodity price level to
| the average between 1921 ana 1929. The
permanent feature anticipates the sub
stantial maintenance of that price
level.
1T is impossible for the debts of the
country to be paid at the present price
level" Mr.. Goldsborough said. Unless
! the price level is raised the business Of
the country is headed for inevitable
bankruptcy"
Dollars Value Increases.
The value of commodities, as meas
| ured in dollars, has been gradually de-
creasing since 1929. In other words,
the purchasing power of the dollar has
been gradually increasing. This means
that the producer or the debtor is being
confronted with an ever-increasing bur-
den. His debts, principal and interest,
remain fixed. The commodities he sells
and which would have purchased a
given number Of dollars when he bor-
Iowed them have decreased in their
purchasing power.
In an effort to re-establish substan-
tial justice between the debtor and
creditor, Mr.. Goldsborough said, it was
decided to boost prices to the 1925 level.
Unless the price level is raised" he
declared, "the burden of debt will con-
tinue to seriously hamper production
and destroy the producing class as now
constituted. Eventually the creditor
class, being unable to collect their fixed
obligations, would also go down in the
crash"
| In studying the question OF what
could be done, he said, serious consider
alton was given to the fact that the
Federal Reserve System, under the lead
ership of Benjamin Strong, former gov
ernor Of the Federal Reserve Bank Of
New York, measurably stabilized the
price level for several years by open
market operations and by adjustment
of the rediscount rates Of the Federal
I Reserve banks.
"If the Federal Reserve System could
stabilize prices then" Mr. Goldsborough
declared, they can do it again"
Desired Result Lacking.
The open market operations Of the
Federal Reserve System, the purchase
| of Government bonds and the lowering
| of the rediscount rate to date have
not produced the desired result. A
lack OF confidence on the part of the
bankers has resulted in contraction Of
| credit and lack OF confidence on
the part Of the bank depositors has re,
| suited in Withdrawals of deposits and
boarding. These two factors have con-
| sistently offset the anticipated bene-
| fetal effect Of the Federal Reserve
operations.
Mr.. Goldsborough thinks the pur-
| chase of securities by the Federal Re-
serve would work out in this manner:
| Assume that the bank in my nome
, town has 100000 worth Of Government
bonds in its vaults. After the FederaI
| Reserve system starts buying Govern
ment bonds steadily the price rises a
little and the bank decides to sell IL
| does so and at once has 100000 in cash
or credit to dispose Of. 1t may be indebted
to the Federal Reserve Bank for $4,000,
and this will be paid of. There is then
an unused surplus Of S5O,OOO. What
is the banker going to do with 1t? /
| firmly believe that If he knew the FED
eral Reserve was definitely in the open
market and was going TO stay there
! until prices went up he would nave SUI
| ficient confidence 10 lend this money
IN nroducers. If this process were re-
! peated in banks all over the country
our depression would vanish almost
| overnight.
"Of course, no one bank can reduce
its reserves and extend credit IN times
| like these and survive. It must be
| concerted action on the part OF the
| majority of the banks. The majority
of the bankers, however, are not going
to take this step, and they cannot be
blamed, until they are confident tner
banks will not suffer as result. Ihe
| purpose Of this bill is to give them that
| confidence. and I believe 1t will do so.
Mr.. Goldsborough believes the Federal
Reserve System could purchase s4.OOO-
600 600 worth of bonds by issuing new
Federal Reserve notes and not go oeloW
the 40 per cent gold reserve nXeo py
law. He thinks the price Level WouId
be restored long before this sum had
been spent at the rate Of Sl000oo'o 900
week.
Meyer Cites Difficulties.
While testifying before the commit
l.. Lo;n E1lcP0e