Evening star., 1933-01-08
Wide Variety of lnflationary Bills
In Congress Are Carefully Weighed
Continued From First Page9

of currency They point out the sit
uation now is different than in oepres-
sions previous to the enactment of the
Federal Reserve act in 1913.
There has been no occasion for the
banks to issue scrip as was true in
the depression of 1907. Under the
Federal Reserve act, an elastic currency
has been provided. The volume OF cur
rency fluctuates with the demands OF
business. The Government authorities
hold there is available at present ample
credit and currency The diticulty IS
TO make use of the credit. The excess
reserves of member b. ks with the
Federal Reserve Banks have reached
a record total OF about $500, 900, 600,
Either the banks have been afraid to
make use of it or industry has been
unwilling to borrow it. At the bottom
of the trouble is a lack Of confidence.
Half in Reserve Notes.
Since the Federal Reserve system has
been in operation, Federal Reserve notes
have constituted more than half of all
currency in circulation. AS these notes
return to the Federal Reserve Banks
they are credited to the accounts OF
member banks and are cancelled. II
other forms of currencv which are not
N~~0
Federal Reserve Banks and then return
to the member banks, the effect is to
disalace an equal amount of Federal
REierve notes.
In arguing against the Patman bill
and other measures which propose to
issue new currency in forms that would
remain in circulation, the Government
authorities admit that it would provide
some benefit to the first persons re-
ceiving it, Thereafter, they say, the
ntzs-a .csyely would displace the other
form of currency. 1-.- is what has
happened in the case of new t6iiaaal
bank notes issued under the Borah-
Glass amendment to the Home Loan
Bank lev About s125, 100000 of new
nationals bank notes have taken the
place of an equal amount Of Federal
Reserve notes.
That it is futile to issue more cur
rency than there is demand for in
business is held to have been demon
Strated in the open market operations
conducted by the Federal Reserve Sys-
TEN last Spring. The Federal Reserve
Banks bought more than billion dol
lars worth of Government bonds from
the member banks, with a view to ex-
panding credit and stimulating indus
try. The payment for the bonds in the
first instance was in the form of a
credit in the deposits of the member
banks with the Federal Reserve Banks.
Seeks to Liberate Credit.
The immediate effect was to enable
the member banks to pay off their in
debtedness at the Federal Reserve
Banks. After that was accomplished
the credit piled up in the form of ex-
cess reserves. In normal times it is to
the advantage of the member banks to
put this money to work, as it draws no
interest
It was the theory of the Goldsborough
price stabilization bill that if the Federal
Reserve Banks were instructed to pour
out credit under this process industry
would make use of it. with consequent
stimulus all along the line and an ad-
vance in prices.
The recent operations demonstrated
that this is not necessarily SO in times
of depression. The huge excess re-
serves, which can be multiplied by 10
times in terms of potential credit, are
available for use, but neither the banks
them.
There was little expansion of cur
rency through the open market opera
tions during 1882, due to the fact most
OF the credit has not advanced beyond
a bookkeeping transaction. Theoret
ically the credit can be converted into
Federal Reserve notes When there Is a
demand for the currency.
The latest circulation statement of
the Treasury shows thct as of Novem-
Der 80 the total money outside the
Treasury and the Federal Reserve
Banks was $5,647 ,569,s16. This was
S45.I3 per capita. In 1928 the currency
in circulation, when boarding was not a
serious factor, totaled about S4,800,-
100000, or about $40 per capita. In
1914 the currency in circulation was
about $3,500, 900, 900, or about $35 per
capita -
OF the currency in circulation on No.
vember 80, s2,674,734,97a was in the
form of Federal Reserve notes, $685.
3e5,857 in national bank notes, $685.
076,419 in gold certificates, $454, Sal 500
In gold coin. $3.50, $50, 800 in silver cer-
tificates, S2e1, ,195, $50 in United States
notes or gTeenbacks. $3.50, 1855, ,592 in sub
sidiary silver Sll3,416,457 in minor
coin, $29 1897 ,3l2 in standard silver dol
lars, $685. in what are known as
Federal Reserve Bank notes, as distin-
guished from Federal Reserve notes, and
$i,2l7 400 in Treasury notes of 1890.
which date back to the silver law of
that year.
Means As Per Cent Increase.
In Offering the various currency ex-
pansion schemes, their sponsors go on
the theory that the issuance of 81, 300, =
000,000 of new currency, as contemplated
under the Patn1an bonus bill, would in
crease the currency in circulation by
upward of as per cent.
Under the quantity theory of money
1t is assumed by some that an increase
of this percentage would have very
substantial effect upon prices The fai-
lacy OF this reasoning, according to op-
ponentS of currency imitation, is that
more than 80 per cent of the business
in the United States is transacted by
check or in what is known as deposit
currency. An increase of so per cent
in the volume of currency represents
only about 5 per cent Of the total money
and deposit currency.
Furthermore, the velocity or the mum.
Der of times money changes hands il
held to be a more important factor il
the price level than the volume of cur
rency. Currency and bank deposit:
together figure in tn2 transaction o.
about trillion dollars worth Of bust
ness in normal times, Or about hall
that amount under present conditions
Under the quantity theory Of money
the price level is equal to the amount
of money times its velocity of turnover
divided by the number Of business
Transactions There must be included
however, bank deposits subject to checl
as well as actual currency.
Recently money and bank deposit
have been turning over less than hal
Rs rapidly as in 1928 and 1929. An in
crease in the velocity factor, it is con
tended, would do much more toward {
revival of business and an advance il
prices than an expansion of currency
A return of confidence is held to b
what is needed to speed up the velocity
A so per cent increase in currenc
would have little effect on prices, ac
cording to this line of reasoning, s.
long as the velocity remains at tn
present low pOint even assuming tina