Evening star., 1933-03-26

appended . proposed rule Of practice
which has continuously been involved in
vast storms Of dispute. He said:
mo commercial bank has a proper
status as an applicant for Reserve Bank
accommodations Ooans) If it is supply
ing credit for speculative purposes"
CERTAIN directors of certain Federal
Reserve Banks-notably in New York
City-regarded Mr.. Miller's proposed
rule as being largely impracticable.
There was at the same time an earnest
1929 a strong application of it was un-
dertaken by a majority Of the members
Of the Federal Reserve Board.
The prologue to that incident was a
large renewed purchasing of United
States Government securities by the
Federal Reserve System in 1927. That
purchasing was initiated in accompani-
ment to conversations by our Federal
Reserve System authorities with the
central banking authorities Of the prin-
cipal countries Of Europe. It was de-
signed to create easy-money credit con-
ditions in the United States. It's motives
were Of q worldwide character. Its pur-
poses were disinterestedly directed to-
ward the establishment of worldwide
stability. It's results in the United States,
however, as Mr. Miller viewed them, were
in the most extreme degree unfortunate.
Other men Of high financial repute took
and held a contrary philosophy. This
article recounts simply Mr.. Miller's
philosophy. Immediately after the pur-
chases Of United States Government Sc
curities in 1927 Mr.. Miller in congress
sional hearing remarked:
II regard the policy of the Federal
Reserve System last Autumn as having
been provocative factor in the stock
market; and regard that fact as a fact
that has got to be reckoned with pub
icly"
In 1881, in another congressional hear
ing, Mr.. Miller even more emphatically
asserted:
"A not inconsiderable part of the funds
that came into the call-loan market from
1927 forward can be traced back to the
great creation Of cheap credit in 1927.
The open-market purchasing Of United
States Government securities at that
time constituted the greatest and boldest
operation ever undertaken by the Fed
eral Reserve System. It also-in my
judgment-resulted in one of the most
costly errors committed by it or by any
other banking system in the last IS
10 of
we are going to take what happened in
1929 and repeat it all over again in about
seven years and certainly in 10. We
have had too much imitation in the
Federal Reserve System; and its favorite
instrument has been the open-market
purchase of Government securities. In
your legislation you must not leave it too
easy for the Federal Reserve System to
initiate"
That principle, as have indicated,
was brought to belated attempted ap-
plication in 1929. Early in that year q
communication, drafted largely by Mr..
Miller. was dispatched by the Federal
Reserve Board to all IL Federal Reserve
Banks. It stated outrightly:
"A member bank is not within its rea-
sonable claims for rediscount facilities
at its Federal Reserve Bank when it bor-
rows foE the purpose either of making
or of maintaining speculative loans"
The communication then equally out
rightly asked the Federal Reserve Banks
what methods they were employing to
protect their institutions against "the
improper use of theiA credit facilities by
member banks"
The idea was that the Federal Reserve
Banks should bring pressure to bear upon
member banks to refrain from the use