Evening star., 1933-12-05
Four Ways to Influence Prices Presented
Dr. Sprague Claims Tonic Dollar Depreciation and More Paper
Would Not Last.
'equires additional capital, credit and

requires additional capital, credit and
currency.
Whether it be at war or in peace, the
active factor In bringing about advanc-
ing prices is in every instance an in
tense demand for additional credit and
currency on the part of the business
community in which in this connection
governments may be included.
Given this Initiating factor, prices will
rise If two other conditions are present.
Banks must not have reached the limits
OF expansion of credit and currency
fixed by the statutory ratio of reserves
which they must hold against liabilities
And they must be willing to meet the
increasing demand made upon them for
accommodation, whether II be from
business or from the Government
Unhappily at the present time in this
country. we lack two Of the three con-
ditions requisite for rise of prices
along normal customary lines. There is
no business demand for large additional
amounts Of credit and currency and the
banks are not yet in position to extend
accommodation freely throughout the
country.
Money Supply Adequate.
adequate to support far higher price
level than now obtains cannot be
questioned Convincing evidence of this
is afforded by the tact that the gold
basis Of our credit structure Is far
greater than 1t was in 1925.
1t Is, of course. conceivable that an
enlargement OF the already ample mon
etary base might in some fashion or
another bring about the expansion and
more effective distribution of credit and
currency, but for myself I confess an
entire inability to discover any definite
influence that such an increase could
exert.
The monetary base of our credit and
currency is lodged with the Federal Re-
serve banks. These banks In turn.
whether by rediscounts for member
provide the member banks with the re-
liabilities, as well as such additional
currency as they may require.
BY extensive open market operations
In recent months, the reserve banks have
provided member banks with large ad-
ditional reserves which have remained
as excess reserves because of no con-
siderable increase In the loans and in
vestments and consequently in the de-
pOSit liabilities of these banks. For
many weeks excess reserves OF member
banks have been about $500 600 900
without any appreciable resultant effect
upon the lending policies of the banks.
A quite similar lack of response would
have followed the adoption of more un-
usual means Of increasing the base of
the credit structure unless those means
had excited general distrust.
C.rrlv M Nall
Let us suppose that instead Of large
open market operations by the Federal
Reserve banks, the Government had is
sued silver certificates or greenbacks
II such issues had been regarded In the
same light as an uneQuivalent expansion
OF operations by the reserve banks, the
effect would have been similar.
The additional currency would have
been deposited in banks and by them
in turn transferred to the reserve banks,
increasing excess reserves. Only in the
not improbable event that the issue OF
additional paper money excited distrust
would the course of events have been
appreciably modified.
Our conclusion, then. Is that If we
are seeking rise of prices as an out
come Of normal business and banking
activities. We do not require any imme-
o1ate increase in the supply of money.
The way is now cleared for considera-
ton of the adequacy of existing agen-
cies for placing additional amounts Of
credit and currency in the service of the
OF Inc means OF stimulating an Qddl.
tional demand for that credit and cur
tCopyright, la33)