Evening star., 1934-11-29
To the Editor of The Star:

| To the Editor OF the starr
United States studies program to
spur trade loans" says Harden Colfax
and gives us an accurate analysis OF
the impasse at which our present
scheme OF money and banking has
arrived. Yet in the same section OF
SUNDAYS Star Prof. Carothers still in
sists that the Federal Reserve System
having made this brilliant record OF
failure. should be enlarged and ex-
| panded!
There can be no doubt that the
banks have been treated inconsistently
and, in a sense. unfairly. But isn't
| that because the banking system is
inherently inconsistent and unfair In
itself? Isn't the practice Of lending
demand deposits essentially one OF
counterfeiting in that 1t freezes
| money that is already in active use
by lending it-i. e., it puts the same
money into active use over and over
again through loans?
The effect of this scheme Is to
speed up the velocity OF money. II
is said. and stimulate business.
| This false velocity is attained, how
ever. not by voluntary spending. but
by involuntary lending of money by
its proper owners. the original de-
positors who actually saved it instead
of borrowing and redepositing it, as
commercial interests do. AS to the
distinction between this pyramidins
of loans" and any other Of the un-
sound infiationary schemes Of history,
such as the French assignatS. 1t must
be admitted that for practical pur-
poses there is none. AS Mr.. Colfax
points out, European bankers are also
fearful of this freezing" process and
ARE accustomed to finance their ad-
vances to small business through use
of their long-term securities or other
funds not subject to sudden with
drawal"
Why isn't this q common-sense
procedure for all commercial loans?
And why should our banks be criticized
for lending only money that they
honestly can loan? AS long as check
ing accounts are privately conducted
there should be a charge for service
instead of an attempt to make them
do double duty by drawing an income
while on demand. This would compel
their use by their owners instead of
allowing them to be held for use only
when another speculative mania de-
velops. Today the Government is build
ing a refuge for such speculative ac-
cumulations through the issuance of
billions in bonds, SO that If and when
trade loans do recover a paying basis
they can only do SO by outbidding the
Government rate and causing break
in bond values which will destroy Gov
ernment credit!
Why, indeed. should we lay out a
program Of recovery which calls upon
private banks to again revive this un-
sound process of imitation through
freezing" of demand deposits, under
threat of making this process Gov
ernment function, thus displacing even
legitimate private loans? No virtue can
be added to plan Of financing private
profits with new money by putting it
under political auspices. Such a ma
tionalization" or socialization of bank
ing implies the necessity for COM
munization of all industry in order to
eliminate the graft inherent in such
loans" from the Government.
Without Communism, then, new
money needed to build trade and in
dustry can come into existence prop
erly, not through pyramided "loans'
Russia has a vast system Of nom
repayable loans" to her industrial
units). either public or private. but
only through the public budget.
wherein the infationary effect of
such new funds can be publicly con-
trolled by taxation rates If we will
but shift the function of taxation
from that Of budgetary balancing to
one Of price-index control.