The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1935-09-21

Mariner S. Eccles, Federal Reserve
holiday in March, 1888. advised the
vate loans the lending by the banl
dollars in new check book money "
the threat of destruction. When t
counted on by business men to :2m
as a whole, and so to be relied w
1t is now, presumably, the purpose
of the Federal Reserve Board TO
apply a superior method. For, in
step with beetered business condl-
tons, it can now take advantage
of a normal poSt-depression fall in
the value of government bonds held
by the banks.
Thus open-market purchases Of
government bonds by the Federal
Reserve Board mean that the Gov
eminent assumes its rightful func-
ton of issuing the check book mon
ey of the nation and of regulating
the value of such money.
1t means that what, until within
the past few years, has been the
prime function of, the commercial
banks, that of supplying money to
business as debt, has fallen into dis
use until it is now very minor
part of the banking business
Shift of Gravity
The pressure of events has pro-
duced a shift of gravity of money
issuance from the commercial
banks to the government. And, with
this shift to public issuance of de-
mand bank deposits, authority and
responsibility have had to be de-
fined and centralized. Governor
Eccles has repeatedly insisted upon
this. The control of the system of
banking and of issue, he has said,
quoting President Woodrow Wilson,
must be public. not private; must
be vested in the government itself,
so that the banks may be the in
struments, not the masters, of bust
ness and of individual enterprise
and initiative"
On this account, the new Bank
ing Act of 1885 provides that the
Federal Reserve Board shall be re-
constituted as Board of Governors
with duties REDEEMED. The ap-
pointment of the governors by the
President all at the same time is
momentous step, comparable to the
simultaneous appointment of all the
members of the Federal Supreme
Court. In the governors. with five
representatives of the Federal Re-
serve Banks Ito be selected with
the governors approval annually,
is centered the power over selection
of the time, character, and volume
of all purchases and sales of gov
eminent paper in open-market OPP
erations. Thus the responsibility for
public issue and public recall of the
check book money for business, as
we'll as of added reserves, is fixed in
this committee.
Also, in the Federal Reserve Board
is fixed the responsibility of con-
trolling the issuance of new check
book money through regulation OF
the rates of discount under the new
law. Such rates shall be established
every IA days, or oftener.
Besides the open-market opera
tons and the rediscount rates there
is a third main control over the vol
ume and value of money, that OF
changing the requirements as TO re-
serves. This is conditioned upon an
affirmative vote Of not less than five
governors of the reserve system. The
law now declares that the reserves
shall not be decreased below those
already IN force, nor increased be-
yond twice such amount.
This limitation is not satisfactory.
The excess reserves of the member
banks amount at this time to about
81, TOO 900, 900; if the reserve require
ment were doubled there would be
still some excess, without provision
for controlling imitation beyond this
point. Theoretically, upon the pres
ent excess reserves we might have a
monetary expansion of 10 times, or
27 billions. Actually. there is no
need of such a fabulous sum. The
danger of imitation is not now pres
ent, but the power of the board and
it's responsibility should be without
limitation in this respect.
Viewed Business Help
Nevertheless, Mr.. Eccles has de-
clared his approval of the new
banking act as a great step forward.
He believes it clothes the Reserve
Board with powers and duties that
will help business toward a fair
measure of recovery and keep it
there.
Recovery is becoming manifest.
first in the restoration of volume of
check book money used in business
to the pre-depresion level. AS bust
ness gains confidence by the test of
experience, the net turnover of the
new, permanent money as money
income for the people should rise to
a normal rate, annually, of thrice
the total money in the country.
1t will be seen that the new
banking" act is really primarily
monetary legislation Of the most
far-reaching kind. highly admin
istered it can rapidly complete our
,-ecoverv from denraSSiOO and what