Evening star., 1938-08-14

money!, cTedu cOnLfOLS, ETC., Ihe
Associated press assigned a stat
financial reported to explain it,
BY RICHARD HIPPELHEUSER.
Ey the Associated Press.
NEW YORK. Aug. 13-1t was
beautiful thing while it lasted-my
complacency about monetary and
financial matters
Even when it was necessary to 60
into the by-ways of Wall Street in
search of news. paid very little at
tention to whether money was cheap"
or dear" knew it was always hard
to get, as far as I was concerned, and
too easy to spend.
The jolt came!
For some time. there had been con-
siderable talk about the cheapness"
of money And the Standard Oil Co.
of New Jersey had brought out All
issue of debentures with %. per
cent interest return, the lowest interest
rate on record for large industrial
bond issue
Over my loud protests. was ordered
to abandon my blissful ignorance on
the subject and find out something,
at least, about cheap money" so
made the rounds of economists, bank
ers, Government officials, statisticians
and the like
About the Cheapest Ever.
The first thing learned was that
not only is money cheap. but it's the
cheapest of any time in our country's
history with the exception of the years
l898-1900.
What do they mean by cheap money?
One economist almost threw me out
of his Office when I asked him such
an elemental question. Finally he
glowered at me and told me. The in
terest rate is the return I have to pay
If I want to hire your idle money and
you consider me good risk. If the
interest rate is low. then money is
cheap: If the rate is high, then money
is dear
In June. 1899. the average interest
rate for high grade corporation bonds
reached its lowest point-307l per
cent. The index in those days was
comprised almost entirely of railroad
bonds A comparable index today
would be one composed of high grade
industrials and utilities which. on the
average, has been only slightly above
per cent.
Two Reasons for Cheapness. q
There are two fundamental reasons
why money is as cheap as it is today:
l. The natural economic factors.
There's been little demand for money
in the last few years by borrowers
with good credit ratings. Consequently
those who have had money to lend
have had to enter into strong COM
petition with each other to entice
the borrowers The bankers have been
willing, in other words, to put their
money out on hire cheaply when they
thought the risk good
2. The influence of government.
The policy of the Federal administra-
.tion has been to make money cheap.
This is based on the theory that
cheap money helps the progress to
recovery after a depression, recess
sion, or just an ordinary business
slump, whatever you have.
In addition. there is third impor-
The political unrest and strife in Europe
and the Far East has resulted in vast
amounts Of money being sent to this
country for safe-keeping. Once here,
its owners place it out on hire. making
the supply of money available for
borrowers all the larger, and the COM
petition all the keener.
To go further into the natural
economic factors, look at two sets
Of figures shows the smallness of the
demand for money. which, in itself,
tends to make money cheap.
Demands Have Shrunk.
These figures show the demand for
money both upon banks and upon
the investing public. The CONNER
cial. industrial and agricultural loans
of Federal reserve member banks in
1Ol cities. which account for three
fourths of all such loans outstanding
in the country, amounted to about
So, 800, 100000 around the end of July.
This compares with about $4,80O,0 ,0O0,-
900 at the high point of 1887 and
with approximately $4,000, 100000 at
the high point in 1929.
New capital financing of corpora
tions, which represents the corporate
demand upon the investing public
for money, shows an even greater
shrinkage. In the five-year period
from 1926 through 1880. the monthly
average total of new capital money
put into the hands of corporations by
the investing public who bought new
stocks and bonds was S490000, 900.
In the years 1882 through 1885, the
monthly average was 22,O0O,000 With
the recovery movement of 1886 and
1897, the average was around $780,
100000 month, but it slipped back
again to around S60.000,000 for the
first six months of 1888.
Since money and credit go hand
in hand. the governmental develop
ments in making money cheaper can
be detailed in conjunction with those
designed to expand credit. Together,
they make an excursion into Govern
ment management of money and
credit without comparison, in its mag
nitude, in world history
Begun in Hoover Regime.
Actually, the foundation for this
excursion was laid in the latter days
Of the Hoover administration.
The Federal reserve system-even
though in those days it maintained
the fiction of being divorced from
the Government-wenti into the money
markets. buying Government bonds
in an effort to end the def1ationary
spiral set into motion by the Wall
Street collapse of 1929
2 This is called .nnen m arket onar