Evening star., 1938-08-27
FIRM
HITS At CONTROL
Says Federal Interference
in Credit Situation
Was 'Inept.'
Specia. lspatch to The Star.

Specia. lspatch to The Star.
NEW YORK, Aug. 27.-In its week.
ly summary of the general business
situation the Standard Statistics Co.
of New York currently comments as
follows:
Since money, by law and custom
mas always come within the sphere of
Government control, it is probably
inevitable that the Washington au-
thorities, who began by changing the
gold content of the dollar, should
make use of other monetary devices
as well. While the American Gov
ernment is also able to employ MANY
non-monetary factors. it is obvious
that most of these are beyond
planned control, at least for the
present.
Prior to August Is. 1896, the re-
serves to be held against demand de-
posits were 7 per cent. 10 per cent
and l3 per cent of those deposits, re-
spectlvely, for country" reserve city
and central reserve city member banks
On that date these requirements were
raised to 1912 per cent, Is per cent
and 1872 per cent. and the require
ment for time deposits was increased
everywhere from per cent to Az pc,
cent. 1t was estimated that the in
creased requirements would lock up'
81, ,450, ,000,0 900 of surplus reserves. re.
ducing the total from $3.50, 900, ,00C
to $1,000, ,o0c 900.
Holds Intervention Inept.
I'm retrospect this first interven.
ton in the credit situation appear.
to have been rather inept. 1t ex-
erted no actual immediate deflation-
ary pressure whatever, and in fact
it left room for a potential imitation
totaling six or seven times the ex-
1sting $l,900,000,000 of excess bank
reserves. Instead of stating that fur.
ther action would be taken if infla-
ton appeared, the board insisted that
easy money conditions would be main.
tained. Business men and the Sc
curity markets assumed that there
"eA>' SiSoA odAAA1I6 dIICdu.
The bitter labor controversies oi
1885 and early 1887 supplied the un.
falling incentive for inf1ation, namely
potential scarcity of goods. Facec
with the probability of strikes, cut.
ting off production, and the virtual
certainty of higher wages and higher
purchase prices. manufacturers anc
others gave rein to the impulse tc
stock up, thus setting in motion the
inventory increase, which was sud.
denly revealed later in 1897 as &
dangerous factor making for reces
sion.
Won't Check Up Trend.
"The conclusion appears to be war.
ranted that with so much Slack II
the credit situation regulatory meas.
ures on the part Of the banking au-
thorities are not likely to check ar
underlying business uptrend unles.
they exert positive restrictive effect
or establish a well-defined limit OF
expansion. Even then the result may
be to preoipitate a decline instead oi
producing the desired 'stabilization.'
LAS a matter Of fact interest rates
and the volume of credit are only
one influence among many. and II
is probably a dream to suppose that
money policy can ever be so finely
drawn as to constitute universal
stabilizer. brake or accelerator.
THE primary dificulty confronting
money management at this time is
the existence Of enormous surplus
funds When it Is desired to check
expansion these must be sterilised in
some way at the risk of producing
unexpected results. If the purpose
is to stimulate business it is found
that rates are already so low that
little can be done by way Of addi-
tional inducement to borrowers. The
problem is one of long-term adjust
ment. including points Of view a.
we'll as physical quantities"