Smyrna times., 1950-02-23
RESERVE BANK
MAKES REVIEW
First of Series of Business Re-
views of Federal Reserve
Bank of Philadelphia
MONETARY PROBLEMS


cles dealing with monetary policy,
points out that the statement
Money will not manage itself", is
as true today as when it was first
made about three-fourths of GEN.
tury ago. The Hearings and the Re-
port of the Subcommittee on Mon
etary, Credit, and Fiscal Policies
of the Joint Committee on the
Economic Report, of which Senator
Douglas is chairman, make it ap-
parent once again how important
the operation of our money and
banking system is to our economic
welfare. The Review states that the
problems analysed by the Commit
tee are only the more recent of a
long series we have encountered.
Money is indispensable to modern
society, but it has often been the
root of some of our economic evils.
Three main monetary problems
plagued us in the past. the article
states. These are: a chaotic curren-
cy, inability at times to convert
bank notes and deposits into cash,
and wide fluctuations in the volume
of business activity and the money
supply. Defects such as these con-
WINGED the public that action was
necessary, and legislation was re-
sorted to at various times in an
effort to correct them. A uniform
currency was established, and legal
reserve requirements were enacted
to assure the payment of bank
notes and deposits on demand. The
Federal Reserve System was estab-
lished in 1918, partly to provide an
elastic currency so that bank de-
posits could always be converted
into cash, and to aid in preventing
booms and depressions.
The Review points out that one
of the requirements of an efficient
monetary system is generally ac-
ceptable uniform currency. This re-
quirement was not met, however,
during a major part of the history
of this country. Just before the
Civil War there were several thou
sand kinds of bank notes in circu-
lation. differing widely in size, ap-
pearance, and value. This chaotic
currency situation imposed heavy
burden on trade and business. The
National Banking Act of 1868
established a uniform national
bank note currency and a 10 per
cent tax in 1865 eliminated state
bank notes.
Another problem which made its
appearance early, the article con-
tinues, was the inability of the
banks to meet their note and de-
pDsit liabilities on demand. The
problem was traceable in part to
the financial condition of individual
hanks, but the more serious aspect
was that in certain periods-usual-
iy characterized by excessive ex-
pansion of credit-there was gen.
eral breakdown of ability 10 con-
vert deposits and notes into cash.
To help solve this problem. laws
were passed requiring banks to
keep a certain minimum reserve
back of their note and deposit liza
bilities. Several such laws were
passed before the Civil War, and
in the sixty-year interval from the
National Banking Act to the Fed
eral Reserve Act about forty states
enacted legislation establishing or
making major revisions in bank
reserve requirements.
State and national legislation
enacted during the last century
brought improvements but did not
correct all of the defects in our
monetary system. The currency
supply still would not expand sufi.
GENTLY so that banks could always
meet sudden waves of Withdrawals
by depositors, and little progress
had been made in smoothing oui
business fluctuations. The panic ot
1907 convinced the American peo
pie that further action was neces
sary, and in 1918 The Federal Re
serve System was established. On,
of the purposes was to furnish ;
currency which could expand ant
contract in response to the demant
for cash by depositors and whicl
would afford member banks /;
means of getting additional casl
in times of need. 1t was also in
tended that the Federal Reserv
System should deal with the broad
er problem of helping to stabliz
business activity.
Six-foot three-inch Jim KruKin
ski is known as 0tha Shanherd