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FEDERAL RESERVE 118 BOARD STATEMENT FOR TH1^ PRESS. X-1413 For Release in Morning Newspapers of Sunday, March 9,1919. The Federal Reserve B u l l e t i n f o r March was completed and sent to the printer to-day. The l e a d i n g f e a t u r e of t h e B u l l e t i n , the "Review of the Month," i s p r e dominantly a d i s c u s s i o n of readjustment t o a peace b a s i s , while the Bulletin as a whole has been designed t o f u r n i s h as much information as possible with r e f e r e n c e t o the progress t h a t i s being made in connection with readjustment throughout the country. A f t e r a brief discussion of public finance during t h e month of February and a sketch of the new l e g i s l a t i o n adopted by Congress, the Review of the Month c a l l s a t t e n t i o n to Secretary G l a s s ' s statement of the r e adjustment problem in h i s l e t t e r t o Chairman Kitchin, in which he s a i d , "Upon the enactment of a p p r o p r i a t e l e g i s l a t i o n t o enable the Food Administration t o p r o t e c t the g u a r a n t i e s given by the United S t a t e s , I am hopeful t h a t i t w i l l prove possible t o r e s t o r e the operation of the law of supply and demand with respect to f o o d s t u f f s w i t h , as I b e l i e v e , a consequent reduction in the cost of l i v i n g . A period of r i s i n g p r i c e s and of intense i n d u s t r i a l a c t i v i t y such as we have experienced during the past four years is always a period of great apparent p r o s p e r i t y , and a period of f a l l i t i g p r i c e s and of the contraction of c r e d i t s i s always a period of depression. The r e t a r d a t i o n of t h e process of readjustment by a r t i f i c i a l mer,ns can only increase the e v i l s inherent in the s i t u a t i o n . Buying w i l l not begin and a c t i v i t y w i l l not s e t in u n t i l the commun i t y _t l a r g e i s s a t i s f i e d t h a t p r i c e s have reached bedrock." Enlarging f u r t h e r upon the ideas thus suggested by the Secretary of the Treasury, t h e Review of the Month then c a l l s a t t e n t i o n t o the problem of r e s t o r i n g p r i c e s t o a s t a b l e b a s i s , and a f t e r expressing agreement with the view of t h e S e c r e t a r y of the Digitized for Treasury FRASER that reduction in costs of l i v i n g i s much t o be d e s i r e d , i t says, —2— X—1413 jf.jf " ^Readjustment* thus becomes a problem which involves t h e e f f e c t i v e t r a n s f e r of labor from war work back to peace employment a t s t a b l e and s a t i s f a c t o r y r e muneration, the curtailment of costs of production t o a point t h a t w i l l enable our manufacturers t o s a t i s f y domestic demand and compote favorably with f o r eigners f o r the export t r a d e , and the adjustment of values g e n e r a l l y to one another upon the new basis created by normalization of p r i c e s and wages. I t would be unreasonable f o r any f a c t o r in production t o a s s e r t th:.t i t would not bear i t s share, in t h i s general process of r e a d j u s t m e n t . Such readjustment i s designed f o r the common b e n e f i t of a l l p a r t i c i p a n t s in i n d u s t r y and the public a t l a r g e . If i t be e q u i t a b l y c a r r i e d out, i t s e f f e c t s w i l l not tend t o f a v o r any p a r t i c u l a r c l a s s or group in the community, but w i l l operate, while leaving a l l in the same r e l a t i v e p o s i t i o n , or a t a l l events in an admittedly equitable r e l a t i o n s h i p one to another, to increase the general volume of business and the r e g u l a r i t y and smoothness with which the i n d u s t r i a l mechanism moves and functions," The Review then takes up various s p e c i a l phases of readjustment and deals f i r s t with t h e question of l a b o r , quoting recent f i g u r e s t o show the extent of unemployment. Of i n d u s t r i a l readjustment i t says t h a t s u b s t a n t i a l progress has been made through t h e reduction of t r a n s p o r t a t i o n r a t e s ana the modification of war p r i c e s in a number of fundamental l i n e s . A n e c e s s i t y f o r s p e c i a l care in t h e investment of c a p i t a l during the readjustment period i s n o t e d , and a t t e n t i o n i s called t o the b i l l recommended by the Capital Issues Conn i t t e e f o r the purpose of p r o t e c t i n g i n v e s t o r s who might otherwise be induced t o commit themselves to u n d e s i r a b l e or inopportune e n t e r p r i s e s . Of f o r e i g n t r a d e t h e Review says t h a t " I t i s now becoming more and more evident t h a t an important phase of readjustment must be sought in connection with our f o r e i g n t r a d e . Opinion as t o t h i s branch of business has undergone some change during the past month. Up t o the opening of February i t had s t i l l been hoped by many t h a t t h e r e would be a s w i f t r e v i v a l of a c t i v i t y and t h a t our manufactured products would be exported in something ,3- 1-1413 130 Approaching the volume developed during the war* Several i n f l u e n c e s have i n t e r vened t o prevent such a development. Important among these i s the u n s a t i s f a c t o r y p o s i t i o n of the exchanges, making i t imperatively necessary f o r some foreign countries t o devote t h e i r e f f o r t s t o improving the exchanges by keeping down the indebtedness, amount of t h e i r current foreign ..Moreover, i t has appeared t h a t no inconsiderable part of the f o r e i g n - t r a d e a c t i v i t y of the year 1918 was d i r a c t l y due t o the f a c t t h a t the United S t a t e s was f i n a n c i n g t h i s export movement a t low r a t e s of i n t e r e s t through the advances made by the Treasury Department to the several f o r e i g n Governments. That these w i l l not be continued upon t h e i r former l e v d l i s , of course, an i n e v i t a b l e incident of our change from a war to a peace b a s i s , and with t h i s change in Treasury policy some change in the a c t i v i t y of those branches of export t r a d e which were dependent upon a s s i s t a n c e of t h i s kind is unavoidable* 11 Considerable a t t e n t i o n i s a l s o given t o the p r i c e s i t u a t i o n and the question of r e l a t i o n s between wages, p r o f i t s and p r i c e s of goods. With r e f e r e n c e t o banking, a t t e n t i o n i s called t o the steady movement toward the development of banking s t r e n g t h in foreign i n s t i t u t i o n s , the s l i g h t tendency toward higher r a t e s of discount in the domestic commercial loan market and t o the evidence t h a t l i q u i d a t i o n is in process* With r e f e r e n c e t o l i q u i d a t i o n the Review says: 11 This i s e n t i r e l y due t o n a t u r a l causes and not to a change in the discount policy of Federal Reserve Banks. There have been no noteworthy changes in Federal Reserve Bank rates* Such l i q u i d a t i o n as has taken place a t Federal Reserve Banks i s not that policy t o be regarded as r e s u l t i n g from change in the Board 1 s discount policy f /being what i t has been throughout the recent period of heavy Government f i n a n c i n g . "The heavy r e t u r n movement of Federal Reserve n o t e s occurring during January and amounting in the aggregate to about $235,000,0C0 has given way t o a s l i g h t outflow in the month of February, i n d i c a t i n g t h e s e l f - r e g u l a t i n g c h a r a c t e r of Federal Reserve n o t e c i r c u l a t i o n in the e x i s t i n g circumstances* The heavy return flow noted above i s in p a r t t o be explained by the n a t u r a l l i q u i d a t i o n which X-1413 normally occurs a t t h e turn of the year but in l a r g e r measure was probably occasioned by the r e t u r n t o banking channels of t h e considerable volume of notes t h a t there i s reason t o b e l i e v e were hoarded during t h e war, 11 The Review of the Month f u r t h e r f u r n i s h e s d e t a i l e d information concerning t h e changes in the p o r t f o l i o s of Federal Reserve banks during the month of February, as well as in the • condition of s e l e c t e d member banks* In c l o s i n g , the Review c i t e s some i n t e r e s t i n g changes which have occurred during the month of January in the personnel of the Federal Reserve system, summarising these as f o l l o w s : 11 In the Advisory Council Mr, J.P* Morgan has been succeeded by Mr.A.B* Hepburn f o r the second d i s t r i c t ; Mr. J , W„ Norwood has been succeeded by Mr, Jo$t e CrBrown f o r the f i f t h d i s t r i c t ; Mr. J.R, Mitchell has been succeeded by Mr, C*T, J a f f r a y f o r the n i n t h d i s t r i c t ; and Mr, Herbert Fleishhacker has been succeeded by Mr > A.L, Mills f o r the t w e l f t h d i s t r i c t . Governor Rolla Wells, of the Federal Reserve Bank of S t , L o u i s , has been succeeded by Mr, David C. Biggs. In the Atlanta d i s t r i c t , Federal Reserve Agent Wellborn has succeeded Mr, J o s . A, McCord as governor of the Federal Reserve Bank of Atlanta, while Mr, McCord has become .Federal Reserve agent in place of Mr, Wellborn, Mr. Louis C, Adelson, formerly a s s i s t a n t s e c r e t a r y of t h e Federal Reserve Board, has become deputy gov3rnor of the Federal Reserve Bank of A t l a n t a . In the New York d i s t r i c t , Mr. R. M. Sidney, formerly a s s i s t a n t Federal Reserve agent, has become manager of the new branch of the Federal Reserve Bank of New York a t B u f f a l o . Mr, George L. Harrison, formerly a s s i s t a n t counsel of the Federal Reserve Board, has been appointed general counsel of the Board in place of General Counsel Milton C. E l l i o t t , who has resigned t o e n t e r p r i v a t e p r a c t i c e . Mr. E l l i o t t continues as consulting counsel to the Federal Reserve Board, n The B u l l e t i n contains an e l a b o r a t e study which has been prepared under the d i r e c t i o n of t h e Division of Analysis and Research by Mr. Alexander Wall of D e t r o i t , Michigan, on the s u b j e c t of "Credit Spirometries.** Mr, Wall proposes an e n t i r e l y new method f o r the purpose of t e s t i n g the c r e d i t s t r e n g t h of commercial concerns which a r e a p p l i c a n t s f o r c r e d i t a t banks. The study i s based upon and supported by a compilation of s t a t i s t i c s derived from t h e statements of condition furnished by commercial houses* The B u l l e t i n a l s o p r e s e n t s t h e e s s e n t i a l data r e l a t i n g to the f i f t h Government l o a n , the t e x t of the amendments t o the Federal -5- * W X-1413 Reserve / Act^ and a number of other important o f f i c i a l documents. Among s p e c i a l f e a t u r e s t h e r e a r e furnished the r e s u l t s of an extensive i n q u i r y into the progress made in business readjustment in the several Federal Reserve d i s t r i c t s . The usual s t a t i s t i c a l m a t e r i a l is printed and included with i t i s f u r t h e r enlargement of the Board's system of business indexes* 3/7/19 1}2<2
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