Irving Fisher The Money Illusion by unknow

Author:unknow
Format: epub

REDIT control must always be an impor

tant part of any program for stabilization. As has been seen, a start has been made in this direction by the Federal Reserve System. Some readers may wish to know a little more definitely what are the procedures employed for this purpose by the System.

The most complete account of what the Federal Reserve System is now doing will be found in a book by W. Randolph Burgess, Assistant Federal Reserve Agent of the Federal Reserve Bank of New York, and in the testimony of Governor Benjamin Strong of the same bank in the hearings on the (Congressman) Strong

184 the money illusion

Bill. Both books are listed in the reading list which follows.

Here, of course, merely the barest outline of the influences now exercised can be given.

how the federal reserve is operated

The influence exerted by the Federal Reserve System is exercised in five chief ways:

(1) By buying and selling government securities through the Open Market Committee, organized to insure concerted action by the twelve Federal Reserve Banks (see page 132).

(2) By raising or lowering the rates of these Banks for rediscounting loans for the thousands of member banks (see page 134).

(3) By exchanging gold certificates (backed 100 per cent by gold) for Federal Reserve notes (backed only 40 per cent by gold) and the reverse, thus virtually putting the gold reserve into circulation or withdrawing it, at will. Such substitutions change the gold reserve ratio and, by that much, diminish the danger of its becoming so large as to lead to inflation or so small as to lead to deflation. As long as that ratio is comfortably above the legal ratio, yet not too far above, it may be disregarded in banking policy;

some plans for stabilization 185 for within limits any change in it will have no

(4) By moral suasion brought to bear on banks, especially member banks, thus tending toward concerted contraction or expansion of loans. This is accomplished through the contact men of the Federal Reserve Banks.

(5) By the publication of statistical information on the part of the Federal Reserve Board

Of these five methods the first two put in practice what many economists have long since proposed. Alfred Marshall, for instance, in 1887 had shown the economic principles underlying the first method, together with many other suggestions for stabilizing money. The second method has been emphasized by Professor Cas-sel of Sweden in his Money and Exchange since IQI4 and by me in Stabilizing the Dollar.

Assuming that the gold standard is to be retained, credit control alone will not suffice to maintain a stable currency over long periods. Gold control is also needed, lest there be a conflict between the aims of credit control and the legal requirements as to gold reserve.

The plans for gold control thus far proposed fall under two main heads: (i) control of gold production and (2) control of the weight of gold in a dollar.

THE LEHFELDT PLAN

The first type is best exemplified by the plan of the late Professor R. A.

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