Looking Ahead

By Alvan T. Simond4 Pteeideot Simonds Saw Ec Stecl Co.

About the middle of. 1927, the Federal Reserve discount rate was lowered from 4/o to 3rl/o. It is claimed by some that this was an unjustified rate and was so low that it was the primary cause of the great increase in stock market speculation which followed. Early in 1928, the loard incieased the rate trom 3l/o to 4/o; shortly after that from 4/o to 4%%, and in the middle of the year 5/o.In February, L9D, the Federal Reserve Board inaugurated a movement that it hoped and expected would check the increasing absorption of credit in stock market speculation and remove tlie likelihood of a further increase in the rates of money for industrial and commercial purposes.

The situation in the money market and the relationship of the Federal Reserve Board to it, has created an intense and widespread interest throughout the world. The board has been strongly condemned for not having acted sooner, and for not having acted with more vigor. It has been just as vigorously commended for its action in the matter.

Representative McFadden of Pennsylvania, chairm'an of the House Committee on Banking and Currency, in a speech on February 7,1929, insisted that the Federal Reserve System should not concern itself about security loans. "To disturb industry merely to prevent stock speculation," he said, "seems to be unwarranted, and would work a gross injustice upon the business man and the working man. This I suggest might be the result of an abortive attempt to restrict speculative and investment activities by banking policy."

Senator Glass, co-author of the Federal Reserve Act and a former Secretary of the Treasury, declares that the Reserve Board has full powers to deal with a credit situation such as the present and that it is open to'criticism for not invoking them months before it issued its first warning in February.

The Federal Advisory Council of the Federal Reserve Board at its meeting held in Washington on May 2I, L929, recommended to the Board that it now grant permission to raise rediscount rates to 6/o in the case of those Federal Reserve banks requesting it. Before this meeting two of the banks had requested such permission and it had not been granted. By the time that this reaches the reader some decisive action will without much doubt have been taken by the Federal Reserve Board and the results of such action will have begun to appear.

There are probably few if any economic questions in the United States in 1929 of more importance than this one of the Federal Reserve System control of credit. Economists are rather generally agreed that the establishment of these rates should not be left or rather cannot wisely be left to laissez-faire.

Since 1921 (with the exception of the year t922),I have been offering $1500 annually for the best essay on an economic subjeit. My object has been to help increase general economic intelligence in the United States. The subjects of the contests to date are as follows:

I. (1921) Present Economic Conditions and the Teachings of Adam Smith in the "Wealth of Nations"

2. (1923) Lack of Economic Intelligence

3. (1924) Sharing our National Income

4. (1925) Your Prosperity and Mine

5. (19261 Saving and Spending

6 (1927) Who.Ultimately Pays the Taxes?

7. (1928) Reducing the Costs of Distribution.

For the yeat 1929,"I propose the following subject:

The'F'edetal.Reserve System and the Control of Credit

One thousand dollars is to be awarded the essay decided by the judges to be the best and five hundred dollars for the essay chosen by the judges as the next best. The contest is open to everybody everywhere. The essays may be as short or as long as the contestant chooses. Each essay, however, must open or close with a summary (not exceeding 2500 words in length), written in such a manner that it may be used as a separate magazine article. The merits of the summaries will be given much weight in selecting the bbst essays. Consideration will also be given to the fact that the aim of the contest is to increase general economic intelligence, especially on the part of business men. Therefore the essay that by its style and presentation seems most likely to interest the ordinary business man will have an advantage.

I suggest that the contestants compare the relative merits of the English banking system and its control of credit with those of our Federal Reserve system and that they also make a study of the part that the cost of credit plays in advancing and retarding general welfare and prosperity.

The contest closes on December 3L, l9?9. All essays should be in the hands of the Economic Contest Editor, Simonds Saw and Steel Company,4TO Main St., Fitchburg, Mass., on or before that date. Write for the rules of the contest, if you are interested. No one should submit an essay without familiarizing himself with these rules, for no essay will be considered for aprize unless it is prepared and submitted according to the rules.