America's Money Machine

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The First Inundation 91 and at a time when an exceptional crop brought upon the market the largest crop in the history of the country. The wheat problem was largely solved by the War-Risk Insurance Act, but to meet the needs of the Southern farmers the Treasury agreed to accept warehouse receipts for cotton or tobacco, not having more than four months to run, as eligible security, at 75 per cent oftheir face value, for emergency note issue. As an additional measure, Secretary McAdoo summoned a conference of bankers to form a loan fund to tide over the cotton farmers-and to provide a fund of cash by which to redeem the emergency notes 'issued against cotton. A loan pool of $100 million was the result. A third emergency measure was a gold fund to support the dollar in the foreign exchanges. The war found the country with a short term foreign indebtedness of more than $500 million, and foreign creditors were eager to convert these claims into cash. Some $450 million was owing by business men and bankers and the City of New York had notes of $80 million payable abroad and coming due. Sterling exchange in consequence was rising in relation to the dollar, and was now over $5 to the pound that at par was worth $4.87. Later, of course, the movement would set in the other direction; just now some means were needed to meet these maturities. The Treasury formulated what was known as the gold-fund plan by which leading banks, especially those in reserve and central reserve cities, were to contribute $150 million in gold, or gold certificates, to a gold fund to be used to buy foreign exchange as needed. The fund was to be managed by a select committee with authority to arrange for shipment of the gold abroad to acquire foreign exchange and in turn to sell the acquired exchange in the domestic market as needed to stabilize the market. The contributions of the participating banks would be in the form ofdeposits for which they would be issued depository receipts. The plan was initiated early in September and came into operation on September 2 1, and a shipment of $10 million gold to Ottawa, Canada, was promptly arranged, with immediate effect on the market, and the need for gold was written down to $100 million. By now, export trade was beginning to revive, and by the middle of November when the New York Federal Reserve Bank officially opened, exchange had returned to normal. On November 23 the Chicago Stock Exchange reopened, with prices ofleading stocks trading at quotations higher than at the closing onJuly
92 PART II / THE GREAT REVERSAL 30, and as the New York Tribune observed, "Prosperity, who has had her foot in the stirrup ever since the Federal Reserve Bank was opened, leaped in the saddle today and went galloping off full tilt for normal conditions."5 The re-opening of the Chicago exchange was followed by the reopening of the Philadelphia exchange on November 24 for limited transactions (by an auction, with the sellers setting minimum offering prices), and bond trading under similar limited conditions was resumed on the New York Stock Exchange on November 28. Full trading in the New York Exchange returned on December 13. By then the crisis of 1914 was past, resolved largely by the vitality of the economy, the initiative of the business and financial community, and the operation ofconventional governmental power, rather than any new monetary mechanisms. The test of the effectiveness of the Federal Reserve System in meeting panics and shocks to credit would come later.
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BOOKS BY ELGIN GROSECLOSE Money: Th
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For My Beloved Louise with especial
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Vlll CONTENTS 22. The New Thermopyl
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x PREFACE sprawled under the weight
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Preface XIU cash, lawful money, leg
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Preface xv tary expansion and a che
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4 PART I / THE ROOTS OF REFORM An i
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6 PART I / THE ROOTS OF REFORM ente
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8 PART I / THE ROOTS OF REFORM them
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T HE 2. The First Shock Wave SIGNIF
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12 PART I / THE ROOTS OF REFORM son
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14 PART I / THE ROOTS OF REFORM ene
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T HE 3. The Lapping at the Dikes YE
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The Lapping at the Dikes 19 On Mond
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4. The Rich Man's Panic T HE STOCK
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The Rich Man s Panic 25 bocker Trus
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PART I / THE ROOTS OF REFORM The cr
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30 PART I / THE ROOTS OF REFORM Win
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Page 96: PART II The Great Reversal
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Page 106 and 107: The First Inundation 89 $43 million
Page 110 and 111: 13. Collapse of a Theory THE SPLEND
Page 112 and 113: Collapse ofa Theory 95 should be re
Page 114 and 115: Collapse of a Theory 97 such paper
Page 116 and 117: Collapse ofa Theory 99 plete contro
Page 118 and 119: The Path of Retreat 101 Under Warbu
Page 120: The Path of Retreat 103 Along with
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Page 125 and 126: 15. When to Reef Sail DURING THE FI
Page 127 and 128: 110 PART II / THE GREAT REVERSAL Wa
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Page 132 and 133: Rediscount rate Date New York Feder
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PART II / THE GREAT REVERSAL 15 per
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148 PART II / THE GREAT REVERSAL Th
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154 PART II / THE GREAT REVERSAL vi
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1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
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158 PART III/DEBACLE OF AN IDEA tio
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The Crumbling of the Dikes 161 day
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T HE 22. The New Thermopylae EFFORT
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166 PART III / DEBACLE OF AN IDEA S
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168 PART III/DEBACLE OF AN IDEA in
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23. The Keynesian Influence JOHN MA
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172 PART III / DEBACLE OF AN IDEA a
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174 PART III / DEBACLE OF AN IDEA o
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176 PART III/DEBACLE OF AN IDEA tie
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T HE 24. The Not So New New Deal AF
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PART III / DEBACLE OF AN IDEA ties
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184 PART III / DEBACLE OF AN IDEA c
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188 PART III/DEBACLE OF AN IDEA For
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196 PART III/DEBACLE OF AN IDEA nor
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Ig8 PART III / DEBACLE OF AN IDEA R
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Where Two Tides Meet 207 billion. I
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Where Two Tides Meet 209 The conser
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Where Two Tides Meet 211 creating a
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The Reversals of War 2 13 the world
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The Reversals of War 2 15 per cent
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The Reversals of War 217 three-mont
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29. Doubtful Victory No HEAD of the
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Doubtful Victory 221 sury and the F
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Doubtful Victory 223 at a cost of 1
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Doubtful Victory 225 sleeping on hi
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3 o. The Role of Atlas THE FIFTH DE
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The Role ofAlIas 229 dollar deposit
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232 PART III/DEBACLE OF AN IDEA amo
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234 PART III / DEBACLE OF AN IDEA T
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236 PART III / DEBACLE OF AN IDEA f
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PART III / DEBACLE OF AN IDEA becau
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T OWARD 32. The End of a Dream THE
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242 PART III/DEBACLE OF AN IDEA Des
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244 PART III/DEBACLE OF AN IDEA -th
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246 PART III/DEBACLE OF AN IDEA Fol
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248 PART III/DEBACLE OF AN IDEA The
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The Chute fluctuating in value agai
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Into the Pit 253 As the relative ma
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Into the Pit 255 That bankruptcy wa
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258 PART III/DEBACLE OF AN IDEA ind
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Out of the Pit 261 A fourth misconc
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Out of the Pit 263 WarII the ratio
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Out of the Pit 265 The Federal Rese
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268 NOTES Chapter 4. 1. New York Ti
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Notes Chapter 19. 1. Federal Reserv
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274 NOTES Chapter 31. 1. See the au
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SELECTED BIBLIOGRAPHY Harding, Will
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About the Author ELGIN GROSECLOSE f
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Achesont Deant 19 1-g2 t 196 t 198
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America's Money Machine

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