America's Money Machine

When to Reef Sail 109
With remarkable prescience, Senator Root foretold exactly what would
happen six and a half years later: "You cannot contest the operation of
these laws," he had declared.
As against the working of that law, your raising the rate of interest, or your
attempting to sell government securities, will be just as effective as Mrs.
Partington's mop against the Atlantic Ocean, because you do not bring into
operation your forces until the damage is done. When confidence is lost, you
can raise the rate ofinterest to the roof, but you do not bring the money until
you restore confidence....
My objection is that the bill permits a vast inflation of our currency, and
that inflation can be accomplishedjust as readily andjust as certainly by loans
of the government paper upon good security as upon bad security; that is to
say, upon security that is good until the time comes when, through the
process of inflation, we reach a situation in which no security is good. 2
The Senator's analysis was an admirable blueprint for the post-war
collapse. After the Armistice merchant shipping that had been concentrated
on the shortest Atlantic crossings now scattered throughout the
world seeking cargo. Wool that had been piling up in· Australian warehouses
for want of means to get it to market, now clogged the London
and Boston docks.
Meantime, prices were continuing to rise, to the mounting concern of
everyone, from housewives trying to fill the market baskets with the
lagging wages of their spouses, to industrialists faced with the profit
squeeze ofnarrowing margins between costs and sales, to theauthorities
of the Federal Reserve Board, anxious over the "overstrained situation
resulting from excessively high prices and wages."
While high prices of necessaries were obviously chargeable to inefficiency
and underproduction to a large degree, the Board reported in its
summary ofbusiness conditions for April, it advanced the belief"that the
already high costs of production were aggravated by the added expense
of obtaining capital,"-that is, the high interest rates prevailing.
Actually, of more concern to the authorities was the continually increasing
demands for goods, which by their very urgency increased dislocations
in industry. A railroad strike for higher wages, combined with a
shortage offreight cars, had reduced coal mining in Eastern mines to 30
per cent of normal, and in Southwestern mines to about two-thirds of
normal, the Federal Reserve Board reported, while sporadic strikes in the
manufacturing industries, notably textiles, interrupted production and
aggravated unrest. It reported also an acute shortage of labor on farms.