America's Money Machine

116 PART II / THE GREAT REVERSAL
sion are illustrated in the accompanying chart ofthe rediscount rates and
prime commercial paper rates in New York City for the years 1917
through 1921.
The Federal Reserve authorities managed to take an optimistic view of
the fall in prices and reported at the end of September that "business
conditions are now definitely on the road to stability of as great and
confirmed a nature as the disturbed position of the world at large permits,"
and added: "Continuance of the process of readjustment in business
and industry has been an outstanding feature ofthe month. This has
been accompanied by price reductions and by the resumption ofwork in
branches of industry where hesitation as to the future outlook has led to
suspicion." The Board went on to comment on the change in the labor
situation: "A notable change appears to have taken place in the efficiency
of labor-twenty-one out of thirty-one of the largest corporations in the
country reporting improvement, while none report any decrease. Improved
railroad operation has resulted in much better marketing of
goods.... Stock market conditions have partially recovered...."
Meantime, the Board came under attack by Senator Owen, leader of
the easy money and fiat currency wing of the Congress. In a letter to
Governor Harding on October 22 he charged the Board with responsibility
for what he termed the "psychological effect ofthe policy ofdeflation"
which he asserted originated with New York bankers. The Board, he went
on to assert, had by its action destabilized the credit ofthe United States,
assisted in producing industrial unrest and lack of confidence, which had
checked production and brought commodity prices below the point at
which legitimate supply and demand would fix them.
Senator Owen's letter continued:
The need for the alleged policy of deflation rests on the premise that the
entire country is suffering from inflation, which is fundamentally untrue.
Legitimate borrowing and lending for legitimate purposes is not inflation.
We have the greatest crop in the history of the country. The productive
and machine power of America and its capacity for organization is greater
than ever before in its history. The tremendous demand for credits is justified
by these conditions and the credits ought to be extended by the Reserve
banks and by the member banks.
The banks are exercising, naturally and properly, a discrimination against
the speculator and the profiteer, but the man who produces and the man who
distributes is entitled to credit against the value of the commodities which
he handles.