America's Money Machine

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The Wound5 of War 125 cited, raised the curtain on the issue in his American Economic Review article which we have already quoted. He said: As an abstract proposition, the proposal to substitute a price indicator for the reserve ratio as a guide to discount policy has much economic merit. The rigors of the recent price readjustment process through which the United States, in common with the rest of the commercial world, has been passing, have emphasized the value ofprice stability. Price disturbances not originating from inevitable natural causes are bad and costly alike to producer and consumer.... . . . As a theoretical proposition, therefore, it is entirely conceivable that the discount policy of the Federal Reserve System might be governed by indications ofimpending price changes, with a view ofmitigating their cyclical fluctuations. While such an undertaking would raise some new and difficult problems of credit administration, no doubt in time the technique of a plan of credit regulation based on price indices could be worked out and made administratively practicable if public sentiment demanded. But there is now no warrant in the statute under which the Federal Reserve banks are organized for undertaking to regulate their credit operations on any such basis.... It is noteworthy of these early managers of the Federal Reserve that they uniformly resisted the idea that price regulation was a central bank function. The 1923 Report discussed the theory of price regulation at some length and concluded: Entirely apart from the difficult administrative problems that would arise in connection with the adoption of the price index as a guide and entirely apart from the serious political difficulties which could attend a system of credit administration based on prices, there is no reason for believing that the results attained would be as satisfactory as can be reached by other means economically valid and administratively practicable.... Price fluctuations proceed from a great variety of causes, most of which lie outside the range of influence of the credit systems. No credit system could undertake to propose the function of regulating credit by reference to prices without failing in the endeavor. The price situation and the credit situation are no doubt frequently involved in one another, but the entire relationship of prices and credit is too complex to admit ofany simple statement, still less ofa formula ofinvariable application. The Board then proceeded to analyze in detail some of the difficulties in establishing any cause and effect relationship and to analyze the task of administering credit with a view to "accommodating commerce and business."
126 PART II / THE GREAT REVERSAL Nevertheless, despite its reservations, it was not long before monetary policy had made a complete turn. No longer was the question to be one of "elastic money" but a stable price level, and in the morass of price statistics the Federal Reserve has been mired ever since.
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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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A FTER 7. An Interlude for Debate T
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Page 106 and 107: The First Inundation 89 $43 million
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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
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Page 132 and 133: Rediscount rate Date New York Feder
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Page 175 and 176: 158 PART III/DEBACLE OF AN IDEA tio
Page 178 and 179: The Crumbling of the Dikes 161 day
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Page 187 and 188: 23. The Keynesian Influence JOHN MA
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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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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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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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