America's Money Machine

19.
The Fulcrum and the Lever
T HE
REVIEW OF THE DEBATE leading to the passage of the
Federal Reserve Act, which we have presented in earlier chapters,
has made clear that it was the "liberal" or Bryan wing of the Democratic
Party that carried its way in the formation of the new system. The one
thing it demanded was a mechanism for making money and credit more
plentiful. It was the "flexible currency" provision ofthe act that obtained
the endorsement of the commercial and banking community. To the
naive or conservative element this meant a release mechanism, a safety
valve, for times of emergency, and for emergency use only; for those
more sophisticated it meant cheaper and more plentiful money, and the
prospect of credit-debt expansion on a scale vaster than ever. To the
bankers, it offered the employment ofa larger proportion of total assets
in the market, hence with greater profit on bank capital; to the commercial
community, it provided easier credit, with money more freely available,
if not at lower rates at least for a wider and more speculative range
of ventures.
A realistic appreciation of these factors was written at the time by the
noted journalist C. W. Barron, whom we quote:
The "motif' underlying the Federal Reserve Act is not that which is nominated
in the bond. "An elastic currency" could have been had by an enactment
of twenty lines. The 'means of rediscounting commercial paper' are
already at hand and such discounts exist to the extent ofat least 100 millions
in the national banking system. It is not "to establish a more effective supervision
of banking in the United States," for that could be accomplished by
increasing the appropriation and enlarging the salaries of the examiners, so
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