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The Commoner
VOL. 22, NO. 5
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Ruinous Effect of "De
flation" Policies
, ., r' Richmond, Virginia, March 2nd, 1922.
Editor The Commoner:
Dear Sir: I take the liberty of handing you
with this a Chart prepared to show the relation .
of the great collapse in the prices of products
and commodities of all kinds which ho a, oc
curred since May,, 1920, to the enforcement of
the "deflation" policies of the Federal Reserve
Board in the same period.
It is believed that .the facts and figuron pre
sented In this Chart are of vital interest to
every bank, banker and business man in our
country.
-The tables show clearly that the ruinous
and unprecedented collapse in values took place
BETWEEN THE MONTHS OF MAY, 1020,
AND AUGUST, 1921, and that it was in pre
cisely that period that the twelve Federal Re
serve Banks in carrying out the Board's "de
flation" policies CONTRACTED their outstand
ing credits from $2,928,031,000 in May, 1920,
to $1,527,255,000 in August, 1921, the actual
shrinkage in that time being $1,410,770,000.
The following figures are condensed from the
complete tables shown on the Chart, and give
the average prices of sixteen loading commo
dities for May, 1920, and August, 1921, and the
shrinkage brought about in each.
Average Prices Percentage
of
May, 1920 Aug. 1921 Shrinkage
Corn 1.98 ' .55 72
Cotlon ..' 403 .129 67
Sugar 224 .058 lvo
Wheat 2.97 1.23 58
Cattlo 12.60 ' 8.77 30
Hides ;.., 35 - .14 60
Hogs 14.75- 10.39 3,0
Wool 1.16 .49 57
Cotton Yarns 76 .25 '67.
Leather 57 .34 40
Steel 60.00 29.60 51
Copper 19 .117 39
Load ". 085 .044 49
Pig Iron 43.75 18.20 - 58
Yellow Pine fl'g. .160.00 92.00 42
Petroleum 6.10 2.25 63
From August 31, 1921, to January 25, 1922,
there was a further actual can traction of $594,
373,000 in the amount of credits extended by
the Federal Reserve System, and during those
five months there was also a further decline in
prices of many products; although in some in
stances, responding to a partial relaxation, in
certain sections, of the Board's "deflation"
. policies, other products began to react and im
prove in value.
I believe it has become clear to all who know
the facts that the fault was NOT with our Fed
oral Reserve System itself, but with the ad
ministration of that System by men who have
so plainly demonstrated their unfitness for the
great responsibilities committed to them.
In an address before the Board of Commerce
and Georgia Press' Association, at Augusta, Ga.,
July 14th, 1921, I .said:
'Tho Federal Reserve Act is the finest tool
for commercial protection and construction ever
put in the hands of a government and people.
I believe that by awkward and inefficient hand
ling it has been used to injure where it was in
tended to guard and to encourage and protect
what it should have restrained and prevented.
I expressed my views as strongly and
clearly as I could put them into words, both
orally and in writing during the past eighteen
months or more, and I believe that if my re
monstrances had been heede.'. and my admoni
tions given the consideration to which I con
sidered them entitled, coming from a member of
the Reserve Board, untold loss and suffering
might have been avoided."
. The annihilation of values which has followed
the enforcement of the Federal Reserve Board's
deflation policies is estimated at tens of bll-
lions of dollars, or far in excess of the total cost
in money, to this country of the great war. '
The unsympathetic not to say the heartless
attitude of a majority of the members of the
Reserve Board towards the crushing losses, de
vastation and ruin which came with the carry
ing out of its unwise policies is suggested in
the Reserve Board's letter of January 13 1921
replying to any remonstrances against the'eourso
which was being pursued. In that, letter they
said:
. L "We lipid that the shrinkage which has taken
.place is. somewhat analogous to that which
takos place when a balloon is punctured and the
gas escapes." ,, t .,
In eply to that observation, I said:
"Instead of driving a hole in the bag and
crashing to earth in wreck and ruin, we should
handle the valve rope and ballast with anxious
and ever alert care and effect a landing on goud
and solid ground."
On July 31, 1920, when prices had begun to
tumble and the Federal Reserve authorities
were increasing the pressure in various direc
tions, I gave to the press, as Comptroller of the
Currency, a statement in which, in trying to
al'eviate the growing anxiety in business and
financ'al circles, I directed attention to tho fact
that the Federal Reserve System had then an
UNUSED LENDING POWER of 750 million
dollars, or seven times as much as all the na
tional banks of tho country had ever borrowed
at any one time prior to 1913. If it had been
desirable to provide a still greater fund this
amount could have been increased to two and
a half billion dollars by reducing, temporarily,
by 10 per cent, tho reserve required on deposits ,
and notes. After my publication of that state
ment both the Reserve Board at Washington and
the Chairman of the New York Reserve Bank
in written communications expostulated against
my reassuring statements on the ground that
they interfered with their well-laid schemes and
policies, which we now see have proved so fatal.
Their letters are matters of record.
I ask attention to tho following statements
contained in an able and powerful speech recent
ly delivered in the United States, by Senator Hef
Hn, of Alabama, on the "Deflation Policies of the
Federal Reserve Board," and published in the
Congressional Record of February 28, 1922:
"I defend the system. Mr. President, I think it
is the greatest banking system ever devised ty
the genius of man, and I do not intend that any
body shall pervert and twist and confuse my in
dorsement of the system with my criticism and
condemnation of the policy of the Federal Re
serve Board. The great ocean steamer that has
many times carried American passengers back
and forth across the sea is not to be condemned
because an incompetent or criminal pilot steers
it upon the rocks. I am not condemning the
Federal Reserve Banking System. I am con
demning those who abused and violated the
trust reposed in them a'nd used that system to
hurt rather than help American business in the
tims of great distress." .
"Under the deflation policy of 1920 I .saw
that power employed, not to uphold and sustain
legitimate business, but to strike it down and
destroy it. I saw it hoarding the nation's
morev supply and withholding credits from busi
ness when the government's Comptroller- of the
Currency, John Skelton Willjams, declared that
tho Federal Reserve Board could issue and put
into circulation $2,000,000,000 of currency and
prevent distress among millions of people."
The developments of the past year or so
furnish an overwhelming vindication of my po
sition throughout; are a justification of my
warnings, and a fulfillment of all my predictions
in connection with this vitally important sub
ject. I will be obliged if you will acknowledge the
receipt of the Chart which is enclosed. ' v
Yours very truly,
JOHN SKELTON WILLIAMS.
APPRECIATES THE COHDIONER
E. B. Stebbins, Mich. Enclosed find check
for $2.00, for which extend mv subscription two
years. I have been a subscriber to your valu
able paper since the first issue, and have read
every issue sinoo that time. I'desiro to express
my appreciation of the great good Mr. Bryan
is doing throughout the world. His great pro
phetic vision has placed him in the ranks of the
reformer, and like other reformers, he had to
endure criticism. So many of his reforms have
been adopted, all must admit that he ranks hieh
in statesmanship. Mr. Bryan's chanjpionship of
. the gospel of Jesus Christ is touching the
hearts of the people and leadinntr them fn n
higher civilization No one is Sitae nW tc ad
vance the cause of Christianity. Mi.- Brvan's
efforts for world peace are bearing fruit Hi
attack upon tho evil of war and its crushing tax
burdens will be victorious. The people are lis
tening to his council as never before.
CONVENTION TO HEAR MR. BRYAN
A Columbus, O., dispatch, dated April 26
says: Reissuance of an invitation to William
Jennings Bryan to speak at the international
Sunday school convention at Kansas City next
June was decided upon hero today at a meetS
of the convention program committee With
drawal recently of an invitation bVougSt'nS'
ous protests and today's action was the result
Facts About Pro
hibition
By Charles Scanlon
The propaganda of the liquor t0 or,
the- impression that prohibition is a failure L
influenced a few good people to ask if nrnhuTi8
tion is really successful. Let us meet this iZ
squarely. kSUe
One of the most frequent arguments to m.
that prohibition is a failure is the statumpn!
that more liquor is consumed and that it i
easier to procure than before we had prohihi
tion. If that be true, why should the liquor
people not be satisfied, and why should thev
continually urge the repeal or modification of
the present law? If they can secure all the
liquor they desire, what becomes of the arcu.
ments they made against prohibition before its
enactment, or why do they insist now that it
robs the people of their rights?
Who believes that it is easier to secure liquor
now than before, and who believes that the lit.
tie stills hidden in stumps or stoves or cellars
or in little gulleys in the mountains produce
more than the smallest fraction of the amount
formerly produced by the 600 or more distil
leries in the United States, or that the improvised
means of making, home brew equals the mil
lions of barrels of beer turned out by the 1,300
breweries, or that the liquor smuggled over the
border from Canada and Mexico constitute
more than a modicum of that transported by
the trainload in refrigerator cars owned and
labeled by the great breweries of the country?
Because our newspapers are so largely filled
with accounts ot crime, are we to conclude that
the majority of the people are criminals? The
outlaws get notice because their acts are excep
tional. The millions of law abiding people who
sleep and rise and work get no mention, hecause
their lives are honorable and normal. It is
the- abnormal and the criminal which attract
attention. So it is with the millions of people
who never violate the Eighteenth Amendment.
It is the few who break this law whoso names
appear in the public press, and the liquor peo
ple encourage the publication of these acts ot
lawlessness to create the impression that "every
body is doing it," and that there is little or
no sentiment in favor of prohibition, whereas
the very contrary is true.
What constitutes failure? No plan or work
or institution of man is perfect. His endeavors
are relative and not absolute in their approxi
mation of the ideal. What law is 100 per cent
obeyed? Because a doctor does not save the
lives of 100 per cent .of his patients, or the law
yer does not win 100 per cent of his cases, or the
teacher does not succeed with 100 per cent of
her pupils, or because ministers do not win 100
per cent of their congregations, are they fail
ures? Because marriage, one of the most holy
and sacred of our institutions, ' is broken more
than 100,000 times a year in this country by
divorce, is marriage a failure? Because mur
der, the most heinous of crimes, is committed
thousands of times each year, is the law against
this offense a failure? Because more than 500,
000 people annually break some law and are
committed to our penal and correctional in
stitutions, is all law a failure? Because so
many people are killed in automobile accidents,
train wrecks or the fall of airships are these
inventions failures? Because goods are smug
gled into this country on shipboard and ovei
the Canadian and Mexican borders, are our
tariff laws a failure? Becaus6 money is coun-
terfeited is the Jaw against counterfeiting to ue
repealed? There are hundreds of thousands
of automobiles stolen every year but who advo
cates the repeal of the law against their of
fense? Because no form of government is sat
isfactory to, or respected by all people, does that
prove that all government is a failure and sliouia
be abolished? .,
If there were no law, of course there couia
bo no law violation. The argument maae
against prohibition is that because it is some
times violated it ought to be repealed. ww
not follow the logic we use with reference i w
other crimes and vindicate tho law by punisn
ing those who break it. ,.,,
Let us consider a few facts. It cost aooui
$6,250,000 to enforce the prohibition law in
1921. The taxes, fines, confiscations and otner
penalties imposed upon those who endeavoreu
to violate the law amounted to more than oa.
000,000. All of this amount was not collecwo
hut was assessed and what could not "fl ;U
lected was held as a deterrent over the heaus
Continued on Pago 10
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