ARGUMENTS IN THE NEGATIVE 
reserve system was responsible for such an excessive increase in credit in 1927. Accord: 
ing to one economist whose paper appears in the proceedings of the American Economic 
Association for 1928, the “reserve banks in the summer of 1927 undertook to aid 
European and American trade and agriculture by lowering their discount rates in the 
face of a member bank credit expansion exceeding 414% per annum and before the 
gold inflow had changed to an outflow. After this easing measure, three successive rate 
increases had to be enacted before the rate of member bank credit expansion declined 
in the late summer to less than 415%. * * * The securities market was now in a mood 
to fight for its credit by paying higher rates.” 
Even if there were not an element of injustice in the reserve system, which inten- 
tionally or unintentionally had given rise to a use of credit in securities markets, alter- 
ing its position to an attitude of hostility and discrimination, there would remain the 
question of the possibilities of success in any attempts at discrimination in the uses of 
such a fluid thing as credit. Though the person who obtains bank credit may use it for 
an approved purpose, its very use involves its being passed to another person who is 
necessarily free to apply it to any purpose he may see fit. 
References to speculation generally relate to buying and selling on the stock mar- 
ket, and this is particularly true just now by reason of recent events. It is to be remem- 
bered, however, that banking operations in connection with stock market transactions 
are carried on with such efficiency that there is not the effect upon the credit situation 
that would accompany a similar volume of transactions in some other direction. A 
study which was made in 1926, when brokers’ demand loans in New York were under 
$2,500,000,000, resulted in a conclusion that brokers’ loans might rise to six billion 
or even more without a serious effect upon money rates in New York and without more 
than a slight effect upon the lending capacity of the American banking system as a 
whole. This statement was based upon the efficiency which has been built up to handle 
transactions in securities. The author of this study, of course, was speaking only of the 
effects upon the credit available for other fields; he remarked upon the dangers from 
such a situation if for any reason any considerable portion of such demand loans hac 
to be liquidated at any particular time. 
In August, 1929, brokers’ demand loans in New York in fact exceeded six 
billion. They reached their high point, of $6,804,000,000, on October 2, fluctuated 
for several weeks, and then dropped by large amounts, on December 24, 1929, standing 
at $2,886,000,000 as against $4,538,000,000 on December 26, 1928. The weekly 
averages for months of 1929 to October and the weekly figures to December 24 were: 
[anuary —-—-—ecee——-- $5,408,000,000 October  16_______. $6,801,000,000 
February —._..-——--- 5,555,000,000 October 23... --—.. 6,634,000,000 
March ee coe. . 3,679,000,000 October  30-___._._. 5,538,000,000 
April _._ ee 5,477,000,000 November 1,882,000,000 
May ————_—————_——- 5,491,000,000 November 4,172,000,000 
June ——o___——_—___ 5,383,000,000 November 3,587,000,000 
July oo oeoeeoo-—  5,841,000,000 November 3,450,000,000 
August ____. . ~~ 6,069,000,000 December 2,945,000,000 
September ____ _  6,540,000,000 December 2,991,000,000 
October 2 e_____ 6,804,000,000 December 2,943,000,000 
October 9 ____.__ 6,713,000,000 December 2,886,000,000 
It is possible to point out that the figures for brokers’ loans are not so accurate 
1s they might be, to reflect the call loans made to brokers in connection with their 
transactions for their customers, but expressly include loans made to dealers on securi: 
ties they hold in the course of marketing new issues, and to remark upon defects in the 
figures from several other points of view, but whatever the defects of the figures for 
Machinery of Market 
Brokers’ Loans 
Dut-of-T own 
Banks 
Continued on page 3