Full text: Referendum on the report of the Special Federal Reserve Committee

them to another class, which class is in turn robbed as time brings other changes in 
the value of the dollar.” 
The Swedish economist, Gustav Cassel, who has already been quoted above, is a 
prominent European exponent of the relation of the volume of credit and the price 
level. Writing as of the middle of November, 1929, for the Journal of the American 
Bankers Association he found in the course of prices in the United States a stability 
which had in fact been largely brought about by the federal reserve system. After com 
menting upon a rising tide of production in the United States from the end of 1927 
and the trade cycle of which this tide was a part, Professor Cassel continued: 
“In one respect this trade cycle has been quite unique. It has not been accompanied 
by any rise of the general level of commodity prices. In all previous cases such a rise in 
prices has been a very conspicuous feature of the rising tide. 
“For instance during the boom of the first part of the seventies Sauerbeck’s index 
of wholesale prices for Great Britain was carried from 96 in 1870 to 111 in 1873 and 
thrown back to 96 in 1875. At the same time the group ‘Minerals’ showed an increase 
from 89 to 141 and thereupon a reduction to 101. Similarly the wave of prosperity at 
the end of the century carried the general level of prices in the period, 1896-1900, from 
61 to 75 and the index of minerals from 63 to 108. 
“In the present case nothing of that kind has occurred. The general index of com- 
modity prices of the United States Bureau of Labor statistics computed on the basis 
of 100 for 1926 never rose to more than 100.1, which was in September, 1928. For the 
most part of the period it stood in the neighborhood of 97 and for August, 1929, it 
was 97.7. The group ‘Metals and metal products’ has shown a slight increase up to a 
maximum of 106.4 for March and April, 1929. For August, however, the figure was 
down to 104.3. For building materials the index reached a maximum for March of 
98.8 and was down in August at 96.7. 
“This is indeed an extraordinary experience. A regular and strong tide of in- 
dustrial prosperity coupled with the most complete stability of commodity prices! 
From the fact that prices have not been inflated during the rising tide the very im 
portant result follows in that now no deflation is required. The level of commodity 
prices must be regarded as quite sound as it is and this gives a great strength to the 
present industrial situation. 
“Economists have given much attention to the question of why rising tides are 
regularly accompanied by a rise of the general level of prices. Some authors have held 
that such a rise was solely due to the action of the central bank which supplied the 
country to a too liberal extent with means of payment. With a more restrictive policy, 
they have said, it would always have been possible to keep the general level of prices 
constant and to avoid stimulating the boom that follows from a too abundant supply 
of means of payment. 
“Other authors have not been willing to go so far. They have believed that the 
upward movement of the trade cycle in itself possessed a power of raising the general 
level of prices and that it was impossible for a central bank to resist this power. How- 
ever, it is clear that rising prices, particularly during a time of increased industrial 
activity, require a more abundant supply of means of payment, and if this supplv is not 
forthcoming the rise of prises must come. to a standstill, 
“The experience of the United States of the rising tide that has now come to an 
end has given the first practical decision in this very important question. As a matter of 
fact, the federal reserve system has succeeded in so restricting its supply of means of 
payment that an enhancement of the general level of prices has been avoided. This 
very remarkable result has been attained by an administering of the rates of discount 
‘Continued on paae 35) 
Recent Stability 
Trade Cycle 
Earlier Price 
Recent Price Level 

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