264 The Stock Market Crash—dAnd After
sequent necessity of American borrowings to take
over the surrendered securities.
Again, Paul M. Warburg, formerly member of
the Federal Reserve Board, has pointed out
that had the rate of interest been raised in sympathy
 with the investment opportunities in America,
 instead of being lowered in accordance with
Federal Reserve easy money policy, the panic
might not have occurred. In my book on The
Theory of Interest (Macmillan, 1930) I have
emphasized the important influence of inventions on
the rate of interest. When a flood of new inventions
 gives opportunity to make more than the current
 rate of interest there is always a tendency to
go into debt, in order to make money out of inventions,
 and to the ordinary investor this comes in the
form of investing in common stocks. At such a time
the rate of interest should be high, embracing as it
does the opportunity to invest for a high rate of
return over cost. If there is a great discrepancy
between the rate to be realized to the investor from
his investment, and the rate of interest on which he
can borrow, he will be inclined to borrow all the
more.

But after the war our rate of interest was kept
artificially low, partly because we had so much gold.
After the inflation’ of 1919, much of this gold was
impounded and “ear-marked” for the purpose of
getting Europe back on the gold standard. The Reserve
 Board kept the rate of interest low in order
that this gold might not be reattracted to America.