188 The Stock Market Crash—And After
profit, due to a sort of bogus accounting in terms of
a varying dollar.
For when this depositor came to spend his $300
in 1920, he found prices nearly four times as high
as they had been in 1896. Hence, his entire accumulation
 of $300 would buy only about three-quarters
 as much as his original $100 would buy in 1896.

Federal Reserve Control of Price Level
It was doubtless partly to avoid these upward and
downward fluctuations in the value of the purchasing
power of the dollar that the Federal Reserve Board
has tried to influence the expansion and contraction
of the currency on behalf of the nation’s business.
Thus in 1922, when the war and efforts at reconstruction
 had occasioned the flow to America of huge
gold reserves that threatened inflation, officials of
the Federal Reserve Board realized that all possible
steps should be taken to prevent it. Had they not
taken such action, but encouraged the banks to continue
 to follow blindly the profit motive, they would
have loaned and reloaned their gold reserves until
the credit structure had been doubled. Then the
reserve ratio, instead of being, as it was in the fall
of 1929, about 70 per cent, would, under the profit
motive, have sunk more nearly to the legal ratios—
35 per cent for deposit liabilities and 40 per cent
for Federal Reserve notes.
This doubled credit structure would probably have
led to a doubled price level. There would have been
consequent inflation quite comparable to the inflation