190 The Stock Market Crash—dAnd After 
the effect of such purchases or sales on the general 
credit situation.” This power, rightly used, makes 
the Federal Reserve System the greatest public serv- 
ice institution in the world. 
When the system buys securities it thereby puts 
money into circulation. When it lowers the Fed- 
eral Reserve discount rate, it makes loans contracted 
by the member banks much easier to carry. The 
people have more money and credit. When the sys- 
tem spells, it thereby withdraws money or credit from 
circulation and when the rediscount rate is raised it 
makes loans to the member banks by the Federal 
Reserve Banks harder to get. Thus by this policy 
of expansion of credit or contraction of credit, re- 
spectively, as deflation or inflation of the commodity 
price level may be threatened, the Federal Reserve 
System exercises a strong regulative policy over the 
purchasing power of the dollar. This policy has 
prevailed during the past seven years to make the 
purchasing power of the dollar stable. Thus the 
Federal Reserve System wields a powerful control 
over loans, prices and prosperity. 
Adviser to Banks and Business 
Moreover, during the year preceding the stock 
market crash, the Federal Reserve Board, uneasy 
because of the unusual flow of credits into the stock 
market in the form of brokers’ loans, although I 
have criticized its failure to take sufficiently aggres- 
sive action, nevertheless, acted as an agency of warn- 
ing to the public and to the banks. In a radio