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 service
 institution in the world.
When the system buys securities it thereby puts
money into circulation. When it lowers the Federal
 Reserve discount rate, it makes loans contracted
by the member banks much easier to carry. The
people have more money and credit. When the system
 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, respectively,
 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 aggressive
 action, nevertheless, acted as an agency of warning
 to the public and to the banks. In a radio