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 sym- 
pathy with the investment opportunities in Amer- 
ica, 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 inven- 
tions gives opportunity to make more than the cur- 
rent rate of interest there is always a tendency to 
go into debt, in order to make money out of inven- 
tions, 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 Re- 
serve Board kept the rate of interest low in order 
that this gold might not be reattracted to America.