Viewing page 36 of 94

This transcription has been completed. Contact us with corrections.

322     THE COMMUNIST

further gold imports from Europe would not only hinder the rehabilitation of Europeans currencies but would put a serious obstacle in the way of American exports in the fall. Either occurrence would have placed added pressure on the business situation in the United States which even then was beginning to show signs of recession. The Federal Reserve tried its hand. It decreased the buying rates on acceptances, the rediscount rate was reduced from four to three and one half per cent, and the Federal Reserve went into the market and bought government securities - $320,000,000 worth-between July 27 and November 16, 1927. In December that ceased their benificient activities. The situation has become critical. The policy of loosening credit had increased the tempo of speculation dangerously. The only logical policy now seemed to be the reverse of what had been pursued from the summer through the fall of 1927. During the first half of 1928 the policy was reversed-government securities were sold, that is, credit was withdrawn from the market and the discount rate was increased. In the fall of 1928 there rose again in the probability that tight credit conditions would hinder trade which at this time of the year generally requires increased credit facilities. The Federal Reserve went into the market and incrased its holdings of acceptance by $300,000,000-increased, in other words, the volume of credit available to the money market by that amount and eased money conditions. In 1929 the Federal Reserve Board met, talked and did not at any time know where either it or the economic situation was. The unprecedented extent and tempo of stock market speculation seemed rotten to any sane being. So intimately, however, was this stock market speculation bound up with the entire economic structure that the Federal Reserve stated quite frankly that although speculation had attained insane proportions, it-the Federal Reserve-would not say that security prices were inflated. Such was the position of the most important organ of American finance-capital in the face of the most obvious and extensive inflation the stock market has ever known. So the Federal Reserve followed the path of sitting tight, talking and raised the discount rate in August 1929 to 6 per cent.

During the whole period the Federal Reserve system attempted by successively loosening and tightening credit the impossible task of making credit easier for "legitimate" business uses and not for speculation-or, to put it more generally, of separating "productive capital" from "speculative capital."2 The hesitancy in increasing
______

2. Lenin in his "Imperialism" in discussing the book of E. Agahd "Great Banks and the World Market" points this out. "The author divides the capital of firms belonging to this group (the great Russian banks) into (1) productive 
[[continued next page]]