Test of the System

It is still too early to interpret completely what is in the minds of the Bank authorities, but one phase of the matter deserves notice. Hitherto, the theory and practice of the Reserve system necessarily have differed considerably, owing to the extraordinary set of problems with which it has been constantly and successively bedevilled ever since its establishment in 1914, such as the boom of 1915-16, Liberty bond distribution since 1917, the boom of 1919-20, and the severe deflation of 1920-22. On the whole, its success with these unprecedented tasks has been little short of miraculous.

Now, in a more normal period of business, the opportunity has come to follow the provisions which the original Reserve Act intended for the system. The year in and year out wisdom of the Reserve Act has not been altogether demonstrated in all respects, and it seems evident from events of the past week that 1923 may provide the first fair tests of the system. This denouement should interest the rank and file of the American public as well as students of banking.