Effect of new system during war

It was exceedingly fortunate for the United States that the federal reserve system was in operation during the Great War. The concentration of the reserves of the country in the federal reserve banks, together with the reduction of the reserve requirements in member banks, led to a tremendous expansion—a multiplication in fact—of the aggregate lending capacity of the banks of the country. The prodigious growth of governmental and private industries during the war, the enormous expenditure and borrowing operations of the government, the advances of billions of dollars to the other governments, would have created a strain that the old national banking system could not have borne. The monetary system of the United States, under the old conditions, would undoubtedly have gone the way of that of most of the countries of Europe. The gold standard would have disappeared, the currency would have been paper money and banknotes, both alike irredeemable in gold. The advance in prices would have gone much further and have been much more disastrous to economic welfare than was actually the case. In short, the federal reserve system, with its enlarged and more elastic supply of credit, saved the country from a great catastrophe.