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515 Cocoanut Lane
Palm Island
Miami Beach
Florida .
May 15, 1958
Dear Colonel Mclntyre:
Please see that the enclosed is read by the President
without delay. This is an extremely important matter
at the moment*
I am keenly disappointed at the partisan tone of the
FRB Memo as will be those others who have consisently
and vigorously supported the effort of this administration to recover control of the issue and volume of money
and all its substitutes.
Very apparently the President is receiving something
less than enthusiastic cooperation in some important
quarters, which of course is very bad.
(Signed) R. H. Hemphill
Robert H. Hemphill

Marvin H. Mclntyre
The White House
Washington, D.C.

315 Cocoanut Lane
Palm Island
Miami Beach
May 15, 1938
The President
Honorable Franklyn D. Roosevelt
The White House
Washington, D.C.

dear Mr. President:
I have received from Professor Irving Fisher the memorandum apparently prepared for you by the Federal Reserve
Board which purports to analyze the suggestion contained
in my letter to you of April 7, 1958, and referred to in
subsequent letters of Professor Fisher, advocating the
abandonment of the doctrine of "Deferred Credits11, as a
means of restoring the normal velocity of deposit currency.

Ignoring for the moment some other very important misstatements in the FRB Memo, permit me to call attention
to a most serious error, in this FRB Memo, in calculating
the gross effect of deferred credit practice.

In the latter part of the first paragraph, it is explained
that commercial banks do not give credit for any check on
other banks until collected. This statement is substantially true according to my own investigation.

On page two of the memorandum, is recited the essential
statistics in round numbers, which for brevity are
summarized as follows:
Total of checking accounts in all banks
Total checks drawn daily, in excess of
Total out-of-town checks subject to
deferred credit, in excess of
Total items for collection held daily
12,500,000,000 to 3,000,000,000

Without conceding the accuracy of the above approximations

- 2 the figures would produce constant inactive deposits of
6 to 6J- Billions instead of the 1 Billion erroneously
estimated by the writer of the FRB Memo.
In other words
instead of having a revolving fund of #23,000,000,000
constantly available for payment by check, we now have
6 to 6j Billions less, or only 16| to 17 Billions.

The calculation in non-technical language, is as follows:

Of the 2i to 3 Billions held daily for collection (FRB
Memo), If to 2 Billions are on other banks in the same
city and are subject to deferment of one day.

The remainder, 1 to lj Billions are checks on banks in
other cities and subject to deferment for varying periods,
(not stated).

The minimum deferment I have been able to find is 3 days
and the maximum 17 days.

For instance
checks on Jersey City, deposited just
across the river in New York banks are subject to deferred
credit of 4 days.

Checks on all banks outside Florida are said to be
subject to deferment of 17 days by the First National
Bank of Homestead, Florida.

The arbitrary deferment of credit by Federal Reserve
Banks is 3 to 9 days.

Every one of the several Bankers I have questioned upon
the subject estimates the average deferment (in dollars)
on checks on outside banks deposited in their institutions at 5 to 7 days. Nearly all say 6 to 7 days.

As each day of the minimum estimated period of 5 days
contributes an additional 1 Billion to this inactive
deferred fund (FRB Ipemo) it is obvious that the inactive
portion of the reported total of demand deposits is
constantly not less than 5 Billions due to deferment on
out-of-town checks alone. When we add the 1 day defer-

- 5 -

ment of the 1 to lg Billions
the same city (FRB Memo), we
Billions of deposit currency
in a "No-man's land of final

on checks on other banks in
have a total of 6 to 6j
which is constantly impounded
futility11. (Franklyn D.

The balance of the argument presented in the FRB Memo
is grossly misleading. Banks take for themselves immediate credit for all checks deposited. Thereafter
these checks have the same status as cash and are carried
as cash resources.
In the case of many state banks
they are carried as reserve
as "Cash and due from
Banks and Bankers"•
The practice of requiring excessive inactive demand deposits to compensate for "Uncollected items" is indefensible. The commercial
banks are already collecting interest on all active and
inactive demand deposits and on all currency and coin in
actual circulation.

The Federal Reserve Banks can give immediate credit to
all member banks and the member banks can accept deposits
for immediate credit without cost to anyone. This was
the universal practice prior to and for some years after
the establishment of the Federal Reserve system, and in
fact until recently. It is the universal practice in
all other Nations having Commercial and Central Banks.

Factually, this FRB Memo, supports and confirms my letter
of April 7, 1938, to which you are again referred.
Very respectfully,
(Signed) R. H. Hemphill
Robert H. Hemphill
copy to
Professor Irving Fisher

May 2 4 , 1938

The attached correspondence from Robert
H. Hamphill is self-explanatory.

I feel sure

you will be hearing from him before long and
wanted you to have this for your information.

Secretary to the President


May 24, 1938

My dear Mr. Hemphill:
The President has asked me to drop you
a little line of thanks for your letter to him of
May fifteenth.
He appreciates your interest in letting
him have your ideas, but asks me to suggest that
it might be a good idea for you to take this up
with Chairman Eccles, Board of Governors of the
Federal Reserve System. I am, therefore, forwarding copies of this correspondence to Mr. Eccles
in order that he may be familiar with the matter.
With all good wishes,
Sincerely yours,

Secretary to the President

Robert H. Hemphill, Esq.
315 Cocoanut Lane,
Palm Island,
Miami Beach,

June 2, 1958,

Bear Hacs
X 813 returning herewith the correspondence froa
Eobert H* Hemphill, which you referred to me at the direction of the President*
I wish that professed friends of the President
would not waste his tiae by trying to force on him theories
that the trouble with the economy is a shortage of money or
that you can solve the infinite number of difficult and complex problems of a capitalistic economy by money magic.
The problem is not now and never has bean a shortage of money for the economy as a whole* In fact, we never
had in all history such an enormous actual and potential
volume. The problem is not to create more and store money but
to put what we already have to productive use. that means
putting money into the hands of people who will spend it,
creating real wealth, and this has to be done either by
private enterprise or by government, or by both. Merely
creating more billions of deposits in the hands of those who
already have more than they can or will use would accomplish
This particular correspondence of Heaphill*s relates to what is known as "float", that is, checks in process
of collection* His letter contains aore alsstateaents and
misleading estimates than can be dealt with in the space of
a letter* For instance, he says that the Federal Reserve
banks until recently gare immediate credit to member banks on
Items presented for collection, but that the practice has been
recently abandoned* When the Federal Reserve System was
established, nearly a quarter of a century ago* Federal Reserve banks temporarily gave immediate credit, but only on
intra-district items and the practice was soon abandoned because the banks properly objected* The process was this:
Bank M would present for collection an item drawn on Bank B*
within the Federal Reserve district, and the Federal Reserve
bask would immediately credit A*$ account and deduct from B's
account, that is, B*s reserves on deposit with the Federal*

~ 2

The drawee bunks, especially country banks, strongly objected
to having their accounts with the Federal and hence their reserves reduced unless they had first seen the iteae In question. Hence the universal practice ever since has been to defer, but there has been a constant cutting down of the time
schedule3 for collections 30 that the ainioua deferment on
out-of-town items Is not three days, as Heaphill say3, bat is
one day, and the nfnriaua deferment is eight and not seventeen
days, as Hemphill imagines* And on large iteas telegraphic
exchanges cut down the deferment period to a mininrum on iteas
affecting important business transactions*
However, Hemphill13 fundamental fallacy is in
imagining that the giving of immediate credit by the Federal
Reserve banks to aeaber banks would have any material effect
upon business volume. It would not give business more funds,
but would iterely add about $600,000,000 (the average daily
aaaount of Federal Reserve bank float) to excess reserves,
which have been very large for soee tine past, ere at present
above #2,500,000,000, and probably will reach fully #4,000,000,000
by the &o& of this year. Adding the #600,000,000 float to this
already huge volume would not lead business to borrow and put
money to work, when it is not using the enormous credit resources it already has <m deposit or at its disposal. So such
for the aatter of the Federal Beserve banks giving immediate
credit to member baxtk&m
As for the giving of immediate credit by the private
banks to their customers, there is nothing the Federal Reserve
Board could do to force private banks, whether aeraber or nonaeaiber, to give immediate credit for checks* The Reserve Systoa has no such power or authority* These banks can, if they
wish, give iaiaediat© credit, and as a aatter of fact, usually
do where the depositor has such financial standing so that the
check could be charged back to him if not collected, or where
the depositor's average balance is more than sufficient to offset the float* But no bank can tolerate a practice whereby a
customer would habitually deposit checks on distant banks and
use the money before It is collected. That would open the way
to all kinds of abuse and check-kiting.
Giving the fullest possible weight to all that Heaphill says, it still would not amount to a drop in the bucket*

Under our system the nay that deposits should be created is
tor business to come to the banks and borrow and put the
money to work producing goods* When business borrows froa
the banks, that creates new money. Exactly the same thing
happens when the government borrows from the coaoercial banks.
Despite the fact that the existing voluae of deposits is bigger
than at the peak of the boom in 1929, Heaphill seems to think
that sore volume piled on top of the already unprecedentodly
high volume would somehow bring salvation and the solution to
a H our ills.
X do not like to trouble you with so extended a reply, but when Heaphill makes the charge, as he does in the attached correspondence, that the Federal Reserve is not cooperating and then attempts to support that charge by any such
argument &s this, I cannot resain silent and complacent. If X
a» overlong or over-eaphatic in the above in replying to you,
then I rely upon your abounding good nature to forgive me.
X am returning also, with a suggested reply as you
requested, the correspondence from Professor Irving Fisher,
who is mieh sore intelligent but certainly aisled on this
Sincerely yours,

M. S. Ecclee,
Honorable II. H. Mclntyre,
Secretary to the President,
The Unit® House.