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932 X-1742 RELEASED FOR PUBLICATION AFTERNOON PAPERS DECEMBER 1 0 t h . AN 1919. ADDRESS by HENRY A. MOEHLENPAH, Member, Federal Reserve Board.. Delivered a t t h e Convention of the Oklahoma S t a t e Bankers Association, Oklahoma City, Oklahoma. December 10, l ^ i g . -I-' X-1743 * Gentlemen of the S t a t e Bankers* Association- I t i s unnecessary f o r me to s t a t e ay jgreat p l e a s u r e in meeting with you a t t h i s Convention, I regret, exceedingly t h a t Governor Harding, could, n o t be here a s you d e s i r e d . May 1 ask you t o l e t me come i n w i t h you as a State Banker, f o r as you know, f o r twenty-five y e a r s t h i s has been my b u s i n e s s , s e r v i n g a country a g r i c u l t u r a l community and I- f e e l more a t home. I come n o t f o r the purpose of making a speech b u t t o s i t with you, i f I may, in Conference and to have a chat with you r e g a r d i n g some things of mutual s i g n i f i c a n c e and importance a t t h i s time. Indeed I r e g a r d i t as u n f o r t u n a t e t o come here perhaps in a way r e p r e s e n t i n g the Board upon which I have the g r e a t honor to s i t , and you may think t h a t I speak- from the l a r g e r supervisory r e l a t i o n s r a t h e r than with you as a banker. . May I assure you I do not - a d e s i r e t o be of service t o my f e l l o w - b a n k e r s , alone • prompts nie. My serving i n t h i s c a p a c i t y however, a s s u b s t i t u t e today, i s not your f a u l t . I t i s a . s i g n a l honor t o meet with t h i s d i s t i n g u i s h e d gathering of r e p r e s e n t a t i v e b u s i n e s s men and bankers of Oklahoma, t h i s g r e a t new Empire 6f OUr c o u n t r y . The e x t e n t of your immense t e r r i t o r y and of your resources with only t h i r t e e n m i l l i o n of your f o r t y ' • t h r e e m i l l i o n s of atireg of land under c u l t i v a t i o n , can h a r d l y be measured. Some, twenty odd years ago i t was• my g r e a t p r i v i l e g e t o spend some time h e r e . small; your country new. Your c i t i e s then were Transportation f a c i l i t i e s of l i t t l e consequence. Today the evidence of your p r o s p e r i t y , of your e n t e r p r i s e and v i s i o n , overwhelms me. The r e s t of t h i s country has l e a r n e d to r e s p e c t and honor Oklahoma n o t only f o r your progcessiveness and your e n t e r p r i s e , b u t because of your •Americanism so pronounced and so wonderful iji t h e s t r e s s f u l days j u s t passed. A s t a t e t h a t can produce i n one year (1919) n e a r l y t h r e e hundred m i l l i o n s 9 3 * of d o l l a r s i n food crops 250 m i l l i o n s i n o i l and can produce and maintain $120,7^9>000 °f l i v e stock and have so p o t e n t i a l a p a r t in producing those things so necessary f o r the p r e s e r v a t i o n of l i f e and f o r the commerce of our ' n a t i o n , i s incomparable. I a p p r e c i a t e too t h a t you n o t only r e p r e s e n t t h i s great and s i g n i f i c a n t volume of resources but t h a t you men a r e the p i o n e e r s , the key men, the l e a d e r s i n your banks, in your State c h a r t e r e d i n s t i t u t i o n s , r e p r e s e n t i n g eleven m i l l i o n d o l l a r s of c a p i t a l a;id n e a r l y four and a h a l f m i l l i o n s of surplus and the d e p o s i t s of your c l i e n t s approximating 1$0 m i l l i o n s of d o l l a r s . figures are s i g n i f i c a n t . These And I would be indeed r e c r e a n t a s a c i t i z e n to come to you w i t h any mea&age of pessimism, because these a r e days when we should value the r e s o u r c e s of our own l i v e s and the c o n t r i b u t i o n that the world and events have made t o u c . They axe a challenge n o t o look backward but only forward to the o p p o r t u n i t i e s and p r i v i l e g e s and b l e s s logs t h a t c o n f r o n t u s and t o enc-OUrage ourselves only because of the achievements of the p a s t A w r i t e r r e c e n t l y says, "Pershing with the whole s t r e n g t h of h i s p e r s o n a l i t y , s e t himself the task of i n j e c t i n g t h i s "will to win" irate h i s army. Nothing vividly t y p i f i e s Pershing 1 s c h a r a c t e r s<y as does the d r i v i n g f o r c e t h a t he put i n t o h i s campaign* He had a plan of campaign, a d e f i n i t e plan, asd he stuck to i t through thick and t h i n , l e t t i n g nothing come i n the way. " His o f f i c e r s were made to f e e l t h i s d r i v i n g f o r c e . "General Pershing has ordered t h i s and i t ' s got to be dona" - that was the s p i r i t t h a t dominated the army. n J u s t two i n s t a n c e s : 1 An o f f i c e r sent t h i s message to headquarters. I must s u r r e n d e r . " "Unless I have reinforcements Immediately the order went back from Pershing: "Turn your cemmand over and r e p o r t a t tokadgtiarters." An e f f i a s r could ask f o r needed r e i n - forcements, but he could not t a l k surrender. • " ItersMng asked another o f f i c e r : "They are t i r e d out. "What c o n d i t i o n a r e your troops in?" They a r e not i n condition to continue i n a c t i o n . " 4 -3» The answer was snapped: X-1742 9 3 5 " I t ' s not your men t h a t are t i r e d out, i t i s you. Show your men that you've got the stamina to hold on and your men w i l l hold on with you. n Quoting from an e d i t o r i a l in a Metropolitan Journal* "We a r e besieged by an army of calamity howlers. nightmare» The Bolsheviki i s the The nerves of these people go a l l to pieces when they discover some r a d i c a l l i t e r a t u r e or a r a d i c a l speech* and they can almost name the day when Revolutionists w i l l overthrow our Government." "We must s i l e n c e those who would make us believe t h a t we a r e to have a panic, and to a s s e r t not only our courage but our f a i t h in our American i d e a l s . If those who had come before u s hadn 1 £ had f a i t h and courage t h e r e would not have been any United States of America, I t i s demanded of the Americans of today t h a t they have the same f a i t h and courage, i f t h i s country i s to overcome any f u t u r e d i f f i c u l t i e s and be b e t t e r and greater f o r the experience. n "We must have patience. We a l l have our ideas as to what should be done, but they cannot be r e a l i z e d at once. The United States and i t s i n s t i t u t i o n s have come through a century and a half of change. and f u r t h e r development. I t i s going on to other changes I t i s f o r us to concentrate on that f a c t with courage, with f a i t h , and p a t i e n c e , n Why should our message not be one of optimism? Who upon t h i s planet have greater reason to be o p t i m i s t i c than the c i t i z e n s of our Republic? Two years ago or more we were c a l l e d in the Providence of God, I believe*, to the great mission of redeeming and saving the world from the despot and the autocrat to a l a r g e r and more pronounced l i b e r t y than yet any of u s of the human family have reached or believed. I t i s not p o s s i b l e t h a t men could make the s a c r i f i c e s i n v a i n t h a t our sens ' have made i n going with c l e a r h e a r t s and clean hands to help the opp^^ssed peoples on the other side of the world. To us who have had some humble p a r t -4- xri?42 936 as with them i n the s a c r i f i c i a l thing, to go back to do our work i n l i f s b e f o r e would, be to dishonor o u r s e l v e s . I t i s our p r i v i l e g e as business men t o occupy completely the sector t h a t belongs to u s . Great t r i a l s and o b s t a c l e s and problems may confront u s but what care we; t h i s i s what has made the hone and sinew of our people. country g r e a t . This i t i s t h a t &as made our As we c o n f r o n t the new s i t u a t i o n economically i n t h i s world and as we launch our bark upon an uncharted sea, economically speaking, l e t us remind ourselves t h a t our boys, new and u n t r a i n e d i n war, f o r days and n i g h t s l i n g e r e d i n the trenches before the enemy, u n a f r a i d , and yet could not go out t o engage the enemy i n combat be cause the time was not y e t . But when the word was given, trench or bombs or barbed wire or overwhelming odds did not r e t a r d or stagger. With one voice {.hey cried "Let us go". t h i s s p i r i t , unconqierable, that made the issue complete and quick. I t was When America w i t h i t s men a r r i v e d a new s p i r i t was p r o j e c t e d i n t o the plans of battle. I t i s t h i s s p i r i t t h a t I would l i k e to r e f l e c t , i f I could, as we think of our problems as bankers. Sfe have a r i g h t to b e l i e v e t h a t the things we have accomplished as a Nation and a s men we cannot only duplicate in the f u t u r e but can improve and e n l a r g e . Who would have thought t h a t two years ago or so t h a t t h i s n a t i o n could have r a i s e d in money i n so short a time a sum of thirty™two b i l l i o n s of dollars* Twenty-two b i l l i o n s to equip our boys and armies i n the f i e l d s , and ten b i l l i o n s to loan to the A l l i e d Nations. Do you remember t h a t when i t • was proposed to make the f i r s t war loan the great f i n a n c i e r s of our country from N-w York said "The sum asked f o r under no circumstances should be l a r g e r than a half b i l l i o n of d o l l a r s ; t h a t i t would be impossible to get morti?" The Secretary of the Treasury, struck the h e a r t of the sons of l i b e r t y , they not only gatze a h a l f b i l l i o n but over n i g h t added t h r e e and more f u l l b i l l i o n s . You men i n t h i s room airi. p a t r i o t s l i k e you a l l over the country, have been the l e a d e r s i n accomplishing t h i s . -5r X-17U2 9 3 7 May I remind, you t h a t "before we were c a l l e d i n t o t h i s great c o n f l i c t and when war was declared on the other side of the world, we owed the nations of Europe in trade balances about U00 m i l l i o n s of d o l l a r s . Besides t h i s , Europe owned and h e l d in t h e i r strong boxed about f o u r and a half b i l l i o n d o l l a r s worth of the s e c u r i t i e s r e p r e s e n t i n g the r a i l r o a d and commercial and i n d u s t r i a l c a p i t a l of our country. The problem of paying nctt only t h i s debt, but of buying back our s e c u r i t i e s which were being dumped upon the exchanges was most a p p a l l i n g . But to be b r i e f , Gentlemen, we not only paid t h i s debt but bought these s e c u r i t i e s back i n the main. I am sure from t h i s brief r e c a p i t u l a t i o n t h a t I have given you a f a i r reason why we should be o p t i m i s t i c as we approach the problems of the future* The pioneer never was a p e s s i m i s t . The producer who sees the reward of h i s labor i s always an optimist and I appreciate today t h a t I am f a c i n g not only pioneers but producers. Men, you are honored t o have to do with the greatest producing c l a s s of America, namely, the farmer. We hear much these days about " i n f l a t i o n " and "over expansion" and " d e f l a t i o n " of c r e d i t . Would not " c r e d i t regulation" be the b e t t e r term? I t i s p e r f e c t l y obvious t h a t with twenty-five b i l l i o n s of c r e d i t opera- • t i e n s , represented by the Government bonds issued during the war, t h a t f o r a long time things w i l l be abnormal and i t may be f a i r t o s t a t e t h a t the credit situation is inflated. This can only be changed by an absorption of t h i s debt by the savings of the people. This means economy and t h r i f t and saving on a no mean s c a l e . I t i s j u s t as equally obvious t h a t America never had such o p p o r t u n i t i e s f o r production and when I say 1 c r e d i t should be regulated 1 I mean t h a t a v a i l - able funds of the banks i n the Federal Reserve System and a l l banks generally should be wholly d i r e c t e d into the channels of production f o r the increase of a l l commodities, the need f o r which i s w o r l d w i d e and without precedentBankers w i l l have to become a n a l i s t s , to d i s c r i m i n a t e c a r e f u l l y on 938 -5t~ X<L?U2 loans w i l l be a d a i l y t a s k ; they w i l l have t o stand a s guardians and t r u s t e e s a s never b e f o r e in t h e i r b u s i n e s s to see that, no funds go f o r speculation whether i t i s upon the stock markets, i n commodities or i n land or anything else. The f u l l power of a l l c r e d i t should he conserved and be behind p r o - duction. With patience and care America w i l l surmount a l l her d i f f i c u l t i e s * Time i s e s s e n t i a l * You know our c i t y f r i e n d s do not f u l l y understand our r e l a t i o n s to the economic welfare of t h i s country. r e s e n t i n g true wealth. Too often they r e g a r d the d o l l a r a s r e p - This i s not so. There i s no wealth c r e a t e d except by the l a b o r e r who produces an a r t i c l e to s e l l or the farmer who from the s o i l or the e a r t h produces sorts thing f o r use t o maintain and s u s t a i n l i f e . And I consider i t a s i g n a l p r i v i l e g e and honor to spsak to men who have to do with the a g r i c u l t u r a l i n t e r e s t s of our c e r a t r y . u s f u l l y a p p r e c i a t e the sigaifieitoce of t h i s - I am sure t h a t none of The country banker has without question the l a r g e s t opportunity of a l l other b u s i n e s s men a t t h i s time in our country. You a r e to deal d i r e c t l y with the men who t h i s year i n t h i s n a t i o n of ours have produced ten b i l l i o n s of d o l l a r s worth of food crops alone and who added an increase of l i v e stock approximating 700 m i l l i o n s of d o l l a r s . I d e s i r e a l s o t o take you back b r i e f l y i n t o the f i n a n c i a l h i s t o r y f f cur own country as compared w i t h your p o s i t i o n today. thi s I am reminded to do ,6-. • x-ifte 9 3 9 i as I have r e c a l l e d f o r yoxif c o n s i d e r a t i o n the achievements of these years and to s t a t e t o you. without any f e a r of exaggeration or c o n t r a d i c t i o n t h a t none of these things could have be in p o s s i b l e i f i t had n o t been f o r the Federal Reserve System. As I have s t a t e d to you, my banking experience has been confined almost e n t i r e l y f o r a q u a r t e r of a century to a S t a t e chartered institution. My l i f e has been r e l a t e d almost e n t i r e l y t o the a c t i v i t i e s and b u s i n e s s of t h e farmer and with you I have had the experience t h a t every banker has had, n o t of going through a war b u t of going through f i n a n c i a l war and panics. With chagrin and shame as a t r u s t e e of the p a o p l e ' s money repeatedly we have had to apologize and r e f u s e to give them t h e i r money when Called f o r * And I wish here t o s t a t e t h a t I am a f i r m b e l i e v e r i n the p o s i t i o n of the State Banker i n our economic l i f e , I b e l i e v e you have j u s t as d i s t i n c t a r e l a t i o n of importance to the people a s the National Bank h a s . Each have t h e i r place and we should preserve the independent r e l a t i o n s we occupy as earnest bankers, but i f we wish to preserve t h i s independence I ask f o r your and c a r e f u l c o n s i d e r a t i o n of what t h i s r e l a t i o n has to do with the Federal Reserve System a t t h i s time. Are you a p a r t i c i p a t o r i n and f o r the System, or are you s a t i s f i e d w i t h being a b e n e f i c i a r y ? I s i t of any concern to you as a banker t h a t you play i n t o the game and be p a r t and parcel of t h i s f i n a n c i a l organism or t h a t you s u p e r f i c i a l l y s t a n d on the side l i n e , too o f t e n criticise to and y e t partake of the b l e s s i n g and b e n e f i t s and make no r e a l contribution. I do n o t come here today i n any s p i r i t of c r i t i c i s m , and as A commenced, I d e s i r e to t a l k only as a S t a t e banker wi th my f e l l o w s t a t e bankers, b e l i e v i n g t h a t we have a message f o r your thoughtful c o n s i d e r a t i o n . The remedy f o r our e x i s t i n g f i n a n c i a l condition and the r e o c c u r r i n g panics i n the f i n a n c i a l h i s t o r y of our country was p l a i n to a l l our Statesmen, but because of c e n t r a l i z e d i n f l u e n c e s , s e l f i s h i n the extreme, i t was q u i t e imp o s s i b l e f o r l e g i s l a t o r s t o p r o j e c t a programme to remedy t h i s s i t u a t i o n . took a s o - c a l l e d 1* U n i v e r s i t y P r o f e s s o r , now the o u t s t a n d i n g f i g u r e in a l l the ,7- 9 4 0 X-17U2 world - P r e s i d e n t Wilson - t o not only conceive the p l a n i # i t s f u l l n e s s and t o add the n e c e s s a r y v i s i o n but a l s o the n e c e s s a r y f o r c e t o demand of congress the enactment of the law e s t a b l i s h i n g the Federal Reserve System. We shudder t o t h i n k what our p o s i t i o n would have been i f t h i s system had not been ready when war broke upon the world* Without doubt f i n a n c i a l chaos would have r e i g n e d . In the o l d days when the stock gamblers would p l a n t h e i r l i t t l e p a r t i e s and set the wheels of s p e c u l a t i o n going, when the game got beyond t h e i r c o n t r o l , you w i l l remember, they were p l a y i n g with the f u n d s the producing people had on d e p o s i t , and when we d e s i r e d these f u n d s f o r t h e i r u s e , and f o r l e g i t i m a t e purposes to i n c r e a s e production and care f o r our communities, we were t o l d t h a t we could not have them and we were compelled to r e s o r t to one device and another to care f o r our need. The Oklahoma Bank had i t s r e s e r v e s deposited a t Kansas C i t y , and Kansas C i t y i n Chicago and the Chicago Bank i n New York. Thus were our r e s e r v e s pyramided. day of s t r e s s . Never K,obelized f o r use f o r the I am not going t o waste any time today t a l k i n g to any man here who has not the v i s i o n to see the importance of t h i s g r e a t m a t t e r . The f i r s t n e c e s s i t y i f we p r e s e r v e our indepenaenfcvrelationship a s bankers to our own i n s t i t u t i o n s , and "our own communities, i s the mobolization of our r e s e r v e s for use. When we commit them to another i n t e r e s t , s e l f i s h or p e r s o n a l , they mast of course be use a f o r p r o f i t , and when same are so used they may not always be l i q u i d enough to become a v a i l a b l e , I do n o t b e l i e v e i t i s necessary longer to t r y t o prove to any banker what i t means to mobolize r e s e r v e s . This has been a proven f a c t and i n s t e a d of pyramiding as we used to i n the old days we f i n d now a f o u n d a t i o n i n the mobolized r e s e r v e s of the Federal Reserve System, upon which we can b u i l d a s t r o n g s u p e r s t r u c t u r e of c r e d i t . If the a s s i s t a n c e of these r e s e r v e s i n has the Federal §eserve System not y e t appealed t o X-1742 you as being the f o u n d a t i o n of your own "business as banker, I s h a l l not waste time to argue f u r t h e r * not ap p rec i a t e d * I t i s obvious and s e l f - e v i d e n t if The l a r g e r c o n t r i b u t i o n you make t o those r e s e r v e s , the s t r o n g e r your bank w i l l be and the g r e a t e r your a b i l i t y t o serve your community. If you a r e s t i l l on t h e s i d e l i n e s as I have i n d i c a t e d you are s t i l l b u i l d i n g apon the c o n t r i b u t i o n and s e r v i c e of otners* Do you t h i n k i t v;ould be p o s s i b l e f o r Oklahoma t o have done h e r noble and splendid p a r t i n c o n t r i b u t i n g $l63,918,400 xor the war i s s u e s of Government bonds, which i s e approximately ]>0 m i l l i o n s above h e r a l l o t m e n t , i f i t had n o t been f o r t h i s f o u n d a t i o n l a i d ? I n 1917, $25,693,596.worth of p a p e r was r e d i s c o u n t e d f o r banks i n Oklahoma by t h e F e d e r a l Reserve Banks :.t Kansas C i t y and Dallas, Then i n 1912, as the advantage of t h e System haa become more widely known and as more banks had become members, a t o t a l , of $148,3^51896 was r e d i s c o u n t e d f o r Oklahoma, For the f i r s t nine montns $242 , 9 4 ] , 668 of I9I9 the t o t a l of paper rediscounted was . ' other words, t h a t much money was loaned t o your s t a t e from out side "- sources; t h a t much money was given to Oklahoma1 s use because i t has banks prudent enough to j o i n the F e d e r a l Reserve. System. Vh-t v / i l l i t be f o r 1920 i f you do your aasy i n production? May I suggest h e r e , Gentlemen, t h e need of t h e c l o s e s t a n a l y s i s of a l l loans - t h a t c r e d i t f o r s p e c u l a t i v e "purposes, e i t h e r on stock exchange, i n commodities or in l a n d , be denied* s i t u a t i o n c o n f r o n t s us* A stern Twenty-five b i l l i o n s of Government debt has been c r e a t e d which must bo absorbed by t h e s a v i n g s of the p e o p l e . Any a d d i t i o n a l c r e d i t c r e a t e d o t h e r than n e c e s s a r y f o r i n c r e a s e d p r o d u c t i o n Xwl?42 i s but adding a hazard. bankers. This i s your f i r s t duty i s American Let u s not i n f l a t e , but dofl?.te i n o r d e r l y f a s h i o n . V.'e should a l l be p r e a c h e r s vmd d o e r s i n t h r i f t and economy. I need not take more of your t i n e t o review t h e s e f u n d a mental p r o p o s i t i o n s . We have -tt the p r e s e n t time in t h i s country in the c o n t r o l of t h e Feder.,1 Reserve System, over two b i l l i o n s of jolcu As near a s can be estimated, t h e r e i s o u t s i d e some 600 m i l l i o n s of gold i n the p o c k e t s of the people or i n the c o n t r o l of s t a t e bonks. I appeal t o you, gentlemen of f i n a n c e , a s the ciistodians of the i n t e r e s t s of your communities, t h a t i t i s s e l f - e v i d e n t .xnd h i g h l y inportzmt t h a t t h i s cold be deposited i n the common r e s e r v o i r f o r use i n the day of o p p o r t u n i t y or s t r e s s th.it may be before u s . TBiile we are concerned f o r the day of s t r e s s , we must provide abundant resources t o take - d v i n t a ^ j of our p r e s e n t job as a world power, t o produce the n e c e s s i t i e s of l i f e iznnediately -nd in volume as we never have b e f o r e , i f the world i s to be saved from u t t e r s t a r v a t i o n and f i n a n c i a l d i s t r e s s . I know t h a t there a r e alarmists i n the country. The croaker c r i t i c , e f f i c i e n c y e x p e r t s , and so c .lied economists are a l l e y s i n evidence. They were here when the Federal Reserve System was e s t a b - l i s h e d , you w i l l rsmembsr. TJhen the prqpositionswas conceived of b r i n g i n g i n t o t h e c r e d i t f a b r i c s of our country the l i q u i d a s s e t s , the wealth if you p l e a s e , as r e p r e s e n t e d by the n o t e s of the f.:.raer, merchant -nd manufacturer, to be available f o r currency, and when i t was propose^, and as i t i s now a f a c t , t o p u t with t h i s wealth -nd c r e d i t of our people n a d d i t i o n a l kC$> of gold t o u n d e r l y t h e F e d e r a l Reserve note i s s u e , many of these e x p e r t s met and s a i d t h a t X-1JU2 -10- currency would "become too i n f l a t e d :.nd t h a t we would not have enough gold to hold the s t r u c t u r e up. Let ma remind you .i./_.in of the volume of gold now i n thy country, and of our currency medium and of i t s value as compared with any money standard i n the world. But I would f u r t h e r remind you, i f I may, i n a more f o r c i b l e way, t h a t f o r the f i r s t time i n the h i s t o r y of our country the rc.,1 wealth as represented by the l a b o r e r and t h e products of our xvhole people and p r o p e r t y are mobilized. Yes, we h^-ve the gold. We are a c r e d i t o r n a t i o n . We have now a foundation to b u i l d the s u p e r s t r u c t u r e of c r e d i t , s a f e , deep and sound. We have democratized our banking system - 12 g r e a t banks with branches serving a l l our people, commercially and geographically, and not any one group, c i t y or d i s t r i c t . The Federal Reserve System i s the g r e a t e s t s i n g l e piece of c o n s t r u c t i v e l e g i s l a t i o n ever p l a c e d upon the s t a t u t e s of our country. The denunds to be made upon us i f we do our p a r t are to be so great that anything we can do to increase p r o d u c t i o n as the l e a d e r s -md r e p r e s e n t a t i v e s of the farmers should be done with p r e c i s i o n and in volume. The F e d e r a l Reserve Act was passed to s t a b i l i z e the i n d u s t r i a l , commercial and a g r i c u l t u r a l i n t e r e s t s of our country. The resources of the System were never c a l c u l a t e d by the founders or by the Government to be used f o r s p e c u l a t i o n . I t has '.'.ltvays been the f u l l purpose to have the law so administered by the Board at Washington to give p r e f e r e n t i a l r a t e s b f o r a l l paper based upon commodities and to provide f o r the s a f e , o r d i n a r y movement of same to the markets. If we .can -as country bankers, p l a y our p a r t as l e a d e r s to see t o i t t h a t our customers, our c l i e n t s , w i l l avoid :.ll s p e c u l a t i o n i n commodities and « :fi: » x-1742 944. t h a t t h e r e i s an o r d e r l y market a t a l l t i m e s , there never need he a f e a r but what you can go on end increase without f e a r the expansion of a l l e f f o r t to increase production. There may be someone here who would l i k e to muddy the water and warn us about the danger of i n f l a t i o n . No prudent man i n the banking b u s i n e s s would f a i l t o study and appreciate t h i s danger. The events of the post f o u r y e a r s , however, w i l l not warraat any man i n s u S S e s s f u l l y s t a t i n g or proving t h a t we are s u f f e r i n g frcub o v e r - i n f l a t i o n of currency a t the p r e s e n t time, - but over-inf l a t ion of c r e d i t i s a p o s s i b l e danger. May I r e f e r b r i e f l y to the l e t t e r cf Governor Harding to Senator Mclean, dated August 8, 1919, ae f o l l o w s : "There has undoubtedly taken place during the l a s t two years a c e r t a i n amount of c r e d i t expansion which# under the circumstances connected with our war f i n a n c i n g , was i n e v i t a b l e , but t h i s w i l l be c o r r e c t e d as the s e c u r i t i e s issued by the United S t a t e s Government f o r war purposes are g r a d u a l l y absorbed by i n v e s t o r s . This c r e d i t expansion i s equal to the d i f f e r e n c e between the t o t a l of the wap: expenditures of the Government on thb one hand, and on the o t h e r , the t o t a l amounts r a i s e d by the Government through t a x a t i o n and by the sale of i t s o b l i g a t i o n s so f a r as paid f o r out of savings. No r e l i a b l e estimate can be made of t h i s d i f f e r e n c e , which must be gradually absorbed through f u t u r e savings f o r the reason t h a t banks are lending and w i l l always lend f r e e l y on Government bonds as c o l l a t e r a l . " I urge and to get i s import, upon every banker here t o read that l e t t e r c a r e f u l l y I again wish to s t a t e t h a t I am an expansionist or any other old thing t h a t you may wish to c a l l i t , Mien I say to you t h a t we can f i n a n c e the farmer without l i m i t to increase h i s operations to produce t h a t which the people may eat or wee* without any danger of overproduction. No man or economist l i v e s i n t h i s world who can guage or prophesy what the outcome w i l l be economically i n tas c o u n t r i e s of Europe, so weak and broken down by the war, but one t h i n g we may be sure o f , t h i s s l a c k w i l l never be taken up by our standing s t i l l or by p i l i n g u p " r e s e r v e s , .Again l e t me s t a t e , r e a l wealth i s only produced. Our problem i s simple -la~ X-17U2 and. we should legyn our lesson as r a p i d l y as p o s s i b l e . spend l e s s , economize and save. Produce more I do not come here to s e l l anything or to s o l i c i t anything. I may perhaps be making a f e e b l e e f f o r t to a d v e r t i s e something worth while. X-1742 You remember the s t o r y which i s the foundation of R u s s e l l Conwell ! s simply g r e a t l e c t u r e e n t i t l e d n Acres of Diamonds** which he gives BO and. p l a i n to h i s audiences by i l l u s t r a t i n g how so many people look f o r t h e i r f o r t u n e , t h e i r E l Dorado, someJ$fa§re e l s e than where Grod has p u t them to work and achieve* He t e l l s how a f a r m e r , I think i t was i n A f r i c a , who had heard of a g r e a t diamond mine somewhere and with a l l the allurement and p a s s i o n t h a t came t o him with the overwhelining d e s i r e to possess an immense f o r t u n e he sold h i s l i t t l e farm and personal p r o p e r t y and went on a long search f o r the diamond mine. The purchaser of h i s farm one day, while at the w e l l watering h i s stock* discovered a g l i s t e n i n g i n the sand and upon i n v e s t i g a t i o n found a diamond, (r» fixtiher i n v e s t i g a t i o n he found more and to msk e a long s t o r y short the purchaser of the farm was the owner of the g r e a t e s t diamond mine i n the world* I l l u s t r a t i n g a g r e a t lesson t h a t we a l l ought to l e a r n to value w e l l our own p o s s e s s i o n s , our p r e s e n t o p p o r t u n i t i e s and our place in l i f e . I t would be well worth while to think of t h i s as c i t i z e n s of the Republic, but I would l i k e t o c a l l your a t t e n t i o n t o the other s t o r y as a b a s i s f o r h i s other l e c t u r e e n t i t l e d n Five Million D o l l a r s f o r the Face of the Moon? He commences t h i s l e c t u r e by t e l l i n g the simple s t o r y of a man lying s i c k unto death i n one of our E a s t e r n c i t i e s , &iven up by p h y s i c i a n s , surgeons and s p e c i a l i s t s * He resigned himself to d i e . An old lady in the neighborhood hearing of h i s c o n d i t i o n asked f o r a v i s i t * She prayed she might have the p r i v i l e g e of serving some t e a brewed from herbs she had gathered i n the woods» The r e s u l t was, t o make another s t o r y s h o r t , the p a t i e n t began to improve, soon was convalescent and began t o r e a l i z e he had a lease on l i f e . x-i742 -14He began t o s t u d y and t h i n k of what he should do w i t h h i s l i f e so d e a r l y bought. Being a t r u e p h i l o s o p h e r , he decided to Secure the r e c i p e f o r the herb t e a which cured him. He began t o s e l l i t t o h i s f r i e n d s , i t s fame grew, soon he had salesmen and wagons on the r o a d . He began to build large b u i l d i n g s t o manufacture and the world was b l e s s e d by the use of t h i s new medicine. His advertisements appeared on the barns and the f e n c e s , on the s i d e s of t h e roads and on p l a c e s of prominence. Even the Rocks of G i b r a l t a r were p l a s t e r e d w i t h advertisements of h i s medicine so t h a t the passengers on p a s s i n g ships could r e a d ; on the mountains of the Andes he dared t o go. One n i g h t h i s f r i e n d s found him s t a r - g a z i n g , look- ing up i n t o the moon i n a l l i t s b r i l l i a n c y . what he was doing. One bold s p i r i t asked him He sighed and said " I f I could secure the f a c e of the moon I would give f i v e m i l l i o n d o l l a r s " . He was asked "What f o r ? " * He said he would place f i v e words upon the f a c e of the moon so t h a t a l l the world might gaze, read and p r o f i t thereby. He was asked what the f i v e words would be t h a t he would choose from the languages of the e a r t h t o place "here. What do you suppose were t h e words he would p l a c e t h e r e ? The g r e a t l e c t u r e r , C o n w e 1 1 , a f t e r taking h i s audience to t h i s p o i n t would leave them and draw lessons from l i f e as t o what man was r e a l l y placea upon the e a r t h f o r . Service. The f i v e words he would place upon the Advertise moon were t h e s e : " F i n d Good, Then I t " . A simple b u t wonderful thing which I have o f t e n thought we should p r a c t i c e . There i s i n the h e a r t of man enough good which i f encouraged, c o r r a l l e d , coached and coaxed would be s u f f i c i e n t to d r i v e out a l l the e v i l or darkness, I am here t o a d v e r t i s e , i f I may, a good t h i n g . I b e l i e v e , Gentlemen, t h a t from t h i s war we have a l l become b e t t e r men, b e t t e r c i t i z e n s , b u t I would l i k e t o apply t h i s l a s t thought t o you 9 4 7 " 948 as S t a t e "bankers, asking f o r your good c o n s i d e r a t i o n of the b e n e f i t s t h a t may come t o you "by becoming members of the Federal Reserve System# To those of you who as bankers a p p r e c i a t e the new r e s p o n s i b i l i t y upon you as community b u i l d e r s and as t r u s t e e s of the p e o p l e ' s money, I ask f o r your very c a r e f u l c onsider& ion t o the importance t o you of p l a c i n g your banks i n t o the Federal Reserve System, and having t h a t close complete r e l a t i o n s h i p which assures absolute s a f e t y f o r the f u t u r e , whatever problems may be*. You w i l l be a p a r t of a Federal i n s t i t u t i o n , which i s n a t i o n - w i d e , cohesive, a complete f i n a n c i a l o r g a n i z a t i o n having . f u l l r e s p e c t f o r every i n t e r e s t of our people„ i n organization c o n t r o l l e d by the s t r o n g e s t Government on the f a c e of the earth# A system which today c o n s i s t s of 7821 n a t i o n a l banks and 11-03 s t a t e i n s t i t u t i o n s , with a t o t a l c a p i t a l of $1,527*171,000 and a surplus of $1,312,205*000 and with t o t a l r e s o u r c e s of $30,280,234,000 i n d i c a t e a f i n a n c i a l machine. of s t r e n g t h and one of cooperative power without compare, in institution which has i n i t s c o n t r o l over two b i l l i o n d o l l a r s worth of gold, the g r e a t e s t amount of gold ever assembled i n the h i s t o r y of the world i n the c o n t r o l of any one Government. Does i t mem anything to you to be a r e a l p a r t of such m i n s t i t u t i o n ; to be recognized by i t and as p a r t of i t ? Save you taken time to secure the viewpoint of your d e p o s i t o r s when they once grasp t h i s tremendous f a c t and ; s they draw checks upon your i n s t i t u t i o n upon which i s p r i n t e d the f a c t t h a t your bank i s a msmber of the F e d e r a l Reserve System and t h a t the check of that customer passes c u r r e n t anywhere i n the United S t a t e s ? You may, i f you p l e a s e , magnify some of the smaller l o s s e s or charges t h a t you would have in j o i n i n g t h e system, but l e t me appeal t o yo* as I have t r i e d to thus f a r , to get the l a r g e r viewpoint of your 949 -l6- X-1J42 • l e a d e r s h i p as a banker and a s a leader in your community. things f i r s t . That you put f i r s t Ycu may discover t h a t t h i s p r i n c i p l e when once worked out w i l l be not u n l i k e the t i d e s of the ocean. They come i n with u n f a i l i n g r e g u l a r i t y and when they go out they take with them not Only the great war v e s s e l s , mer-* chantmeh, but the l i t t l e aery and canoe are l i f t e d a l i k e upon the bosom of the tide. A well known philosopher ptiit ihe idea, something l i k e t h i s : "Just as i n r e l i g i o u s h y s t e r i a a s i n g l e t e x t becomei a Whole creed, to the exclusion ef every other t e x t , and i n s t e a d of being i t s e l f s u b j e c t to r a t i o n a l t e s t s i s made the sole t e s t of the r a t i o n a l i t y of e v e r y t h i n g e l s e * " I am c o n f i d e n t , Gentlemen, t h a t i f we would give more a t t e n t i o n to these f i r s t t h i n g s , l i k e a l l our t r o u b l e s , the small ones would a l l recede and be forgotten. Besides the enlargement of your b u s i n e s s and the opportunity of service, to say nothing about enhanced p r o f i t s as a member of the Federal Reserve System, you would have the p r i v i l e g e of the rediscount a t the Federal Be serve Bank, to care f o r a l l your needs with your customers engaged i n commerce and industry, and with your farmer customers on paper taken f o r not to exceed s i x months, r e p r e s e n t i n g the a c t u a l a c t i v i t y of a farmer in the operation of h i s business* The need f o r e n l a r g i n g h i s operation i s so g r e a t and so immediate t h a t there w i l l be no paper coming to the Federal Reseree System during the next f i v e years that w i l l be regarded a s s a f e r , a s so fundamentally proper, a s t h i s paper. This may mean to you, Mr. Banker, t h a t you w i l l have to change some of your methods in t a k i n g t h i s paper. I t may be to your advantage to secure h i s statement to h i s worth, b r i e f l y , i n a s k i n g . X-17*42 -17- for credit. I t may become necessary f o r him to attend to h i s paper more promptly a t maturity* I t may become necessary f o r you t o change your operations i n taking t h i s paper f o r s i x months instead of f o r a year or more or upon demani. your advantage, But if so, t h i s w i l l be d i s t i n c t l y to I have o f t e n wondered why i t was that State bankers w i l l s i t back without any seeming concern, allow t h e i r competitor , , align perhaps i n the National baa king System t o himself with t h i s great jbafcerit i n s t i t u t i o n of power and s t r e n g t h and p o s i t i o n and go a f t e r the business and get i t , when he could have the some advantage t h a t every n a t i o n a l baa ker has and under the law a l l the e x i s t i n g advantages t h a t he may enjoy as a State c h a r t e r e d i n s t i t u t i o n * To be able t*a discount your customers 1 paper by sending the same as you do your cash items to the Federal Reserve Bank i n proper form t o receive c r e d i t immediately. And also where the r a t e s of discount are c e r t a i n l y always advantageous. I am not making a p l e a here f o r the sake of g e t t i n g b u s i n e s s but only of showing up the a c t u a l advantages t h a t would be d e r i v e d . Do you understand t h a t what you would deposit with the Federal Reserve Bank of your D i s t r i c t would be an actual reserve upon which you could b u i l d c r e d i t necessary f o r your operations and which would never be denied you. As I s t a t e d p r e v i o u s l y , I believe i n the independent r e l a t i o n ship t h a t we have and p r i z e as bankers. We can not t@lera.te a branch bank system as i t i s h o s t i l e to the American i d e a . X-1%42 -is-' This i s one wqy t o f o r t i f y your p o s i t i o n ; to use the F e d e r a l Reserve • as a r e s e r v e and t o understand t h a t your loans can be taken t o t h i s e l d e r b r o t h e r i n the next room and t h a t you can r e a l i z e same i n cash b y taking back with you good Federal Reserve notes* I appeal t o you, gentlemen, to give t h i s question of the p r i v i l e g e of r e d i s c o u n t i n g i n the Federal Reserve System more than s e r i o u s and c a r e f u l c o n s i d e r a t i o n I f e e l you have given i t thus f a r . The p r o f i t t h a t you would moke s u r e l y would take up any s l a c k t h a t you would lose because of the non-payment of i n t e r e s t upon your b a l a n c e . Again my X remind you t h a t your r e s e r v e i s not only a r e s e r v e f o r the day of s t r e s s , b u t f o r increased opportunity. I s h a l l not attempt to argue with you* If experience has not taught you t h i s i t w i l l be a waste of time f o r me to c o n t i n u e . Again may I inform you t h a t you can ask f o r currency of the or r e s e r v e bank the branch bank and same w i l l be shipped to you without c o s t , f u l l y insured and express charges p a i d . worth anything to you? Is t h a t 951 X-17U2 -19- ' IE also wish to remind, you that you can t r a n s f e r funds by telegraph, without expense, to any p a r t of the country. I t has been urged that you may be deprived of the exchange which you have been accustomsd to on checks sent you f o r c o l l e c t i o n . This h a s been of course a knotty problem, but may I remind you of the wording of the Act> which i s e x p l i c i t and i n f a c t mandatory and hnder the r e c e n t r u l i n g of the Attorney General of the United States the Federal Reserve Bank can do nothing e l s e but to see t h a t the checks coming to i t are collected a t par exchange. .nd they - r e not permitted to pay Your recourse, if any, i s to the Congress of the United S t a t e s , and not in c r i t i c i s m of the Board or Banks. May I r e f e r you again to Section 13 and ask f o r your serious consideration and also Section l 6 . The Federal Reserve Batiks are r e q u i r e d under Sections 13 and 16 of the Federal Reserve Act to receive from meober banks at par deposits of current funds in l a w f u l money, national bank n o t e s , Federal reserve notes, or checks and d r a f t s , payable upon p r e s e n t a t i o n , and a l s o , f o r c o l l e c t i o n , maturing notes ~nd b i l l s . There i s a proviso to t h i s s e c t i o n which allows member and non-member banks to make reasonable charges "to be determined and r e g u l a t e d by the Federal Reserve Board, but i n no case to exceed 10 c e n t s per $100 or f r a c t i o n t h e r e o f , based on the t o t a l of checks and d r a f t s presantfeddat any one time, f o r c o l l e c t i o n or payment of checks and d r a f t s and remission t h e r e f o r by exchange or otherwise; but no such charges s h a l l be made against the Federal Reserve L&fBafe". The Attorney General of the United States has construed t h i s as meaning t h a t a Federal Reserve Bank cannot l e g a l l y pay any f e e to any member or non-member bank f o r , -20- » the c o l l e c t i o n and remittance of a check. . 953 x-1742 I t follows t h e r e f o r e that i f the Federal Reserve banks are to give the service r e q u i r e d of them under the p r o v i s i o n s of Section 1J they must .i© cases where banks r e f u s e to remit f o r t h e i r checks at p a r t use some o t h e r means of c o l l e c t i o n no matter how expensive. The a c t i o n of the v a r i o u s Federal Reserve banks i n extending t h e i r p a r l i s t s has met with the approval of the Federal Reserve Board, which holds the view t h a t u n l e s s the law should be amended by Congress the Federal Reserve banks must use every e f f o r t to c o l l e c t a l l bank Shocks r e c e i v e d from member banks, at p a r . V About 80 per cent of the banks of t h i s country, members amd zaonznembers, arc now upon a p a r b a s i s . I t w i l l not be long before i t w i l l be 100 p e r cent .nd t h e n I p r e d i c t t h a t we w i l l be asking ourselves the question "IThy d i d n ' t we do t h i s b e f o r e ; why d i d we stand i n our own l i g h t :.nd step on our own f e e t on so elementary a proposition?" F i n a l l y , l e t u s h..vc a f u l l understanding of the wonderful o p p o r t u n i t i e s t h a t are b e f o r e us as business men not only to develop our communities, increase the production upon those farms, to make l i v i n g c o n d i t i o n s happier and our people more contented, but to enlarge our v i s i o n as business men,for I am sure t h a t i n a few y e a r s hence we w i l l f i n d our d e p o s i t s %nd our i n f l u e n c e doubled and quadrupled b e c - u s J of t h i s l a r g e r a p p l i c a t i o n and r e l a t i o n s h i p . You are a l l f a m i l i a r with the r u l e s of the Federal Reserve System. t They - r e p r e c i s e , s h o r t and complete and to remind you that' while there i s c r i t i c i s m h e r e , a n d t l u r e , as t h e r e .Iways w i l l b e , 954 # * -21- X-I7U2' t h a t you have not seen the n a t i o n a l banks scrambling t o get out of the system. t They f u l l y a p p r e c i a t e i t s b e n e f i t s and are r e a p i n g them d a i l y while I f e a r many of our State bankers a r e sleeping a t the switch. I t has cost our country a great t r e a s u r e of blood and money to have won t h i s world war.' You hbve a r i g h t to expect the s p i r i t u a l b l e s s i n g s t h a t w i l l cone from t h i s s a c r i f i c i a l e f f o r t and we have J u s t as much r i g h t to teap any economic rewards that may come. let us have an a p p r e c i a t i o n i n our conduct as stewards of the p e o p l e ' s money f o r t h i s heritage* A s h o r t time ago I went with my c h i l d r e n to the g r e a t • Congressional l i b r a r y at Washington, the most b e a u t i f u l b u i l d i n g i n c h i s e l e d on a l l the world. Some great h e a r t and mind has caused to be marble short mottoes to be t r e a s u r e d and never to be erased. One, my child wrote down, to my g r e a t p r i d e , which I would l i k e to pass . .« • on to you as a thought worth your note. This i s i t : "We t a s t e the spices of Arabia; yet never f e e l the scorch of the sun t h a t brought them f o r t h , " Indeed i t has cost much to make t h i s Republic. r The man of the Revolutionary and of the C i v i l Wars and of the g r e a t World War have f e l t t h e heat of the sun, they have p a i d the pric.e. To you -nd your c h i l d r e n w i l l be the b l e s s i n g of ever t a s t i n g the f r u i t , us be worthy of t h i s h e r i t a g e . let