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X-3089
•
EXTR.'I.CT FROM REPORT OF PROC:EEDINGS OF A CONFERENCE,
ON APRIL 4TH, OF REPRESENTATIVE SOUTHERN B...'.u~(ERS WITH
DIRECTORS OF 'IRE WAR FINANCE CORPORATION, C~'.LLED FOR THE
PURPOSE OF COHSIDERilm WAYS .AND ME.il....i'JS OF TII1PROVIlifG CONDITIONS
WIIJE RESPECT TO THE T1ARKETING OF COTTOX .AND OTHER SOUTHERJ:J
PRODUCTS.
REMARKS OF
W. P .. G. HARDING
GOVERNOR OF TFI.E FEDERAL RESERVE BO}Jt.D
4/6/21.
ryo;.....
U(F)
X-3089
Mr. birector, and gentlemen, I am very rr.uch obliged to you for
this op"Dorttmi ty of saying a few words.
anything.
I did not intend to say
I was asked to corr.e to this conference, and regret very rr:uch
that I could not be here from its very beginning.
I think that there is no occasion for us to hold a wake. There is
no use in taking the position that we are down and out in the south,
because we are not.
That is one section
t~at
never gets down and out.
But there is no doubt in the world, gentlemen, that southern problems
which are closely related to the problems of the west and all agricultural
sections of this country are very grave at this time.
problems.
You rray have
diffe~·ent
brought about nresent conditions.
the question of cause
j~st
now.
They are very acute
views as to the causes which have
I think it is nnnece.ssary to discuss
This is no
tirr~
for reminiscences.
What we want to do is to see how the present situation can be tided over
and where the ultirrate means of relief are going to be found.
produces raw materials which are essential to
for consumption in other lands very largely.
rr~nufacturing
The south
and industry
I thirik the great difficulty
in the south today lies in the fact that it has on hand a
~antity
of
products which in ordinary circumstances would be moved abroad, but which
cannot go on account of present conditions.
I do not thirk there is any
actual over-production in this country of any raw rraterial or essential
products.
We thought a year or more ago that there was an actual
shortage.
The slogan used to be "Increase Production".
Consumption,
however, has been reduced, so that whatever over-production there is is
relative rather than absolute.
.About a year ago it began to be noticed
that the insistent demand for various commodities was falling off.
From
~
..
~;
386
X-3089
·2-
that position we advanced a step to a point where we found that there
was
no shortage as we had thought, and then it developed that we had a
surplus.
While last year was one of physical plenty and the crops \"1Elre
bounteous, the consumers' demand fell off.
That is due prima-rily to
'the laCk of a potential buying power in other countries.
I think that
is the main cause of the a.gricultural depression in this country, because
we all know that the agricultural sections not only produce foodstuffs .
•
and raw material needed in
comn~rcial
and
~nufacturing
communities, but
they are also the great consumers of manufactured products, and anything
that impairs the pu.rcha..sing power or the credit a.bili ty of the farmer is
soon reflected in the· manilfaeturing and ccxnnercial centers.
not only to local trade, but to our foreign trade as well.
was
antici~ted
by some of us as early as
That applies
This situation
1919, when attention was called
to the need of doing something to stimulate our foreign trade and to keep
our exports moving abroad in a steady stream.
It happened, however, that
the credits advanced by the Treasury of the United States under Act of
Congress to the foreign governments which had been associated with us in
the war, had not been exhausted in
1919.
At the tirr.e of the· armistice
there were still available about two and one-half billions of dollars of
credits.
These were practically exhausted and then exporters and bankers
all over the country extended credit invarious ways and financed foreign
trade to the extent of, perhaps, three and one-half to four billions of
Now we have reached a point where it seems impossible to finance
foreign trade in the old way - by bills of short maturities.
of Europe have nearly exhausted their buying power.
scraping the bottom
n~"
to send us gold.
Soma :na. t ions
They seem to be
The gold imports which we have
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X-3089
been receiving in the past few months have been very significant.
The
currency of sorr,e foreign countries is so badly inflated that they would.
except
not send us this gold/as a last resort.
You have recently organized in
the south a foreign trade finance corporation.
corporation in conjunction with the
~ar
It seems to me that that
Finance Corporation has an oppor-
tunity to point the way out of the financial woods.
Of course, the New
Orleans corporation, organized as it is under the Edge Law, is not empowered
to do a· general trading business.
Somebody has got to do the·trading.
Edge Act corporations, however, have
goods to be exported.
~ower
to assist in the financing of
They can issue their debentures or obligations
against foreign securities that they may have.
It is going to take some
tj.me to develop the situation, but the export business of the south, as
~~in-
well as every other section of the country, must be developed and
tained if present conditions are to be worked out.
patience and persistent effort.
It will require time,
Now in the rr1eantime, it seems to me 7 it
is clearly the duty of the banking interests of the agricultural sections
of the country to do what they can to ease the situation along.
There
is nothing to be gained by drastic action and I do not think the average
banker wants to force liquidation.
There has been a good deal of
liquidation since the 5th of November which came about in a natural way.
From autumn to spring is the season of l iqp.idation,
•
Prior to the 5th of
November there was no reduction of banking credit, nor was there any decrease in the volume of currency outstanding as represented by Federal
Reserve Notes until after Christrras.
Thus what
li~idation
has taken place
in the last three or four months has been essentially natural and orderly
in its character.
The banking position of the country has been strengthened
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X-3089
also by the influx of gold which has corr.e in, so
t~At
the banks are in
far better position to take care of the situation, to enable buriness
to move forward. than they were a year ago when they were badly extended,
The reserve position of the Federal Reserve Batiks is now
about
42% a year ago.
That means a great deal.
52~%
as against
It shows what the
basic financial strength of the country is and What can be done to tide
over the existing conditions, but the dorr:estic banks, gentlen:en cantt
do it all.
They can make advances for producing the new crops, which ought
to be rrade at much less cost than the crops of a year ago.
They can rr£1ke
renewals from tirr.e to t in:e, and I think in some sections the people must
rr.ake
up their minds that they
must
get sorr.e capital loans - they rray have
to mortgage property in order to tide the situation over.
But with the
class of corrrnodities produced in the south, I think it is clear to you that
your solution lies in rraintaining and further developing our foreign
You have a lot of low grade cotton which our mills can't use.
in Germany have been using trPt class of cotton.
You
~ave
trade~
The mills
other grades
I understand that
which go to Prague and other points in Czechoslovakia.
li}end cotton to
a movement has already been rrade to{CzechoslovaRla and that in a few
months you will have practical experience as to whether or not that plan
is
suc~essful.
I am told that it is practicable for the shipper to send
his cotton to Czechoslovakia, retain title during
rranufacture~
and have
the finishec product shipped to some country on a gold basis to save
discount in order that ultimate payrr.ent
require at least nine rr.onths.
~ay
be made.
The laws of Germany do not, I am infor:rr.ed,
admit of retention of title by the foreign shipper.
Such a process will
I was told, however,
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X-3039
the other day that efforts would be rrade to have the laws changed.
The agricultural sections of this country are very much interested
in peace.
We need an official peace, and we need a cessation of
hostilities and general pacification all over the world.
The
situation abroad seems to be more or less kaleidoscopic, and is
difficult to diagnose.
Some days it looks better and other days
it does not look so good, but I can't escape the conclusion that after
all some progress has been made.
The best
~ay
to stabilize and tran-
quilize Europe is to furr.ish it with the necessities and raw naterials
that it needs in order that the idle population may be put back to
':vork and that trade relations between the European nations and other
South America has always been
nations of the world may be resumed.
a great trader with Europe - selling raw materials and buying ITanufacture.d goods.
For several months past South Anerica has been
sending raw rr.aterials to this country, competing with our products.
If trade relations all over the world were more norrral, this competition would not be so. sharp.
the answer is the further
From any angle we look a:t the problem,
develo~ment
of foreign trade, not only
with the idea of getting rid of our surplus products, but the rr::ore
trade we have abroad, the more progress is rrade in world stabilization
and toward the resumption of normal conditions throughout the world.
It is going to be a long process.
patience, but it is not an
It is going to require tact and
i~ossible
problem by any means.
I do not
believe that there is any financial or economic :problem that is imi:
possible for red blooded Americans.
(Applause)
Certainly our
fathers and grandfat~ers in their time had problems just as grave
and strenuous as any 'Which confront us today.
X- 3055
- 6They were met successfully, and I believe that the present generation
is going to give as good an account of itself and shaw it can do what
has been accomplished in the past.
There is nothing to discourage anyone,
if we consider what our real resources are.
There are a great many problems
which are more or less political in their character which :mnst be me:,
legislation.
·•::~
:'-},
Others, relating to industry and transportation require the
most skilful haniling.. Did i t ever occur to you gentlemen in considering
the problems we have, that those people who have solved all their problems
are lying at rest in cemeteries? {Laughter)
no probleJTS are dead or decaying nations?
.And that nations which have
.And did it ever occur to you
also, when we talk about prosperity, how some of us fancied that we had
prosperity eighteen months ago, and that everything was rosy?
Now,
gentlemen, we all know that there was something artificial about those
conditions.
Didn't we know that they were too good to last?
Are we
ignorant of the fact that while we had those conditions there was almost
as much complaint of some consequences of those conditions as there is now,
on the other hand, complaint about present conditions?
deal at that time about the high cost of living.
paramount issue.
It seemed to be a
It seems to be the law of nature that things can't go
all one way forever.
have the sunshine.
We beard a good
Our seasons alternate.
We have the storm and we
Now there are some regions of perennial
sunshine -
Death Valley and the Desert of Sahara- but they are not suitable for
human habitation.
The reaction that we had has been very violent, but
the very fact that it has been so violent means in my opinion a more
speedy restoration to nonnal. .After the Civil War there wa.s a period
of falling prices for fo~rteen years from 1865 until the spring of 1879
when the resumption of specie payments had been accomplished.
X-3089
- 7
I!"
'!"here was a sharp reduction in prices immedia.tely after the Civil War,
$.n
a fair reaction/
the fall of that year. another slump the next spring,
and so on for fourteen years, temporary revival and repeated s.lump, but
the general tendency was downward, although many are accustomed to look
on the panic of 1873 as the cause of the depression that followed.
a matter of fact, if you look
~t
As
the 'chal"ts you find that the prices had.
fallen from 1865 to 1873 in even greater degree than they had fallen from
1873 until the pennanent revival took place in 1879·
last year was sharper than any in our
~rices
econor~c
The reaction we had
histolJr in most lines.
of rrany commodities are below the pre-war levels.
That is
abnonT~
in itself because the general average price of all comnodities is still
considerably above pre-war levels.
of production.
rectify
itself~
That again is abnormal and must necessarily in time
Now as far as credit is concerned, times like these are
not the times when
must
real~ze
Prices are considerably below cost
bar~s
rrake new losses.
In a period such as this
banks
that they have a loss on transactions previously made, but it
is a t'irre also to be constructive.
It is safer to lend money now on
present valuations than it was a year ago, and I think banks generally
our
realize that what we want to do is to hold/domestic situation in hand,
avoid drastic action of any k"l.nd., formulate cor..s'i: ructive plans. to live
and let live and go the limit in extending renewals to those whose cha,acter
•
and business ability shows that they are entitled to accommodation.(Apvlause)
Keep your eyes on the foreign situation.
goods out of. the country.
Use every effort to send
surpl~J.s
It is better to take a long time secured credit
to be put in a safe deposit box than to have an unsalable commodity which
deteriorates or which absorbs its value in carrying charges.
]ear that
.
"
I
X- 3089
- 8-
in mind.
Pnd then again just as soon as a. few of these political
~uestions
are settled in Europe there is going to be an opportunity
for investment abroad.
somebody.
War in 1914 European investments
Before the
and balances owed by
That opportunity is going to be availed of by
~meritan
over four billions of dollars.
in the United States
business houses to Europeans amounted to
F.uropean' capital did a great deal toward
buil1ing up ft.merica, just as eastern capital has done a great deal toward
building up the west and the south.
No'~
the ~ituation has reversed itself.
Europe is indebted to the United States for Governrr.ent loans in the amount
of nearly ten billions of dollars and to private creditors to the extent
of approximately three and one-half to four billions of dollars.
to collect these sums we have got to do some trading.
In ordet
Europe can not ship
us gold indefinitely.
The bottom is being scraped now. In order for this
oontinue to
country to prosper we must produce. In order to/produce we must sell, and
·in order to sell we must buy.
We should do what we can to put Euro:pean
countries in a position where they can make purchases to meet
the~r
own
requirements- the requirements of their own populations, and to manufacture those things which probably they can manufacture better than we can.
Give them their share of world trade so as to keep things moving and
liquidate this situation of frozen credits.
And,
gentleme~,
I understand
that it is with that inea in view the Managing Director of the War Finanee
Corporation has called this conference.
to keep things moving.
m:ot all.
We want to see what can be done
The Governnent can do a. great deal to help, but
Your financing corporation in New Orleans can do much, but
the initiative-has to be taken by the people who buy and sell.
•. 'I
X-3089
-9-
No matter bow small the transaction is,
nin~.
star~
somethinp;.
Make a
be~in-
I would like to see a beginning made in either long time credits
or in investments in European securities, all reasonable business precautions being taken, of course - but do something as a beginning.
I would like to
~ee
Then
the corporation in New Orleans. put these securities.
whatever they may be, in trust, and to announce an issue of its own
debentures or obligations against these securities.
Feel out the :market,
see what sort of response it makes, and get the people of the United
States interested in this kind of business; and then you will open the
way for larger transactions.
In my ju43ffient, this is the line of policy
that ought to be adopted, and I repeat in
closin~,that
the way out of
many of the difficulties confrontinG our country and of the difficulties
that are peculiar to the south especially, lies in the developrDBnt of
our foreisn trade, especially with the Orient, South America and Europe.
We have the shipping facilities and the means are being provided for
financing, and what is lacking now is a business acquaintance on the
part of our people with those of other countries, and the means of
starting
somethin~.
It is up to some of you to take the initiative and
to proceed with this development.
(Applause)
@FedFRASER