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X-706 CO~.UTTEE C.b.PITAL ISSUES OF THE FEDERAL R£SSRVE: B01~RD \"lASHlUGTON February 7, 1918. To the Chatrman of the Sub-Committee on Capital Issues of Federal Reserve District No. Dear, Str: The Sub-Committees of the Capital Issues Committee at Fashington will, no poi~cies d~ubt, wish te be informed as te the princirles and application~ te be adopted in dealing with info~tlon addressed ~ re~uests fsr them. It is not possible to give at this outlines. and tirr~ rr~re than general A mora definite policy will be developed 1 and tile Sub-Corr.- ndttees kept inforned as to the sarr~, as soon as it becoffies possible to socure from the various Government Departrr.ents a mor.J deiinita expression as to their own policies and requirenents. A better under- standing of the situation and the policies to be adopted will be developed as soon as concrete cases shall have boan submitted to the respective Departments and will have forrr~d the basis for comprehensive discussion with therr.. I. POLICY: The Central Corr.mittae and the Sub-Committees are guided in their deliberations by the thought that only by subordinating local and personal interests to the public welfare and by enforcing the most rigid economy in rrattors of personal expenditure can the United States hope to. bear its part of the financial burden of the war and to without ~elease dople~iol'). sufficient labor and rratorials for war purposes_ of our: own resources. From this point of view the ·.. ..., . - 2 Cou.mittee has adoptad it as its rolicy that d.u:r:i.ng tho pe.riod of the war favorable ac·i;ion should be t.aken or.:.ly where St(\te 1 county 1 rr.unicipalJ ., • corporate 1 or indiVidual f.im.nc5.ng involve proj;3cts which will contribute . to the successful prosecution of the war or whir.h are essential to the public health and Nelfare. 'rhe Sul:l-C:)r,mittees will assist the Ceiltral Corur.ittee not only by .i.nv Jstigating the casas submitted to -i;hem}. bv.t they n.ay 1 in addition., rend0r most important service by wa ~ching closely ·and keJping th\:3 Board advised as to questions arising in their own districts~ both with respect to such securit:i.es as should con:.e into the narket without the pruvious appr.oval of the Capital Issu0s Comnittee 1 and with respect to appropriations and comrr;ittrr,ents that a:.:~e being ir.ade and which it is most in.portant to sto.P at the source. It is hoped thc.t in the very near futu!'J the Ce:n.tr.::.l Comr,it·tee nay ba abl0 to rrake a direct app0al to those in charge of State a.nd rr.unicipal ad1;,1inistrations. For tile tin:c being, howevar_ it is essential that the Sub-Corr:n:ittees uso their local j,nfluenca in proaching tlle gospel of ec,onomy in their ccir.Illl.ni.tios and to invite coo,peration wher.ever t.hev can. As far as can bJ soen t.he Corm.i.ttees rray count on t.he wholehearted and patriotic response on the part of all concerned. All evidence points in that direction. The Central Comnittee rcs.;rves tho right, of cou,rs0, 'to deal wj, th each individual case on its own n~eri ts 1 but an expression as to policy is givJn as illustrative of the main purposes tile: Conn.ittee has in nJ.nd . • X-705 .... 3 (1) The Central Corr~ittee will consider favorably applica- tions submitted to it invoiving the refunding of maturing obligations . .. (2) The Central Co~ittee will consider favorably applications subn.i tted to it involving the funding of capi·tal expenditur~s incurred prior to February 1 1 1918; Provided 1 however, that the Central Comffiittee rray deviate from this policy if a.vailablG cash assets reasonably rray be used for the pay~ent of such debts in whole o~ in part or excessive cash distributions to sh~reholders are cont•3rr.platod 1 or in casas wher0 the requirerr.ents of the corporation rray be rr,et in sorr~ rranner without undue risk or hardship. It rrust, of course, not be understood that funding of banking indebtedness incurred after February 1, 1918 1 will not be perrr.itted. Close investigation r.ay establish cases where such funding may be proper. What is to ·.be avoided 1 however.t is that those intending to apply for perrr.ission to issue ser!urities Hrst running into debt) conceivably for purposes not corr.patible with thG public int,:.m~sts 1 and then asking for porn;ission to fund tho banking indebtedness already ir. . curred. (3) As a general basis for its conclusions the Central Cou1- mittee is inclinod to adopt the policy that tho sale of only such new securities ought to be considered favorably as will finance projects likely to bring results within the calend""r y0ar 1918. Ji;xceptions will have to be granted in cases where Govamn"Qnt Deparb"ents .:ldVise that as rr.atter of IT>ilitary or econo~ic protection work ought to be undertaken extending X-706 - 4- over the yesr 1918, or "here ::o much money has . th:.... t the cmount necess<: ry to co,.n1ete relevant as compared ,,ith the money (4} ~he alre~dy been invested ,1ork. may be consicered as ir- lreaC:y hazarded in the unc.ertaking. lith res?ect to the :;uestion of ro&d buiicing <:nd ne ci.evelO·)- ment of arable lands, so £. r as they are to be financed by ne . bond issues, the Cornidttee c.do,ted as its policy th,;t, in ;.:nl.ssing u-9on issues for road construction or for irrig,·tion or drdnage projects 1 covering J.c.nds not heretofore under cultivation, f ...vor<ble considetation should be given only to tilose of great econouic or militfry iC1-;?0rt~,nce and from .hich definite results c·n be secure.:. in tL,1e to be of assistance in meeting the present emergency. Bets in close touch lr1 G.ealing with these cc__ ses, the Committee ith the ne='artment of /·gricul ture, and hc. s received assurc.nce of the hearty coo?er. tion of thrt DepDrtme~Jt, from which advice is sought concerning the facts rnd merits of e;:ch individu'-'-1 case. Each of the Sub-COiTh.1it1.ees on Ca:.>ital I~sues .;ill clo vvell to keep the 3oard fully &dvised 's to projects for ro.d building in their districts find fnc.~ t~,_t to .use their influence ith local communities wherever they <op:lro9riations are beinG made or sought for roads v.hich are not of essential v._.lue either from an economic or militery point of view. AS to \hether l)r not the roacs have any such vE'lue, the Central Com.nittee ,iL seek advice in bnth cc: ses t herdquc..rters and '"ill be guided by such Edvice. (5) i th res )ect to builcl.ing o~erations, SeCl'etary McAdoo made the follo. int:;· statement: X-706 - 5 causJ of the intanst vf tho TrJasury Dopartn:;cnt in tho cuns~rvation of capital and crodi~ during tho pariod of tho war, I liaVG r:.cDiV Jd s-:-v:::ral inquiri,:;s as to whJthor building oporations of onJ kind and another should be discourag~d. With ra6ard to plans for public buildings under the control of this D:;;partn.ont, I ha.v.:; stopp;:-;d letting contracts -:;xcJpt in c::~.sss wh.Jra the;y wor:..; absolut.JlY n;;cossary. 11 B.:J "Horr.o building is ::..n .JXC::lllont thing in norn.al tiu:Bs., but at prcsjnt, unl:;;ss tho"a is a roal shortago of houses for war·Norkors, I strongly advise that rratorials, valuabL; labor and crodit be not utiliZJd for this purpose. ~bothor hon~s should be built should be dctonninGd strictly by tho urgoncy of tho naod." Frorr. this stabn.ont, it is dGsirablo that building op0rations ought to bJ susp.:md.Jd at r.c~nt t~is to hJal th or war work. tirr.c as far as possibLJ without diroct dotriTho stat-'rr.3nt of tho S.;;cratary nay ba us.Jd to advantage in doaling with plans on the part of n:;Unicipaliti~s and Stato gov.Jrnn...mts to ~ontinu.;; or to provide for n.;w construction at this tirr.c. II. JVI.ETHOD OF ?ftOCEDt]RE: With r.;;sp;;ct to th..;ir own procedure tho F;,dcral R.Jscrv.;; Board 1 s,Conn.ittJo and the Advisory Comn>itteo, acting a.s a C..:.ntral Corur.itt.:Je sitting in Washington, haVJ adopt;;d as a definite policy that no n,onb..;r will vote or adviso in a rrattor in which ho rr.ay b3 intorostJd, diroctly or indir3ctly, and it is understood as a nattor of courso, th:l.t tho Local Corur.itto~s will act in a likv nannor. Th.., Fodoral R.;sorvc Ag;nt is .:;xpcct to sJrv.J as cha.irrr.an and th.; Gw..;rnvr as vic;;-chain2.i:1 of th.;. Standing Comr.itt-:;c of fivo, and thJ Conn.ittoJ will alNays bo in ;. position to call upon ono or n;oro rr.orr.bors of tho Auxiliary ConnJ.tte,; to "sit in" on spocial cas..;s or to assist th.:; Corr..rr.i ttc o in s:.>curin.:.o oxpCJrt inf orrr.a tion. It is hopGd that all n.crr.b~rs of Local Conmitt3os will cooperate in spr.:;ading th::; gospel and in n.akin; jficctiv;; th.J work of th:3 conn.ittoo in th~ir districts. X-706 - 6 - It is suggested that the Sub Committees use the style "Sub.. Committee on Capital Issues, Federc::·l Reserve District No ••.•.•• " As to all necessary exJenses of members of committees, for example, traveling expenses, the Federal Reserve Board thinks it proper th&t such expenses should be refunded by the Federal Reserve Banks and that all out-of-pocket expenses of the committees should be C<'..:.rried in a special item and i t will be decided later on whether they should be carried vs an ex)ense by each ban~ or refunded by the Federal Reserve Board. It may be necessary for the Central Committee, particularly in cases where prompt action is desired and where there is no need for a local investigation, to act flithout consultation with the local committee. In cert&in cases where the situation is clear pro- vided thc::t the statement of facts can be accepted as correct, the :Jvshington Comrni ttee, in or¢ier to save time, may decide to execute the letter of approval or disapproval, as the case may be, and send such letter to the local committee for transmission to the applicant provided t~t the facts upon which the Central Committee based its conqlusions are substantiated by the local committee. In all cases, hovvever, it is the plan of the central committee to kesp the local committees advised as to applications and as to the decisions reached so that they shall be fully advised as to the situation in their districts. The Central Committee &t '·ashir.gton will a:pprecic::te it if in any · case (even ;vhere action hc:s c;lready been taken by said cormnittee) x-~706 - 7 - the local committees will give it the benefit of Bny comment that might appear to the.m helpful. The central committee is most anxious to Teach a fair and just conclusion in'all cases, and it must count on the cooperation of the entire organization to bring about the best understanding of the problem. Please express, on behalf of the cent~al committee, tc> all members of the standing committee, as well as of the auxiliary committee, the Federal Reserve Board's sincere appreciation of the willingness of the members to help in this work. Very truly yourst (Signed) PAUL M. WARBURG. Chairrran, Capital Issues Committee.
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