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188 FEDERAL RESERVE BOARD WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE TO THE FEDERAL RESERVE BOARD X-7240 September 13, 1932. SUBJECT: S u r c h a r g e s on. R e g i s t e r e d . M a i l Shipments of Currency. Dear S i r : There a r e i n c l o s e d f o r your i n f o r m a t i o n a copy of a l e t t e r o n t h e a b o v e s u b j e c t w h i c h G o v e r n o r Meyer a d d r e s s e d t o t h e P o s t m a s t e r General under d a t e of August 1 2 , 1932, and a copy of t h e P o s t m a s t e r G e n e r a l ' s r e p l y of September 3 , 1932, i n c l o s i n g a memorandum a d d r e s s e d t o h i m b y t h e T h i r d A s s i s t a n t P o s t m a s t e r General. In view of the p o s i t i o n taken by the Post O f f i c e Department, i t would seem a d v i s a b l e f o r a s u i t a b l e committee r e p r e s e n t i n g a l l o f t h e F e d e r a l r e s e r v e "banks t o c o n s i d e r what c h a n g e s , i f a n y , s h o u l d b e made i n t h e p r a c t i c e s r e g a r d i n g s h i p m e n t s o f c u r r e n c y and what o t h e r s t e p s , i f a n y , s h o u l d b e t a k e n . The B o a r d w o u l d a l s o b e g l a d t o r e c e i v e a n y comments o r s u g g e s t i o n s r e g a r d i n g t h i s m a t t e r w h i c h y o u may c a r e t o m a k e . In t h i s connection you are advised that the n e g o t i a t i o n s w h i c h w e r e c o n d u c t e d b y t h e F e d e r a l R e s e r v e Bank o f Hew Y o r k w i t h t h e A m e r i c a n R a i l w a y E x p r e s s Company r e s u l t e d i n a d e c i s i o n b y t h a t company t o make no c h a n g e i n t h e t a r i f f r a t e s f o r F e d e r a l X-7240 -2- r e s e r v e b a n k s on c u r r e n c y or s e c u r i t y s h i p m e n t s . The company a d - v i s e d t h e F e d e r a l R e s e r v e Bank o f New York t h a t i t c o u l d n o t s e e i t s way c l e a r t o r e d u c e r a t e s t o t h e p o i n t w h e r e i t w o u l d b e a d v a n t a g e o u s f o r t h e F e d e r a l r e s e r v e "banks t o u s e t h e e x p r e s s s e r v i c e i n preference to the p o s t a l s e r v i c e . Very t r u l y y o u r s , Chester Morrill, Secretary. Enclosures. TO GOVEEHORS OF ALL F . R. B A M S . COPY X-7240-a August 12, 1932. H o n o r a b l e W a l t e r F . Brown, The P o s t m a s t e r G e n e r a l , W a s h i n g t o n , D. C. S I R : The F e d e r a l R e s e r v e S y s t e m i s "being r e q u i r e d u n d e r t h e A c t o f J u n e 2 8 , 1 9 3 2 , a s i t i s now "being a d m i n i s t e r e d b y t h e P o s t o f f i c e D e p a r t m e n t , t o p a y r e g i s t r y s u r c h a r g e s on c u r r e n c y s h i p m e n t s , w h i c h w i l l h a v e t h e e f f e c t o f i n c r e a s i n g b y some $ 7 5 0 , 0 0 0 a n n u a l l y t h e c o s t t o t h e S y s t e m o f s u p p l y i n g t h e b a n k s of t h e c o u n t r y w i t h currency. S i n c e t h i s l a r g e a d d i t i o n a l c o s t w i l l add m a t e r i a l l y t o t h e b u r d e n o f e x p e n s e of o p e r a t i o n o f t h e F e d e r a l R e s e r v e S y s t e m i n t h e p e r f o r m a n c e o f one o f i t s m o s t i m p o r t a n t f u n c t i o n s , y o u a r e r e s p e c t f u l l y r e q u e s t e d t o p r e s c r i b e , under t h e p r o v i s i o n s of S e c t i o n 2 o f t h e A c t o f J u n e 2 8 , 1 9 3 2 , w h i c h I am a d v i s e d g i v e y o u t h e power t o do s o , r e g u l a t i o n s r e l i e v i n g s u c h s h i p m e n t s o f c u r r e n c y f r o m t h e requirement that t h e i r f u l l value be declared f o r the purpose of r e g i s t r a t i o n , thus r e l i e v i n g the System of t h i s a d d i t i o n a l burden. Federal r e s e r v e n o t e s , which c o n s t i t u t e about h a l f t h e c u r r e n c y i n c i r c u l a t i o n , and which a r e o b l i g a t i o n s o f t h e U n i t e d S t a t e s , a r e d i s t r i b u t e d b y means o f s h i p m e n t s b y t h e C o m p t r o l l e r o f t h e Currency a t t h e d i r e c t i o n of the F e d e r a l R e s e r v e Board t o t h e v a r i o u s F e d e r a l R e s e r v e A g e n t s , who a r e t h e l o c a l r e p r e s e n t a t i v e s o f t h e F e d e r a l R e s e r v e B o a r d and who i s s u e s u c h n o t e s t o t h e F e d e r a l r e s e r v e banks t o meet t h e r e q u i r e m e n t s of t h o s e i n s t i t u t i o n s X-7240-a 191 H o n o r a b l e W a l t e r 5 \ Brown — - 2 and of the S t a t e and n a t i o n a l banks. The F e d e r a l r e s e r v e "banks a l s o handle t h e d i s t r i b u t i o n of United S t a t e s currency i s s u e s f o r w a r d e d t o them "by t h e T r e a s u r e r o f t h e U n i t e d S t a t e s . The S y s t e m i s , t h e r e f o r e , p e r f o r m i n g t h e f u n c t i o n s f o r m e r l y p e r f o r m e d "by, a n d i s b e a r i n g t h e e x p e n s e f o r m e r l y "borne b y , t h e U n i t e d S t a t e s when c u r r e n c y was d i s t r i b u t e d b y means o f s h i p m e n t s t o t h e S u b t r e a s u r i e s and m i n t s . S u c h s h i p m e n t s by t h e B o a r d now a g g r e g a t e a b o u t $ 2 , 2 5 0 , 0 0 0 , 0 0 0 y e a r l y , and m o s t o f them a r e i n l a r g e a m o u n t s r u n n i n g to m i l l i o n s of d o l l a r s . S h i p m e n t s "between the r e s e r v e "banks a n d S t a t e and n a t i o n a l "banks, e x c l u d i n g t h o s e t h e c o s t o f w h i c h i s n o t b o r n e b y t h e r e s e r v e "banks, a g g r e g a t e a b o u t $ 5 , 7 5 0 , 0 0 0 , 0 0 0 y e a r l y . The new r e g i s t r y s u r c h a r g e s a r e on a " s t r a i g h t l i n e " b a s i s ; t h a t i s , t h e y a r e one hundred t i m e s as g r e a t f o r a shipment of $ 1 0 , 0 0 0 , 0 0 0 a s f o r one of $ 1 0 0 , 0 0 0 . The e l e m e n t s e n t e r i n g i n t o t h e c o s t of c a r r y i n g currency a r e the t r a n s p o r t a t i o n , t h e i n s u r a n c e and t h e p h y s i c a l p r o t e c t i o n f u r n i s h e d . The c o s t o f t h e a c t u a l t r a n s p o r t a t i o n v a r i e s with the weight, which i s r e f l e c t e d i n the p o s t a g e c h a r g e , "but w h i c h w o u l d n o t b e a f f e c t e d b y t h e v a l u e o f the shipment. The i n s u r a n c e or i n d e m n i t y f u r n i s h e d b y t h e P o s t - o f f i c e D e p a r t m e n t , "being l i m i t e d t o $ 1 , 0 0 0 i s o f no v a l u e i n c o n n e c t i o n w i t h t h e s e s h i p m e n t s , and t h e b a n k s h a v e a l w a y s f o u n d i t n e c e s s a r y t o i n s u r e thorn w i t h c o m m e r c i a l i n s u r a n c e c o m p a n i e s . The o n l y e l e m e n t o f c o s t u p o n w h i c h t h e s u r c h a r g e s o f c u r r e n c y c o u l d "be j u s t i f i e d i s , t h e r e f o r e , t h e c o s t of t h e p h y s i c a l p r o t e c t i o n f u r n i s h e d . I t seems v e r y improbable t h a t t h a t c o s t i n c r e a s e s a t a r a t e compar X-7240-a H o n o r a b l e W a l t e r F . Brown - - 3 a b l e to the i n c r e a s e i n surcharges above r e f e r r e d t o . Manifestly, a h u n d r e d t i m e s a s many g u a r d s w o u l d n o t b e n e c e s s a r y t o p r o t e c t a $ 1 0 , 0 0 0 , 0 0 0 shipment as a r e n e c e s s a r y to a f f o r d adequate p r o t e c t i o n to a $100,000 shipment. The c o n c l u s i o n c a n h a r d l y b e a v o i d e d t h a t t h e s u r c h a r g e s o n t h e s e s h i p m e n t s o f c u r r e n c y a r e much g r e a t e r t h a n e i t h e r t h e c o s t or t h e v a l u e of t h e s e r v i c e r e n d e r e d , and t h a t t h e y c o u l d o n l y b e j u s t i f i e d on t h e t h e o r y t h a t , a s a m a t t e r o f p u b l i c p o l i c y , shipments of great v a l u e should bear the brunt of the burden of making u p t h e d e f i c i t i n t h e R e g i s t r y S e r v i c e a s a w h o l e . It is r e s p e c t f u l l y s u b m i t t e d t h a t s u c h a t h e o r y i s u n s o u n d when a p p l i e d t o t h e F e d e r a l R e s e r v e System i n the performance of a q u a s i - g o v e r n m e n t a l function. The F e d e r a l R e s e r v e S y s t e m was c r e a t e d f o r t h e p u r p o s e o f g i v i n g t o t h e banking system of t h e country g r e a t e r e l a s t i c i t y and s t r e n g t h , and of p r o v i d i n g a c u r r e n c y s u f f i c i e n t l y f l e x i b l e t o meet varying needs. The r e s u l t h a s b e e n t o r e n d e r i t u n n e c e s s a r y f o r t h e b a n k s t o k e e p on h a n d a t a l l t i m e s a s u f f i c i e n t amount o f c u r r e n c y t o m e e t p e a k r e q u i r e m e n t s , b e c a u s e means a r e a f f o r d e d w h e r e b y t h e y may s e c u r e c u r r e n c y t o m e e t r u n s or o t h e r e m e r g e n c i e s p r o m p t l y a n d i n a n y q u a n t i t y w h i c h t h e i r c o n d i t i o n may j u s t i f y . The n e e d o f f o s t e r i n g t h e f r e e movement o f s h i p m e n t s of c u r r e n c y f o r s u c h p u r p o s e i s t o o o b v i o u s t o r e q u i r e more t h a n mere s t a t e m e n t . Among o t h e r t h i n g s , i t h a s i n - f l u e n c e d the Federal Reserve System to absorb p r a c t i c a l l y a l l expenses i n c o n n e c t i o n w i t h shipments of F e d e r a l r e s e r v e n o t e s between the r e s e r v e b a n k s a n d c o m m e r c i a l b a n k s , b o t h n a t i o n a l and S t a t e . X-7240-a H o n o r a b l e W a l t e r F . Brown 1 9 3 4 The e f f e c t of t h e new s u r c h a r g e s a l o n e i s t o i n c r e a s e "by f u l l y 1 0 0 p e r c e n t t h e p o s t a l c h a r g e s on s u c h s h i p m e n t s , and t h e r e i s a d i s t i n c t p o s s i b i l i t y t h a t , u n l e s s the F e d e r a l r e s e r v e banks can a v o i d t h i s added expense, e i t h e r through the p r e s c r i b i n g o f d i f f e r e n t r u l e s b y y o u r D e p a r t m e n t or b y a r r a n g i n g f o r t r a n s p o r t a t i o n o t h e r w i s e than by m a i l , they w i l l f i n d i t n e c e s s a r y t o d i s c o n t i n u e absorbing these charges. In t h a t e v e n t , t h e S t a t e and n a t i o n a l banks m i g h t s e e k t o a v o i d some of t h e a d d e d e x p e n s e b y c u r t a i l i n g s u c h currency shipments, w i t h the r e s u l t that they might e i t h e r accumulate a s u p p l y of c u r r e n c y more t h a n s u f f i c i e n t f o r t h e i r n o r m a l n e e d s or w o u l d h e s i t a t e t o a s k f o r a s much c u r r e n c y a s c a u t i o n a n d p r u d e n c e might r e q u i r e . The f i r s t c o u r s e w o u l d t e n d t o d e f e a t t h e e f f o r t s of t h e S y s t e m a n d of t h e Government t o d e c r e a s e t h e v o l u m e o f c u r r e n c y o u t s t a n d i n g but u n a v a i l a b l e as a b a s i s of c r e d i t . In t h i s connection, i t i s important to observe that surplus currency i n the v a u l t s of b a n k s h a s t h e same e f f e c t a s h o a r d e d c u r r e n c y . The s e c o n d c o u r s e would b e a t t e n d e d by t h e danger t h a t runs and o t h e r emergencies might f i n d t h e banks unprepared t o meet them. I n v i e w of t h e quasi-governmental n a t u r e of t h e f u n c t i o n of d i s t r i b u t i n g c u r r e n c y , and p a r t i c u l a r l y i n v i e w of t h e c o n d i t i o n s which have e x i s t e d i n the banking system during the past few y e a r s , t h e r e a r e s t r o n g r e a s o n s of p u b l i c p o l i c y i n f a v o r o f n o t c a s t i n g u p o n t h e S y s t e m a n y undue b u r d e n i n i t s e f f o r t s t o a s s i s t t h e b a n k s i n d e a l i n g w i t h t h e e x i s t i n g s i t u a t i o n , and i n f a v o r o f p e r m i t t i n g t h e s e s h i p m e n t s o f c u r r e n c y t o move w i t h t h e g r e a t e s t p o s s i b l e f r e e d o m . x-7240-a H o n o r a b l e W a l t e r F . Brown 5 I t i s , therefore, r e s p e c t f u l l y requested that you i s s u e r e g u l a t i o n s o r i n s t r u c t i o n s i n s u c h f o r m a s y o u may deem a p p r o p r i a t e and p r o p e r , p r o v i d i n g t h a t shipments of currency e i t h e r t o or from any F e d e r a l r e s e r v e hank s h a l l h e a c c e p t e d hy a l l p o s t m a s t e r s f o r r e g i s t r a t i o n (or f o r i n s u r a n c e i f the shipment i s i n s u r e d m a i l t r e a t e d as r e g i s t e r e d mail) without the mailer being required to declare a value i n excess of $1,000. T h e r e i s i n c l o s e d f o r y o u r i n f o r m a t i o n a memorandum p r e p a r e d h y t n e B o a r d ' s C o u n s e l d i s c u s s i n g t h e q u e s t i o n w h e t h e r y o u may l a w f u l l y m o d i f y t h e r e g u l a t i o n s o f y o u r D e p a r t m e n t i n t h e manner s u g g e s t e d h e r e i n Very t r u l y y o u r s , Eugene Meyer, Governor. Inclosure COPY X-7340-"b THE POSTMASTER GENEBAL mSHHG-TOH September 3 , 1932. Hon. E u g e n e Meyer, Governor, Federal Reserve Board, W a s h i n g t o n , D. C. My d e a r G o v e r n o r : Your l e t t e r of A u g u s t 1 2 , r e q u e s t i n g t h a t t h e F e d e r a l R e s e r v e S y s t e m h e exempted f r o m s u r c h a r g e s on r e g i s t e r e d mail shipments, has been g i v e n p a i n s t a k i n g consideration. The v i e w s of t h e D e p a r t m e n t w i t h r e s p e c t t o t h i s m a t t e r a r e s e t out i n d e t a i l i n a memorandum from the Third A s s i s t a n t Postmaster General, which i s enclosed herewith. I r e g r e t t o i n f o r m y o u t h a t i n my j u d g m e n t the request should he denied. Sincerely yours, (s) W a l t e r P . Brown Copy X-7240-c -|_g0 P o s t O f f i c e Department Third A s s i s t a n t Postmaster General Washington August 30, 1932. Memorandum f o r t h e P o s t m a s t e r G e n e r a l : S u b j e c t : L e t t e r f r o m t h e G o v e r n o r , F e d e r a l R e s e r v e B o a r d , W a s h i n g t o n , D. C , , dated August 12, 1932, a s k i n g the Postmaster General to p r e s c r i b e r e g u l a t i o n s r e l i e v i n g Federal Reserve shipments of currency from s u r c h a r g e s , r e f e r e n c e b e i n g made t o S e c t i o n 2 o f t h e A c t o f June 2 8 , 1 9 3 2 ( e f f e c t i v e J u l y 1 , 1 9 3 2 ) , w h i c h p r o v i d e s t h a t "The f u l l v a l u e o f a l l r e g i s t e r e d m a i l o r i n s u r e d m a i l t r e a t e d a s r e g i s t e r e d m a i l s h a l l be d e c l a r e d by the m a i l e r a t the time o f m a i l i n g u n l e s s o t h e r w i s e p r e s c r i b e d b y t h e P o s t m a s t e r G e n e r a l * * *" The Governor o f t h e F e d e r a l R e s e r v e Board c a l l e d a t t e n t i o n t o t h e w o r d i n g and l a c k o f p u n c t u a t i o n i n f l u e n c i n g t h e i n t e r p r e t a t i o n t h a t may b e p l a c e d upon t h e law i n p a r a g r a p h 2 o f t h e A c t o f June 2 8 , 1 9 3 2 , i n v o l v i n g t h e r e q u i r e m e n t t h a t t h e f u l l v a l u e o f a l l r e g i s t e r e d m a i l or i n s u r e d m a i l t r e a t e d a s r e g i s t e r e d m a i l s h a l l be d e c l a r e d b y t h e m a i l e r a t t h e t i m e o f m a i l i n g u n l e s s o t h e r w i s e p r e s c r i b e d by t h e P o s t m a s t e r G e n e r a l , He a r g u e s t h a t t h e P o s t m a s t e r G e n e r a l h a s a u t h o r i t y t o exempt F e d e r a l R e s e r v e s h i p m e n t s from s u r c h a r g e s on r e g i s t e r e d m a i l and r e q u e s t s t h a t t h e a u t h o r i t y g i v e n i n t h e law f o r t h e P o s t m a s t e r G e n e r a l t o do so b e e x e r c i s e d i n F e d e r a l R e s e r v e s h i p m e n t s . There i s no i n t e n t i o n on t h e p a r t o f t h e P o s t O f f i c e Department t o a v a i l i t s e l f of the t e c h n i c a l i t y a r i s i n g from the implied amission of p u n c t u a t i o n . It i s conceded t h a t p r a c t i c a l l y c o n s t r u e d the phrase "unless o t h e r w i s e p r e s c r i b e d by the P o s t m a s t e r General" m o d i f i e s the s e n t e n c e " s h a l l be d e c l a r e d " r a t h e r than the p h r a s e "at t h e t i m e o f m a i l i n g . While i t may b e t r u e t h a t t h e l a w p e r m i t s t h e P o s t m a s t e r G e n e r a l t o exempt F e d e r a l R e s e r v e s h i p m e n t s from s u r c h a r g e s , i t m i g h t be a l s o a r g u e d and e q u a l l y a d m i t t e d t h a t he had a u t h o r i t y t o exempt a l l r e g i s t e r e d m a i l o r i n s u r e d m a i l t r e a t e d a s r e g i s t e r e d m a i l from s u r c h a r g e s a n d t h u s n u l l i f y t h e i n t e n t i o n o f t h e A c t i t s e l f w h i c h p r e s c r i b e s t h e r e g i s t r y f e e s and s u r c h a r g e s . o lFRASER ves i t s e l f into Digitizedsfor The q u e s t i o n r e - whether or not the Postmaster General i s j u s t i f i e d i n 197 •—5*™* X-7240-c e x e m p t i n g F e d e r a l R e s e r v e s h i p m e n t s f r o m s u r c h a r g e s b e c a u s e he h a s a u t h o r i t y t o do s o . The p h r a s e " u n l e s s o t h e r w i s e p r e s c r i b e d b y t h e P o s t m a s t e r G e n e r a l " i n S e c t i o n 2 o f t h e A c t o f J u n e 2 8 , 1 9 3 2 , was recommended b y t h e P o s t O f f i c e D e p a r t ment i n t h e d r a f t f a r l e g i s l a t i o n p r e p a r e d b y t h e Department and a s i t w a s e n a c t e d by C o n g r e s s . The i n t e n t i o n o f t h e Department i n i n s e r t i n g t h e s e w o r d s was p a r t i c u l a r l y t o p e r m i t t h e P o s t m a s t e r G e n e r a l t o r e l i e v e f r o m s u r c h a r g e s m a t t e r w h i c h was e n t i t l e d t o f r e e r e g i s t r a t i o n u n d e r a l r e a d y e x i s t i n g s t a t u t e s , and, i n c i d e n t a l l y , o t h e r matter not e n t i t l e d to f r e e r e g i s t r a t i o n which f o r good and s u f f i c i e n t r e a s o n s , i n t h e o p i n i o n o f t h e P o s t m a s t e r G e n e r a l , s h o u l d be exempted from r e g i s t r y s u r c h a r g e s . Matter which i s e n t i t l e d to f r e e r e g i s t r a t i o n has b e e n exempted from registry surcharges. In a d d i t i o n to the exemption from r e g i s t r y s u r c h a r g e s of matter e n t i t l e d to f r e e r e g i s t r a t i o n , r e g i s t e r e d a r t i c l e s which contain e x c l u s i v e l y c h e c k s , d r a f t s a n d o t h e r w r i t t e n o r p r i n t e d m a t t e r h a v i n g no i n t r i n s i c v a l u e w h i c h may be d u p l i c a t e d w i t h o u t e x p e n s e o r a t a n o m i n a l c o s t , a s w e l l a s n o n n e g o t i a b l e s e c u r i t i e s w h i c h c a n b e d u p l i c a t e d u n l e s s t h e known o r e s t i m a t e d c o s t o f d u p l i c a t i o n i n c a s e o f l o s s w i l l e x c e e d t h e maximum i n d e m n i t y p r o v i d e d f o r t h e amount o f r e g i s t r y f e e p a i d , h a v e a l s o b e e n e x e m p t e d f r o m r e g i s t r y s u r c h a r g e s . The f a c t t h a t t h e F e d e r a l H e s e r v e S y s t e m i s " p e r f o r m i n g t h e f u n c t i o n s formerly performed by, and i s b e a r i n g the expense formerly borne by, the United S t a t e s when c u r r e n c y was d i s t r i b u t e d b y means r f s h i p m e n t s t o t h e S u b t r e a s u r i e s and m i n t s " , d o e s n o t i n d i c a t e p e r s e t h a t the F e d e r a l R e s e r v e s h i p m e n t s o f r e g i s t e r e d m a i l s h o u l d be e x e m p t e d f r o m s u r c h a r g e s m i n t s were n o t e n t i t l e d t o f r e e r e g i s t r a t i o n . b e c a u s e t h e S u b t r e a s u r i e s and The m i n t s a n d a s s a y o f f i c e s now in e x i s t e n c e are required to pay r e g i s t r y surcharges. 198 X - 7 240™ c -*3*» No m a t t e r w h i c h i s n o t e n t i t l e d t o f r e e r e g i s t r a t i o n h a s b e e n e x e m p t e d f r o m s u r c h a r g e s e x c e p t s u c h a s come w i t h i n t h e c a t e g o r y o f t h e e x c e p t i o n s s t a t e d . The G o v e r n o r o f t h e F e d e r a l R e s e r v e Board s t a t e s "The new r e g i s t r y s u r c h a r g e s a r e on a ' s t r a i g h t l i n e * b a s i s ; t h a t i s , t h e y a r e one h u n d r e d t i m e s a s g r e a t f o r a s h i p m e n t o f $ 1 0 , 0 0 0 , 0 0 0 a s f o r one o f $ 1 0 0 , 0 0 0 . " The o b j e c t o f t h e A c t o f Congress approved June 2 8 , 1932, was to p r o v i d e such a d d i t i o n a l revenue a s might b e n e c e s s a r y t o make t h e r e g i s t r y s e r v i c e s e l f - s u p p o r t i n g . The C o s t A s c e r t a i n m e n t R e p o r t o f t h e P o s t O f f i c e D e p a r t m e n t f o r t h e f i s c a l y e a r 1 9 3 1 showed a d e f i c i t on p a i d r e g i s t r a t i o n s o f $ 8 , 5 1 6 , 3 8 7 . 5 2 . The b a s i s m e t h o d o f p r e s c r i b i n g r e g i s t r y s u r c h a r g e s on t h e v a l u e a n d l e n g t h c f h a u l o f the a r t i c l e i n v o l v e d i s c o n s i d e r e d by the P o s t O f f i c e Department to be b o t h r e a s o n a b l e a n d e q u i t a b l e . The f i x i n g o f t a r i f f s and r a t e s a c c o r d i n g t o t h e p r i n c i p l e o f "what t h e t r a f f i c w o u l d b e a r " i s n o t a new o n e . I t i s r e c o g n i z e d i n a l l r a t e making r e l a t i n g to t r a n s p o r t a t i o n . To h a v e i n c r e a s e d t h e r a t e s u n i f o r m l y o r h o r i z o n t a l l y f o r a l l a r t i c l e s would have r e s u l t e d i n d i s c o u r a g i n g the m a i l i n g of l e t t e r s and a r t i c l e s o f s m a l l v a l u e , t h e r e b y r e d u c i n g t h e r e v e n u e s i n t h e amount c f t h e i n c r e a s e d f e e s . Therefore, the p r i n c i p l e of c h a r g e s b a s e d upon the measure of d e l i v e r e d s e r v i c e , t h a t i s , v a l u e a n d d i s t a n c e , was r e s o r t e d t o . While u n i f o r m s a f e g u a r d s a r e a c c o r d e d t o a l l m a t t e r , r e g i s t e r e d m a i l , known o r s u p p o s e d t o be o f l a r g e v a l u e , r e q u i r e s i n p o s t o f f i c e s and t e r m i n a l s s p e c i a l p r e c a u t i o n s a n d s a f e g u a r d s i n c l u d i n g armed guards and armored t r u c k s . H e r e t o f o r e m a i l e r s of shipments of l a r g e v a l u e have a v a i l e d t h e m s e l v e s o f t h e minimum r e g i s t r a t i o n f e e c f 15^ r e g a r d l e s s o f t h e v a l u e contained i n the shipment. The s u r c h a r g e s were a d o p t e d , t h e r e f o r e , t o p r o v i d e a d d i t i o n a l revenue i n connection w i t h r e g i s t e r e d a r t i c l e s c o n t a i n i n g matter of -4- X-7240-c l a r g e v a l u e and t h e a m o u n t s o f t h e s u r c h a r g e s w e r e f i x e d w i t h t h e i d e a o f p r o v i d i n g t h e a d d i t i o n a l r e v e n u e r e q u i r e d t o make t h e r e g i s t r y s e r v i c e s e l f - s u p p o r t ing. I f t h e r a t e s a s now f i x e d b y l a w a r e f o u n d t o h e t o o h i g h i n t h a t r e s p e c t , t h e D e p a r t m e n t w i l l move t o h a v e them r e d u c e d * R e p r e s e n t a t i v e s o f the insurance companies h a n d l i n g t h i s b u s i n e s s have s t a t e d i n h e a r i n g s b e f o r e t h e P o s t O f f i c e and P o s t Roads Committee o f t h e House o f R e p r e s e n t a t i v e s t h a t t h e y have b e e n a b l e to reduce t h e i r r a t e s from time to time because of the i n c r e a s e d p r o t e c t i o n a f f o r d e d by the P o s t O f f i c e Department. The s h i p p e r s , t h e r e f o r e , h a v e f o r y e a r s had t h e b e n e f i t o f t h e s e r v i c e w h i c h h a s been performed c o n s i s t e n t l y a t g r e a t l o s s to the Department. The Governor o f t h e F e d e r a l R e s e r v e Board s t a t e s t h a t t h e A c t o f J u n e 2 8 , 1 9 3 2 , " w i l l h a v e t h e e f f e c t o f i n c r e a s i n g b y some $ 7 5 0 , 0 0 0 a n n u a l l y t h e c o s t t o the System of s u p p l y i n g the banks of the country w i t h currency." T h i s amount d o e s n o t a p p e a r t o t h e P o s t O f f i c e D e p a r t m e n t t o b e e x c e s s i v e when c o n s i d e r e d and compared w i t h t h e c o s t a n d d e f i c i t o f t h e r e g i s t r y s e r v i c e , t h e e x p e n s e f o r t r a n s p o r t a t i o n o f s i m i l a r a m o u n t s b y o t h e r a g e n c i e s who c o n d u c t t h e i r b u s i n e s s f o r p r o f i t , and t h e f a c t t h a t t h e P o s t O f f i c e D e p a r t m e n t m e r e l y d e s i r e s t h e r e g i s t r y s e r v i c e t o b e made s e l f - s u s t a i n i n g i n s t e a d o f c o n t i n u i n g t o b e c o n d u c t e d at a loss. I f t h e $ 7 5 0 , 0 0 0 s u r c h a r g e s r e c e i v e d f r o m t h e F e d e r a l R e s e r v e S y s t e m were d e d u c t e d f r o m t h e d e f i c i t on p a i d r e g i s t r a t i o n s , t h e r e w o u l d s t i l l b e o v e r $ 7 , 0 0 0 , 0 0 0 d e f i c i t i n t h e r e g i s t r y s e r v i c e t o be c o l l e c t e d f r o m o t h e r f i n a n c i a l i n s t i t u t i o n s and t h e g e n e r a l p u b l i c t o o f f s e t t h e d e f i c i e n c y . I t i s u n d e r s t o o d t h a t the accumulated surplus c r e d i t e d to the F e d e r a l Reserve System amounts to a p p r o x i m a t e l y $ 2 7 5 , 0 0 0 , 0 0 0 . I f t h i s be true i t does n o t a p p e a r t h a t $ 7 5 0 , 0 0 0 a l l o t e d t o s u r c h a r g e s on r e g i s t r y s h i p m e n t s i s more t h a n 8 0 0 -5- X—7240—c t h e S y s t e m c a n r e a s o n a b l y b e a r n o r i n e x c e s s o f i t s p r o p o r t i o n a t e amount o f r e q u i r e d s u r c h a r g e s , p a r t i c u l a r l y "because t h e F e d e r a l R e s e r v e s u r p l u s d o u b t l e s s h a s b e e n a u g m e n t e d t o some e x t e n t a t l e a s t b y t h e p a s t p e r f o r m a n c e s o f t h e r e g i s t r y s e r v i c e conducted a t l e s s than the c o s t of the s e r v i c e rendered. To exempt F e d e r a l Be s e r v e s h i p m e n t s f r o m t h e payment o f s u r c h a r g e s , e v e n i f the law were c o n s t r u e d t o p e r m i t s u c h a c t i o n by the P o s t m a s t e r General, would, i n my o p i n i o n , e s t a b l i s h a n i l l - a d v i s e d p r e c e d e n t w h i c h w o u l d d o u b t l e s s be t h e b a s i s of o t h e r s i m i l a r r e q u e s t s f o r exemption from o t h e r f i n a n c i a l i n s t i t u t i o n s which might a l s o claim to be performing a "quasi-governmental" f u n c t i o n . The P o s t a l S a v i n g s S y s t e m i s d i s t i n c t l y a P o s t O f f i c e D e p a r t m e n t f e a t u r e , n o t w i t h s t a n d i n g i t s i n t i m a t e connection w i t h the Treasury Department. The b a n k s throughout the country which o b t a i n d e p o s i t s of p o s t a l savings funds a r e required to h y p o t h e c a t e s e c u r i t i e s w i t h the Treasury Department f o r t h a t p u r p o s e . The shipments of these s e c u r i t i e s by r e g i s t e r e d mail to secure loans of p o s t a l savings funds are s u b j e c t to surcharges. The T r e a s u r y D e p a r t m e n t makes v a l u a b l e r e g i s t r y s h i p m e n t s o f n a t i o n a l b a n k c u r r e n c y w h i c h a r e s u b j e c t t o r e g i s t r y f e e s and r e g i s t r y s u r c h a r g e s . The f i e l d Loan A g e n c i e s o f t h e R e c o n s t r u c t i o n F i n a n c e C o r p o r a t i o n w h i c h do n o t h a v e t h e r i g h t t o f r e e r e g i s t r a t i o n a r e a l s o r e q u i r e d t o p a y s u r c h a r g e s on registered mail. The A t t o r n e y G e n e r a l o f t h e U n i t e d S t a t e s , i n h i s o p i n i o n t o t h e P o s t m a s t e r General dated October 5, 1915, copy of which i s a t t a c h e d h e r e t o , s t a t e d : "Numerous o t h e r p r o v i s i o n s o f t h e A c t ( F e d e r a l R e s e r v e A c t ) , n o t n e c e s s a r y t o b e here s e t f o r t h i n d e t a i l , m a n i f e s t the purpose of Congress to impose upon the b a n k s a l l e x p e n s e s c o n n e c t e d w i t h i t s a d m i n i s t r a t i o n " and "* * * t h a t t h e s e n o t e s ( F e d e r a l R e s e r v e n o t e s ) do n o t r e l a t e ' e x c l u s i v e l y t o t h e b i s i n e s s o f t h e U n i t e d S t a t e s , 1 and t h e r e f o r e , r e g a r d l e s s o f the F e d e r a l Reserve A c t , c o u l d not e n j o y 201 -6- X-7240-c t h e " b e n e f i t o f t h e f r e e c a r r i a g e p r o v i s i o n o f t h e A c t o f March 3 , 1 8 7 7 , ( 1 9 S t a t . 319, 3 3 5 ) . " The r i g h t t o f r e e p o s t a g e d o e s n o t n e c e s s a r i l y c a r r y w i t h i t t h e r i g h t t o f r e e r e g i s t r a t i o n a n d t h e r e f o r e t h e r e a r e i n s t a n c e s w h e r e t h e r e g i s t r y f e e s and t h e s u r c h a r g e s a r e r e q u i r e d where p o s t a g e i s n o t r e q u i r e d "but I know o f no i n s t a n c e where t h e r i g h t t o f r e e r e g i s t r a t i o n i s g i v e n i n w h i c h t h e r i g h t t o f r e e postage i s not also l e g a l i z e d . I n c o n c l u s i o n , i t i s my o p i n i o n t h a t t h e F e d e r a l R e s e r v e s h i p m e n t s s h o u l d n o t "be e x e m p t e d f r o m t h e payment o f s u r c h a r g e s on r e g i s t e r e d m a i l w h i c h n a t u r a l l y c a r r i e s w i t h i t the r e q u i r e d d e c l a r a t i o n of v a l u e s a t the time of m a i l i n g . The F e d e r a l R e s e r v e B o a r d may h a v e some c h a n g e s t o s u g g e s t i n c o n n e c t i o n w i t h t h e r e g i s t r y f e e s a n d s u r c h a r g e s and i f so t h e P o s t O f f i c e D e p a r t m e n t would w e l c o m e , a n d g i v e c o n s i d e r a t i o n t o , a n y s u g g e s t i o n s made w h i c h w i l l r e s u l t i n o f f s e t t i n g the r e g i s t r y d e f i c i t of $ 8 , 5 1 6 , 3 8 7 . 5 2 reported in paid r e g i s t r a t i o n s f o r the f i s c a l y e a r 1931. There i s i n c l o s e d h e r e w i t h a copy o f t h e C o s t A s c e r t a i n m e n t R e p o r t and R e p o r t o f t h e P o s t m a s t e r G e n e r a l f o r t h e f i s c a l y e a r 1 9 3 1 , p a r t i c u l a r r e f e r e n c e "being made i n t h e C o s t A s c e r t a i n m e n t R e p o r t t o T a b l e A, p a g e 1 0 , a n d i n t h e P o s t m a s t e r G e n e r a l ' s R e p o r t t o p a g e s 8 and 4 9 and t o T a b l e Ho. 16 b e g i n n i n g on p a g e 98* As a m a t t e r o f i n t e r e s t i n c o n n e c t i o n w i t h t h i s s u b j e c t I am a l s o i n c l o s i n g a c o p y o f t h e H e a r i n g s b e f o r e S u b c o m m i t t e e Ho. 5 o f t h e Committee on t h e P o s t O f f i c e a n d P o s t R o a d s , House o f R e p r e s e n t a t i v e s , F e b r u a r y 1 8 , 1 9 3 0 , on B i l l H. R. 8 5 7 3 ( 7 1 s t C o n g r e s s 2d S e s s i o n ) t o a u t h o r i z e t h e P o s t m a s t e r G e n e r a l t o p a y i n d e m n i t y f o r t h e a c t u a l v a l u e o f r e g i s t e r e d m a i l and to f i x the f e e s f o r the r i s k s assumed. A f t e r t h e s e Hearings were h e l d a n o t h e r b i l l was s u b s t i t u t e d (H. R. 1 0 2 4 4 , 72d C o n g r e s s 1 s t S e s s i o n ) i n w h i c h r e g i s t r y -7- X-7240-c f e e s and s u r c h a r g e s w e r e f i x e d b y C o n g r e s s and w h i c h was p a s s e d "by b o t h H o u s e s o f C o n g r e s s , and a p p r o v e d b y t h e P r e s i d e n t June 2 8 , 1 9 3 2 , This l a t e r b i l l (H. R. 1 0 2 4 4 ) i s t h e s u b j e c t o f t h i s memorandum. ( S ) F . A. T i l t o n , Third A s s i s t a n t Postmaster General. COPY X-7240-d THE DEPARTMENT OP JUSTICE WASHINGTON. October 5, 1915. The H o n o r a b l e , The P o s t m a s t e r G e n e r a l . Sir? I have the honor t o acknowledge your l e t t e r o f August 24, 1 9 1 5 , w h e r e i n y o u r e q u e s t my o p i n i o n a s t o w h e t h e r F e d e r a l r e s e r v e n o t e s can b e s e n t t h r o u g h t h e m a i l s "under p e n a l t y e n v e l o p e s o r l a b e l s b y t h e members o f t h e F e d e r a l R e s e r v e B o a r d . The s o l u t i o n o f t h e q u e s t i o n d e p e n d s a l o n e u p o n t h e c o r r e c t i n t e r p r e t a t i o n o f t h e A c t o f December 2 3 , 1 9 1 3 ( U n i t e d S t a t e s S t a t u t e s a t L a r g e ; Advance P a m p h l e t , p . 2 5 1 ) , commonly r e f e r r e d to a s the F e d e r a l Reserve Act, the m a t e r i a l p o r t i o n whereof r e a d s : When s u c h ( F e d e r a l r e s e r v e ) n o t e s h a v e b e e n p r e p a r e d , t h e y s h a l l be d e p o s i t e d i n the Treasury, or i n the s u b t r e a s u r y or mint of the U n i t e d S t a t e s n e a r e s t the p l a c e of b u s i n e s s of each Federal reserve b a n k a n d s h a l l be h e l d f o r t h e u s e o f s u c h b a n k s u b j e c t t o the o r d e r of t h e Comptroller of the Currency f o r t h e i r d e l i v e r y , a s provided by t h i s a c t . ******, and t h e e x p e n s e s n e c e s s a r i l y i n c u r r e d i n e x e c u t i n g the laws r e l a t i n g t o the p r o c u r i n g o f such n o t e s , and a l l o t h e r e x p e n s e s i n c i d e n t a l to t h e i r i s s u e and r e t i r e ment, s h a l l be p a i d by the F e d e r a l r e s e r v e banks, and the F e d e r a l Reserve Board s h a l l include i n i t s e s t i mate o f e x p e n s e s l e v i e d a g a i n s t the F e d e r a l r e s e r v e b a n k s a s u f f i c i e n t amount t o c o v e r t h e e x p e n s e s h e r e i n provided f o r . 204 X-7240-d — 2 -* The l a n g u a g e p l a i n l y i m p o s e s upon t h e F e d e r a l r e s e r v e banks a l l expenses i n v o l v e d i n the procurement, i s s u a n c e and r e t i r e m e n t of F e d e r a l r e s e r v e n o t e s . As t h e s h i p m e n t o f t h e s e n o t e s t o t h e s u b t r e a s u r y , e t c . , and u l t i m a t e l y t o t h e b a n k a p p l y i n g f o r them, i s n e c e s s a r i l y a s t e p p r e c e d e n t to t h e i r i s s u a n c e , i t f o l l o w s that the expense of such s h i p ment i s one " i n c i d e n t a l t o t h e i r ( t h e n o t e s ) i s s u e j,'" and u n d e r t h e t e r m s o f t h e a c t m u s t b e "borne- b y t h e b a n k s . Numerous o t h e r p r o v i s i o n s o f t h e a c t , n o t n e c e s s a r y t o be h e r e s e t f o r t h i n d e t a i l , m a n i f e s t t h e p u r p o s e o f C o n g r e s s to impose upon the banks a l l e x p e n s e s c o n n e c t e d w i t h i t s a d ministration. Having reached the c o n c l u s i o n that the Federal Reserve A c t i m p o s e s t h e e x p e n s e o f s h i p m e n t upon t h e r e s e r v e b a n k s , I deem i t u n n e c e s s a r y t o p a s s upon t h e a d d i t i o n a l r e a s o n a s s i g n e d b y y o u r S o l i c i t o r , v i z : t h a t t h e s e n o t e s do n o t r e l a t e " e x c l u s i v e l y to the b u s i n e s s of the U n i t e d S t a t e s , " and t h e r e f o r e , r e g a r d l e s s o f t h e F e d e r a l R e s e r v e A c t , c o u l d not e n j o y the b e n e f i t of the f r e e carriage p r o v i s i o n of the A c t o f March 3 , 1 8 7 7 ( 1 9 S t a t . 3 1 9 , 3 3 5 ) . Respectfully, ( S i g n e d ) T. T . GREGORY. Attorney General.
@FedFRASER