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X-6715 "THE IEDERAL RESERVE SYSTEM." By Paul M. iWafrbuxg. Chapter XI. "The Redis t r i e t i n g Intermezzo." Review. , By C. S. Hamlin, September, 1930. (References, when not otherwise i n d i c a t e d , are to Mr. Warburg's book.) -IThe e s s e n t i a l f a c t s i n the controversy, as a l l e g e d by Mr. Warburg, were as f o l l o w s : 1. On October 20., 1915, a R e d i s t r i c t i n g Committee was appointed by the Federal Reserve Board. 2. On November 12, 1915, t h i s Committee f i l e d a p r e l i m i n a r y r e p o r t to the e f f e c t t h a t a r e d u c t i o n i n the number of Federal reserve banks was i m p e r a t i v e l y demanded f o r the b e s t i n t e r e s t s of the Federal Reserve System and of the country. 3. In t h i s r e p o r t the Committee asked i n s t r u c t i o n s from the Board whether i t should prepare a s p e c i f i c p l a n of r e duction. 4. This p r e l i m i n a r y r e p o r t was s e t down by the Board f o r d i s cussion on November 13th and again on November 15, 1915, b u t the meetings were postponed because of the absence of S e c r e t a r y McAdoo. , 5. The Board f i n a l l y s e t down November 22, 1915 f o r the d i s cussion of the m e r i t s of the r e p o r t and a f i n a l vote thereon, . 6. At the meeting on November 22nd, d i s c u s s i o n of the m e r i t s was prevented by reason of the d e l i v e r y to the Board of an opinion of the Attorney General advising the Board t h a t i t had no power under the Federal Reserve Act to reduce the number of Federal reserve d i s t r i c t s or Federal r e s e r v e banks..... 7. The opinion of the Attorney General was obtained by the Governor of the Board without the a u t h o r i t y or knowledge of the Board, , I 175 - 2 8. X-6715 The opinion prevented any d i s c u s s i o n of the m e r i t s of the Committee r e p o r t , arid n e c e s s i t a t e d an abandonment of the whole m a t t e r , although a m a j o r i t y of the Board favored the Committee r e p o r t and would have voted a c c o r d i n g l y had a vote been taken on the m e r i t s . 1 - 427, 430, 436. -II- Mr. Warburg s t a t e s as h i s reason f o r w r i t i n g t h i s Chapter, t h a t a f t e r Senator Glass, i n 1923, and Dr. H. P. W i l l i s , i n 1926, had l i f t ed a corner of the v e i l regarding the controversy, i t hecame imperative f o r him to "break the s i l e n c e of t h i r t e e n years and r a i s e the v e i l f u r t h e r so t h a t the r e a l f a c t s might be known and the s t o r y f r e e d from the " h a l f t r u t h s and p e r v e r s i o n s " by which i t had been clouded. 1 - 454. -IllMr. Warburg's l i f t i n g of the v e i l r e v e a l s , - as he a l l e g e s , - a s i n i s t e r combination or conspiracy on the p a r t of the P r e s i d e n t of the United S t a t e s , the Attorney General of the United S t a t e s , the S e c r e t a r y of t h e Treasury, and the Governor of the Federal Reserve Board, to f o r e s t a l l d i s c u s s i o n on the merits of the r e p o r t of the E e d i s t r i c t i n g Con>» m i t t e e by means of an opinion of the Attorney General, obtained by the Governor of the Federal Reserve Board, without a u t h o r i t y from or knowledge of the Board, a d v i s i n g the Board t h a t i t had no a u t h o r i t y , under the Federal Reserve Act, to reduce the number of Federal r e s e r v e d i s t r i c t s or Federal r e s e r v e banks. 1 - 430. 176 - 3 - X-6715 -IVMr. Warburg's charge i s a very grave one, and to avoid any p o s s i b i l i t y of e r r o r , I s h a l l quote h i s v e r y words: "Thus while the Board had d e f e r r e d the d e c i s i o n out of courtesy t o Mr. McAdoo, the l a t t e r , together with the Board's Governor and the P r e s i d e n t , had combined, without the knowledge of the f o u r appointive members of the Board, to f o r e s t a l l any debate by securing the opinion of the Attorney General." 1 - 430. "The P r e s i d e n t and the Attorney General formed t h e i r judgment Solely upon the evidence 6f the S e c r e t a r y of the Treasury, whose a c t i o n was to be reviewed and who had Studiously avoided hearing the views of the Committee, and upon the evidence of the Governor devoted to Mr. McAdoo and a c t i n g i n accordance with h i s instructions." 1 - 430. -VMr. Warburg draws a sharp l i n e of cleavage between the sheep and the g o a t s i n t h i s controversy, - between those who favored r e d i s t r i c t i n g , Called by him the "Majority", - and those who were opposed to r e d i s t r i c t i n g , - to whom he r e f e r s as the "Minority." He charges t h a t the Minority were guided s o l e l y by p o l i t i c a l c o n s i d e r a t i o n s , while the "Majority" acted as n o n - p a r t i s a n t r u s t e e s of the country a t l a r g e . The following quotations from the Chapter b r i n g out t h i s l i n e of cleavage d i s t i n c t l y : " I t was c e r t a i n , t h e r e f o r e , t h a t three of the Members of the Board of seven would t r y to block any d r a s t i c r e a d j u s t m e n t . 1 - 427. "The remaining four,, however, had seen enough of the p e t t y p o i n t of view r e s u l t i n g from a twelve-headed system, and of the d i f f i c u l t i e s of i t s a d m i n i s t r a t i o n , to convince them t h a t with - 4 - X-5715 I regard to tanking standards and e f f i c i e n c y of s e r v i c e i t would c l e a r l y "be f o r the b e n e f i t of the country i f the numbers of the r e s e r v e banks should be reduced." d 1 - 427. "The determined i n s i s t e n c e on the c r e a t i o n and p r e s e r v a t i o n of "one crop" d i s t r i c t s , . . could h a r d l y be j u s t i f i e d excfept on p o l i t i c a l grounds." ( I t a l i c s mine.) 1 - 429. "The four of us considered ourselves the n o n - p a r t i s a n t r u s t e e s of the i n t e r e s t s of the country a t l a r g e . " 1 - 4 4 0 , 441,. "The o t h e r three d e a l t with the question from the p o i n t of view of the i n t e r e s t s of t h e i r P a r t y . " ( I t a l i c s mine) 1 - 4 4 0 , 441. He even b r i n g s a s i m i l a r charge a g a i n s t the P r e s i d e n t of the United States: " I t was n a t u r a l that the P r e s i d e n t , on t h i s question, could not d i s r e g a r d the p o l i t i c a l c o n s i d e r a t i o n s , " ( I t a l i c s mine) 1 - 452 , 453. Mr. Warburg then p o r t r a y s the r o l e he played i n the controversy: " I t was my duty to approach the problem from a n o n - p a r t i s a n and n o n - p o l i t i c a l p o i n t of view, - with the sole thought i n mind of what the b e s t i n t e r e s t s of the country, as a whole, r e q u i r e d . " 1 - 4 5 2 , 453. This calm, j u d i c i a l j u x t a p o s i t i o n of the a t t i t u d e of the P r e s i d e n t , the Attorney General, the S e c r e t a r y of the Treasury and the Governor of the Board, a s e a g a i n s t the pure a l t r u i s m of Mr. Warburg, i s c e r t a i n l y worthy of a Shakespeare! -VIThe w r i t e r proposes to " l i f t the v e i l " - to use Mr. Warburg's metaphor, - even f u r t h e r than he has done, and to show how g r o t e s q u e l y absurd are the charges of conspiracy h u r l e d a g a i n s t the P r e s i d e n t , the i - 5 - 178 X-6715 Attorney General* the Secretary of the Treasury, and the Governor of the Fede r a l Reserve Board. -VIIMr. Warburg r e f e r s "briefly t o the p r e l i m i n a r y r e p o r t of the Comm i t t e e f i l e d November 12, 1915, and of two meetings h e l d on November 13th and November 15th "by the Board to discuss i t . He coht&iits himself with the hare statement t h a t these two meetings were postponed u n t i l November 22nd because of Mr. McAdoo's absence. 1 - 4 3 0 , 431,436# He f u r t h e r quotes the R e d i s t r i c t i n g Committee, which s t a t e d i n i t s r e p o r t of December 2, 1915: "Your Committee d e s i r e s to r e p e a t t h a t a t no time had there been a d i s c u s s i o n of the Committee's o r i g i n a l r e p o r t of November 13th, or of the r e v i s e d r e p o r t of November 17, 1915." 1 - 430 From the above one would n a t u r a l l y be led t o b e l i e v e t h a t , a t the above meetings, the Board had convened but had immediately adjourned to November 22nd, because of the absence of Mr. McAdoo. Why, i t may be asked, does Mr. Warburg thus g r a c e f u l l y g l i d e over the meeting of November 15th? Was there no "discussion" a t t h a t meeting, of the p r e l i m i n a r y r e p o r t of November 12th? The f a c t i s t h a t a t t h a t meeting of November 15th the p r e l i m i n a r y r e p o r t was d i s c u s s e d , b r i e f l y perhaps as to i t s m e r i t s , but a t g r e a t l e n g t h as to i t s d e m e r i t s , and moreover i t was one of the most e a r n e s t and vehement d i s c u s s i o n s ever h e l d i n the Board. - 6 - X-6715 k 1 ' The d i s c u s s i o n occupied a whole day, - "From morn t i l l noon, frcm noon t i l l dewey e v e , " - the Board s i t t i n g both i n the morning and i n the afternoon. Ho f i n a l vote was taken, however, because of the absence of S e c r e t a r y McAdoo, and because a t the end of the day t h e r e was no r e p o r t l e f t to be a c t e d upon, - a s w i l l appear l a t e r . I t was p o i n t e d out by the m i n o r i t y , during the d i s c u s s i o n , t h a t the Committee r e p o r t i n e f f e c t s t a t e d t h a t because of the weakness of oneh a l f of the Federal reserve banks the System would prove a f a i l u r e and t h a t a r e d u c t i o n of the number of Federal reserve banks from twelve to e i g h t or nine was imperative f o r the good of the System and of the country The minority f u r t h e r s t a t e d t h a t such a s t a r t l i n g conclusion would cause u n e a s i n e s s and lack of confidence i n the System throughout the country; t h a t t h i s conclusion should have been supported by a statement of the f a c t s and f i g u r e s on which the conclusion was based; t h a t no such f a c t s or f i g u r e s were contained i n the r e p o r t . The minority then requested the Committee to f i l e a supplemental r e p o r t giving these f a c t s and f i g u r e s and t h a t one week be allowed the minority to study the r e p o r t a s thus supplemented. A formal motion or r e s o l u t i o n was made to t h i s e f f e c t , b u t was s t r o n g l y opposed by the Committee, which opposition was l a t e r explained by the Committee i n i t s r e p o r t of December 2, 1915, as f o l l o w s : "The f a c t t h a t the r e q u e s t of two members of the Board f o r another p r e l i m i n a r y r e p o r t i n w r i t i n g as to the reasons f o r i t s recommendations was opposed by the Committee, was, as explained by the Committee, s o l e l y because i t d e s i r e d to have the r e p o r t d i s c u s s e d on i t s merits without delay and a t t h a t time l a y b e f o r e the Board a l l the f a c t s and f i g u r e s i t had c o l l e c t e d . Such a course was i n consonance with our u s u a l practice." 1 - 435. : 180 - 7 - X-6715 The w r i t e r knows of no such p r a c t i c e of the Federal Reserve Board and i s very confident t h a t the attempt of a Committee to withhold the f a c t s and f i g u r e s on which i t s r e p o r t i s "based from the r e p o r t i t s e l f , and to p r e s e n t them only when the r e p o r t i s before the main body f o r immediate v o t e , would not "be s u s t a i n e d by any d e l i b e r a t i v e body known to Anglo-saxon procedure. The charge was f r e e l y made during the d i s c u s s i o n t h a t the minority was - t r y i n g to o b s t r u c t the proceedings and delay a f i n a l v o t e . The m i n o r i t y , how- e v e r , p o i n t e d out t h a t a delay of one week i n which to study the f a c t s and f i g u r e s on which the r e p o r t was based, was not an unreasonable r e q u e s t i n view of the r a d i c a l changes i n the Federal Reserve Act recommended by the Committee. The motion t h a t the Committee r e p o r t the f a c t s and f i g u r e s upon which i t s conclusions were based and t h a t one week's time be allowed the "minority" to study the r e p o r t thus supplemented, was f i n a l l y put to the vote and was def e a t e d by a vote of f o u r to two. 3 Diary, p . 102, 103, 107. The w r i t e r b e l i e v e s i t apparent from the above t h a t any l a c k of d i s c u s sion of the m e r i t s of the Committee's r e p o r t a t t h i s meeting was due not to the minority but to the a c t i o n of the m a j o r i t y i n d e f e a t i n g t h i s motion. F i n a l l y , as a climax of a weary day of d i s c u s s i o n , the Committee i t s e l f announced t h a t i t would withdraw i t s r e p o r t and would l a t e r f i l e a n o t h e r , to which the Board consented. 3 Diary, p . 112, 113. At the next meeting of the Board, on November 17, 1915, one of the "majority" s t a t e d t h a t he was s a t i s f i e d t h a t the p r e l i m i n a r y r e p o r t contained statements which might give a f a l s e impression, and t h a t the c r i t i c i s m of the m i n o r i t y was, to a c e r t a i n e x t e n t , j u s t i f i e d . 3 Diary, p . 112. - 8 - X-6715 - * - 8 1 Evidently the d i s c u s s i o n h e l d on November 15th had made a decided imp r e s s i o n on the Committee! On t h a t day, - November 17, 1915, the Committee prepared a supplementary r e p o r t e l i m i n a t i n g some hut not a l l of the matters c r i t i c i s e d by the minority. This r e p o r t a l s o , however, was s i l e n t as to the e s s e n t i a l f a c t s and f i g u r e s upon which i t s conclusion was based. The Committee j u s t i f i e d t h i s omission as follows; "The problem i s preeminently one f o r the e x e r c i s e of g e n e r a l judgment as to what w i l l make f o r the most e f f e c t i v e o r g a n i z a t i o n of the Federal Reserve Banking System, and your Committee does n o t , t h e r e f o r e , t h i n k i t necessary to develop a t length or i n d e t a i l the reasons which have weighed with i t s i n d i v i d u a l members, each of whom has reached h i s conclusion i n h i s own way." ( I t a l i c s mine) Would i t not have been f a i r e r to the minority to have the Committee's f a c t s and f i g u r e s so t h a t they a l s o could reach t h e i r conclusion i n t h e i r own way? 1 - 771. The Committee r e p o r t of November 17, 1915 c o n t i n u e d ; " A t t e n t i o n may, however, be c a l l e d to some of the c o n s i d e r a t i o n s i n favor of a r e d u c t i o n i n the number of d i s t r i c t s . " 1 - 771. The Committee then enumerates the general c o n s i d e r a t i o n s of economy of o p e r a t i o n , embarrassment i n dealing with weak u n i t s , s i m p l i c i t y i n check c l e a r i n g and c o l l e c t i o n and g r e a t e r a b i l i t y to meet severe t e s t s which may come when the war i s over. 1 - 767. I t i s very s i g n i f i c a n t , however, as above s t a t e d , t h a t no mention i s made by Mr. Warburg of the d i s c u s s i o n or of the contents of the f i r s t p r e liminary r e p o r t which was discussed i n the Board, a s above s t a t e d , on November 15, 1915. - 9 - X-6715 The supplemental r e p o r t of Nov. 17, 1915, i s r e f e r r e d to by him ' merely i n a f o o t note on page 440 although i t i s p r i n t e d i n f u l l i n appendix 29 a t page 767. Throughout the chapter, ignoring the p r e l i m i n a r y r e p o r t s , excepting as to the f o o t note above mentioned, Mr. Warburg quotes as a j u s t i f i c a t i o n of the Committee's p o s i t i o n the Committee r e p o r t made on Dec. 2, 1915, long a f t e r the r e d i s t r i c t i n g d i s p u t e had been d i s posed of by the Board. page 431. A copy of t h i s l a t t e r r e p o r t i s p r i n t e d on • -VIII- One r e s u l t of the discussion i n the Board on November 15th, not h e r e t o f o r e p o i n t e d out, should here "be mentioned. I t w i l l be remembered t h a t i n i t s p r e l i m i n a r y r e p o r t , the Comm i t t e e had i n e f f e c t expressed the conviction t h a t one y e a r ' s operation of the System had convinced i t t h a t a reduction i n the number of Fede r a l reserve hanks was imperative, and t h a t i f not reduced, the System might prove t o be a f a i l u r e . In rendering t h e f i n a l r e p o r t of December 2, 1915, however, the Committee r e v e r s e d i t s e l f and s t a t e d t h a t the System had a l r e a d y brought immeasurable b e n e f i t s t o the country, and " . . . . . whether with twelve hanks or e i g h t banks w i l l prove of inestimable v a l u e . " ( I t a l i c s mine) 1 — 434. —IX— Before considering the f i n a l meeting of the Board held on - 10 - X-6715 ^ November 22, 1915, a t which the Governor p r e s e n t e d the l e t t e r of the P r e s i d e n t and the opinion of the Attorney General, i t may not be out of p l a c e to r e f e r b r i e f l y to c e r t a i n i n t e r e s t i n g and s i g n i f i c a n t events which t r a n s p i r e d J u s t b e f o r e t h a t meeting. -X~ In i t s f i n a l r e p o r t of December 2, 1915, the Committee s t a t e d t h a t i t delayed f i l i n g i t s p r e l i m i n a r y r e p o r t , - which was d i s c u s s e d , as above shown on November 15th, - i n order to g i v e Mr. Harding an o p p o r t u n i t y to show i t to S e c r e t a r y McAdoo to o b t a i n any s u g g e s t i o n s he might care to make, b u t t h a t as Mr. Harding could not confer with him, because of i l l n e s s , the Committee f i n a l l y f i l e d i t s p r e l i m i n a r y r e p o r t on Saturday, November 13, and i t was s e t down f o r d i s c u s s i o n by the Board on November 15, 1915. 1 - 435, 436. Although Mr. Harding did not have a p e r s o n a l interview with S e c r e t a r y McAdoo, he did communicate with him through Mr. Williams, as w i l l l a t e r appear* Let u s " l i f t the v e i l " a l i t t l e f u r t h e r and see what I s disclosed* Mr. Williams, the Comptroller of the Currency, and an e x - o f f i c i o member of the Board, t o l d the w r i t e r t h a t on Friday, November 12th, Mr. Harding c a l l e d on him and had a t a l k with him, l a t e r reduced to w r i t i n g and approved by Mr. Harding; t h a t Mr, Harding t o l d him t h a t the Committee would r e p o r t i n f a v o r of r e d i s t r i c t i n g and d e s i r e d t h e i r r e p o r t to be sent to the P r e s i d e n t , and t h a t u n l e s s the P r e s i d e n t p e r s o n a l l y r e q u e s t e d the Committee t o withhold i t s r e p o r t , the Committee - 11 - X-6715 would, vote to p u t i t through, "but t h a t i f the P r e s i d e n t did so r e q u e s t , the Committee would l a y i t on the t a b l e f o r the p r e s e n t . 3 Diairy, p . 95. This was c e r t a i n l y a somewhat e x t r a o r d i n a r y ultimatum to d e l i v e r to the P r e s i d e n t of the United S t a t e s I The w r i t e r has a l s o a copy of a l e t t e r from Mr. Williams to S e c r e t a r y McAdoo e n c l o s i n g the memorandum, above r e f e r r e d t o , of h i s conversation with Mr. Harding, which memorandum, Mr. Williams s a i d was duly examined and approved by Mr. Harding. 3 Diary, p . 96. I n t h i s l e t t e r , Mr. Williams t o l d S e c r e t a r y McAdoo t h a t Mr. Harding asked him to say t h a t on the occasion of h i s c a l l on the S e c r e t a r y two or t h r e e evenings b e f o r e , he c a r r i e d with him a copy of the Committee r e p o r t together with a map showing the proposed r e d i s t r i c t i n g , with p e r mission from the Committee to leave i t with him, - S e c r e t a r y McAdoo f o r h i s i n f o r m a t i o n ; t h a t he, - Mr. Harding, - says he now has i t on h i s desk, and w i l l send i t to S e c r e t a r y McAdoo should he care t o see i t b e f o r e i t i s submitted to the Board next week. Mr. Williams a l s o t o l d the w r i t e r t h a t Governor Harding t o l d him t h a t the plan and map r e f e r r e d t o i n the memorandum, abolished the Fede r a l Eeserve D i s t r i c t of Boston, merging i t with the Federal Reserve D i s t r i c t of New York. 3 Diary, p . 121, 139. The above statement i s confirmed by Dr. W i l l i s who t o l d the w r i t e r t h a t , a t Mr. Warburg's r e q u e s t , he had d e l i m i t e d the d i s t r i c t s i n a d r a f t of r e p o r t given him by Mr. Warburg, and t h a t t h i s d r a f t merged X-6715 l g Boston with New York. 3 Diary, p . 1&7% Mr* Williams a l s o s a i d l a t e r t h a t Mr. Harding t o l d him he had r e p o r t e d h i s t a l k with him to the Committee and t h a t none of them had dissented. L a t e r , Mr. Harding repeated t h i s to the Board. 3 Diary, p . 108, 138, 139. The above statements of Mr. Harding seem completely i n c o n s i s t e n t with what Mr. Warburg s t a t e s i n h i s book, - t h a t the Committee agreed t h a t no plan should be considered which might i n c r e a s e the power of the Federal Reserve Bank of Hew York, and h i s f u r t h e r statement t h a t no s p e c i f i c p l a n of r e d u c t i o n was formulated by any Committee. 1 - 427, 438. These l a t t e r statements of Mr. Warburg are p l a i n and unequivocal, yet i t i s i n t e r e s t i n g to note t h a t on December 15, 1915, i n response to a r e q u e s t of the Board, the Committee f i l e d a memorandum g i v i n g a general review of i t s work, and annexed to t h i s memorandum or produced a t the same time with i t , s e v e r a l p l a n s and maps, one of which cons o l i d a t e d the Boston with the Hew York S i s t r i c t ! The Committee s t a t e d , i n the memorandum, t h a t while the p l a n which merged Boston with Hew York was the most a d v i s a b l e , yet i n view of the sentiment of the country i t did not contemplate merging Boston and Hew York, and expressed the hope t h a t Boston may succeed i n proving i t s a b i l i t y to a c t as an independent and s e l f - s u p p o r t i n g c e n t r e . 3 Diary, p . 154-A (Loose leaf.) - 13 ~ X-6715 1 8 6 Clearly everyone today w i l l admit t h a t Boston has proved i t s a b i l i t y to a c t as a Federal reserve centre,, h u t t h a t i s not the reason f o r quoting the above. The reason i s t h a t although Mr. Warburg, a s above quoted, s a i d the Committee had agreed not to i n c r e a s e f u r t h e r the power of New York, yet i t had one p l a n b e f o r e i t which would m a t e r i a l l y i n c r e a s e i t s power and, as shown by Mr. Williams, a s quoted above, Mr. Harding admitted t h a t the p l a n which he was holding f o r S e c r e t a r y McAdoo's i n s p e c t i o n a s the p l a n of the Committee - ( I t a l i c s mine) - was the plan which abolished Boston as a Federal reserve d i s t r i c t and Federal reserve bank, and merged i t with Hew York! I t i s evident t h a t such a merger would have enormously i n c r e a s e d the power of the Federal Reserve Bank of New York. I t should a l s o be remembered t h a t Mr. Harding t o l d Mr. Williams t h a t he had r e p o r t e d to h i s colleagues on the Committee h i s conversation with Mr. Williams i n which he s t a t e d t h a t the Committee's p l a n i n f a c t merged the Federal Reserve D i s t r i c t of Boston i n t h a t of New York. . 3 Diary, p . 108, 121, 139' While i t may well be t h a t the Committee had not formally voted a t t h i s time to adopt the p l a n a b o l i s h i n g Boston, yet the f a c t t h a t Mr. Harding t o l d Mr. Williams t h a t the Committee p l a n did a b o l i s h Boston would c e r t a i n l y warrant a n x i e t y and apprehension a t even the p o s s i b i l i t y t h a t New York's power might be i n c r e a s e d , i n s p i t e of Mr. Warburg's statement to the contrary, above quoted. -XIThe w r i t e r furthermore was informed by Dr. W i l l i s , the then S e c r e t a r y of the Board, t h a t Mr. Harding, on Saturday, November 20, 1915, - two - 14 - X-6715 days b e f o r e the f i n a l meeting of the Board on November 22, 1915, came to him and asked him to a c t a s an intermediary between the Committee and S e c r e t a r y McAdoo, t e l l i n g him,, from man to man, t h a t he was w i l l ing to compromise as follows: - The Committee to l a y on the t a b l e the r e d i s t r i c t i n g r e p o r t and Secretary McAdoo to y i e l d on c e r t a i n disputed questions as to open market powers and c l e a r i n g s ; the S e c r e t a r y f u r t h e r to d i r e c t Comptroller Williams to remove Mr. S t a r e k , the National Bank Examiner a t New York, and a l s o to order him to f u r n i s h , hence f o r t h , copies of the "yellow sheets" a t t a c h e d to the Bank Examiner's r e p o r t s to the Federal Reserve Agents, which the Comptroller up to t h i s time had declined to f u r n i s h , 3 Diary, 106, 116. Dr. W i l l i s r e p o r t e d t h i s conversation to S e c r e t a r y McAdoo immediatel y , and he agreed to meet Governor Harding on Sunday the following day# 3 Diary, p . 116. P r i o r to t h i s meeting, S e c r e t a r y McAdoo t o l d the w r i t e r he should never agree to compromise on those or any other l i n e s , and l a t e r , on Sunday, a f t e r the i n t e r v i e w , t o l d the w r i t e r t h a t Mr. Harding did not ask him t o compromise, but t o l d him unequivocally t h a t he should vote to dismiss the whole matter a t the meeting of the Board on Monday, - a s will l a t e r appear. 3 Diary, 116, 117, Whether or not Mr. Warburg knew of t h i s conversation between Mr. Harding, Dr. W i l l i s and S e c r e t a r y McAdoo, i n which a compromise was suggested, the w r i t e r does not claim to be informed, but i f ho knew of - 15 - X-6715 | gg the ultimatum to the P r e s i d e n t , above mentioned, or of the suggestion of Mr. Harding, or e i t h e r of them, i t c e r t a i n l y p l a c e d him, - the "nonp a r t i s a n t r u s t e e of the c o u n t r y l s i n t e r e s t s , " a s he f e l i c i t o u s l y c a l l e d h i m s e l f , - i n a decidedly anomalous p o s i t i o n . Perhaps, however, he may have reached the conclusion t h a t the other m a t t e r s , quoted above, r e p r e s e n t e d the " g r e a t e r good" and j u s t i f i e d dropping the r e d i s t r i e t i n g plan! -XIIWe can now take up the question of the submission to the Board "by the Governor of the opinion of the Attorney General, which Mr. Warburg charges was brought about by a combination to f o r e s t a l l debate, oi> the p a r t of the P r e s i d e n t of the United S t a t e s , the S e c r e t a r y of the Treasury, the Attorney General, and the Governor of the Federal Reserve Board. The events l e a d i n g up to the request by the Governor f o r t h e Attorney General 1 s opinion were as follows: J u s t p r i o r to the meeting of November 15, 1915, the Governor heard i n d i r e c t l y t h a t the Committee was consulting with J . P. Cotton, E s q . , who had acted i n s e v e r a l m a t t e r s as s p e c i a l Counsel of the Board, - as to the Board's power. I n the d i s c u s s i o n of the p r e l i m i n a r y r e p o r t , as the w r i t e r r e c a l l s , the Committee made some r e f e r e n c e to t h i s f a c t * 3 Diary, p . 89, 92. On November 1 5 t h , j u s t p r i o r to the meeting, the Governor prepared a formal r e s o l u t i o n asking the Committee whether i t had sought an opinion from any one o t h e r than from Mr. E l l i o t t , the General Counsel of the Board, with r e l a t i o n to i t s power to reduce the number of the Federal reserve banks. 3 Diary, p . 100, 101. - 16 - X-6715 On November 16, 1915, Mr. Williams wrote to the Committee asking i t to produce Mr. Cotton's opinion. 3 Diary, p . 109. Late on Saturday a f t e r n o o n , November 20, 1915, the Committee gave the w r i t e r a copy of Mr. Cotton's opinion, dated November 19, 1915, i n which he advised the Committee t h a t the Board had power to reduce the number of the Federal reserve banks. Mr. E l l i o t t , i t should "be remembered, had p r e v i o u s l y advised the Board t h a t i t had no such power. According to the w r i t e r ' s r e c o l l e c t i o n , no a u t h o r i t y from t h e Board had been obtained by the Committee to secure t h i s opinion from Mr. Cotton. In any e v e n t , the f a c t remained t h a t a t the meeting of the Board s e t f o r November 22, Monday, - only a few hours d i s t a n t , - when i t was expected t h a t a f i n a l vote would be taken, t h e r e would have been b e f o r e the Board two r a d i c a l l y c o n f l i c t i n g opinions as to the power of the Board, - t h a t of Mr. E l l i o t t , the General Counsel, and t h a t of Mr. Cotton, the s p e c i a l Counsel, Such c o n f l i c t of opinion, i t must be e v i d e n t , would have plunged the Board i n t o hopeless confusion, and an opinion from the Attorney General was a b s o l u t e l y necessary to s e t t l e the question of power once for a l l . The Governor would have called a s p e c i a l meeting of the Board to o b t a i n a formal vote r e q u e s t i n g such an opinion, but i t was l a t e Saturday a f t e r n o o n and the Board members had s e p a r a t e d so t h a t a 190 - 17 meeting on Sunday would n o t have been p r a c t i c a b l e . X-6715 The Governor f e l t t h a t i t was the i n t e n t i o n of what Mr. Warburg d e s c r i b e s as " t h e m a j o r i t y " to f o r c e a v o t e on Monday, and i t t h e r e f o r e , seemed i m p e r a t i v e t o ask the A t t o r n e y General f o r an o p i n i o n . O r d i n a r i l y , u n d e r the p r a c t i c e of t h e Board, a r e q u e s t of t h r e e members f o r an o p i n i o n of t h e A t t o r n e y General upon any i m p o r t a n t quest i o n would b e a c t e d upon f a v o r a b l y by the Board almost a s a m a t t e r of course, without question. Had t h e Board v o t e d a d v e r s e l y upon such a r e q u e s t , the S e c r e t a r y of the T r e a s u r y , as Chairman of the F e d e r a l Res e r v e Board, under e x i s t i n g law and p r a c t i c e , could h a v e , of h i s own v o l i t i o n , c a l l e d upon t h e A t t o r n e y General f o r an o p i n i o n ; or any member of t h e Board could a t any time r e q u e s t t h e P r e s i d e n t t o c a l l f o r such an o p i n i o n . Under those c i r c u m s t a n c e s , t h e Governor, l a t e on t h a t S a t u r d a y evening e x p l a i n e d t h e s i t u a t i o n over the t e l e p h o n e to S e c r e t a r y Mc~ Adoo, who t o l d him t h a t he had a copy of Mr. C o t t o n ' s o p i n i o n and f u r t h e r , - what he d i d n o t know b e f o r e , - t h a t t h e A t t o r n e y General % * had been engaged i n s t u d y i n g the q u e s t i o n of the B o a r d ' s power f o r some t i m e , a t h i s r e q u e s t . S e c r e t a r y McAdoo f u r t h e r s a i d t h a t t h e P r e s i d e n t wished the Governor t o w r i t e him a l e t t e r r e q u e s t i n g him to o b t a i n and f o r w a r d an o p i n i o n of t h e A t t o r n e y G e n e r a l . The Governor a c c o r d i n g l y , a d d r e s s e d a l e t t e r to the P r e s i d e n t s t a t i n g t h a t , b o t h i n h i s c a p a c i t y a s Governor and as a member of t h e Board, he would be g r e a t l y h e l p e d i f an o p i n i o n of the A t t o r n e y Gene r a l could be s e c u r e d . i - 18 - 191 X-6715 The l e t t e r was s e a t t o t h e P r e s i d e n t on Sunday, November 21, 1915, and on Monday, November 2 i n d , j u s t "before the Board meeting, a l e t t e r from t h e P r e s i d e n t was r e c e i v e d "by the Governor, t o g e t h e r w i t h a copy of t h e A t t o r n e y G e n e r a l ' s o p i n i o n , which the Governor a t once l a i d b e f o r e t h e Board. This o p i n i o n n e g a t i v e d any power i n the Board and thus s e t t l e d t h e c o n f l i c t between t h e o p i n i o n s of t h e General and s p e c i a l Counsel of t h e Board. To sum u p : - The Board had s e c u r e d an o p i n i o n from i t s General Counsel; the R e d i s t r i c t i n g Committee, w i t h o u t any a u t h o r i t y from the B o a r d , had s e c u r e d an opinion from t h e S p e c i a l Counsel; and t h e Secr e t a r y of the T r e a s u r y , of h i s own v o l i t i o n , had c a l l e d f o r an o p i n i o n from t h e A t t o r n e y G e n e r a l . The two former c o n f l i c t i n g o p i n i o n s would have been b e f o r e the Board a t i t s meeting of November 22nd. I t was a b s o l u t e l y n e c e s s a r y f o r t h e Board t o have a l s o the opinion of the A t t o r n e y General upon the same s u b j e c t , asked f o r i n f o r m a l l y by t h e S e c r e t a r y of the T r e a s u r y , and i n a s k i n g f o r t h i s o p i n i o n , a t t h e sugg e s t i o n of the P r e s i d e n t , on Sunday, the 2 1 s t of November, t h e Gove r n o r merely a n t i c i p a t e d by one day what t h e Board as a m a t t e r of c o u r s e , or the S e c r e t a r y of the Treasury i n h i s own r i g h t , would have done on t h e n e x t day. This a n t i c i p a t o r y a c t i o n of the Governor, moreover, a s i t t u r n e d o u t , made i t p o s s i b l e f o r the Board t o have the A t t o r n e y G e n e r a l ' s opinion b e f o r e i t when i t met the n e x t day and thus saved t h e n e c e s s i t y of f u r t h e r postponement of the meeting to await i t s r e c e i p t . - 19 - X-6715 The R e d i s t r i c t i n g Committee seemed to f e e l t h a t t h e r e s h o u l d have "been a formal h e a r i n g a t which each s i d e could have p r e s e n t e d i t s case b e f o r e the A t t o r n e y G e n e r a l . Ho such o p p o r t u n i t y , however, was a f f o r d e d the M i n o r i t y when t h e Committee asked f o r Mr. C o t t o n ' s o p i n i o n . 1 - 436. The Committee, however, f o r g o t t h a t the only q u e s t i o n "before the A t t o r n e y General was one of law, and t h a t the l a t t e r had b e f o r e him the o p i n i o n of Mr. E l l i o t t , and a l s o t h a t of Mr. Cotton, - presumably s e n t w i t h the o t h e r p a p e r s by Mr. E l l i o t t . 5 D i a r y , p . 146. The Committee s t a t e d t h a t i f the A t t o r n e y General had known t h a t b r a n c h e s would have been s u b s t i t u t e d f o r a l l F e d e r a l r e s e r v e banks a b o l i s h e d , h i s o p i n i o n might have been d i f f e r e n t , b u t the w r i t e r r e c a l l s no r e f e r e n c e i n Mr. C o t t o n ' s opinion or i n t h e p r e l i m i n a r y r e p o r t of t h e Committee t o t h i s argument. I f i t was i n Mr. C o t t o n ' s mind, he e v i d e n t l y a t t a c h e d no importance t o i t . Mr. Warburg, however, i n e f f e c t claims t h a t t h e a d d i t i o n to t h e B o a r d ' s f i l e s of t h e A t t o r n e y G e n e r a l ' s o p i n i o n b e s i d e t h o s e of t h e General and S p e c i a l Counsel of the Board, c o n s t i t u t e d a combination or conspiracy to suppress discussion! As w e l l might one claim t h a t a de- c i s i o n of the Supreme Court of the United S t a t e s t h a t a claimant had i n law no cause of a c t i o n should b e c h a r a c t e r i z e d a s a combination or c o n s p i r a c y of the J u s t i c e s of t h a t Court to f o r e s t a l l d i s c u s s i o n ! The w r i t e r b e l i e v e s t h a t the above s t a t e m e n t of f a c t s w i l l effect** u a l l y d i s p o s e of Mr. Warburg's charges of combination or c o n s p i r a c y to - 20 * X-6715 s u p p r e s s d i s c u s s i o n and t h a t t h i s myth w i l l v a n i s h i n t o t h i n a i r . -xniAs a m a t t e r of f a c t , however, the whole q u e s t i o n of r e d i s t r i c t i n g had i n e f f e c t been d i s p o s e d of p r i o r t o t h e r e c e i p t of t h e A t t o r n e y G e n e r a l ' s opinioii. Mr. Warburg, over and over a g a i n , s t a t e s t h a t a m a j o r i t y of f o u r members of t h e Board f a v o r e d c u t t i n g down the number of F e d e r a l r e s e r v e b a n k s , and p l a i n l y seeks to have i t i m p l i e d t h a t t h e y would have so voted but for the Attorney General's opinion. 1 - 438. This s t a t e m e n t may have been t r u e a t one t i m e , b u t i t was n o t t r u e on the morning of November 22nd, the d a t e of t h e f i n a l m e e t i n g . On Sunday, November 2 l s t , a s above s t a t e d , S e c r e t a r y McAdoo t o l d t h e w r i t e r t h a t Mr. Harding had t o l d him e a r l i e r i n t h e day t h a t he had become s a t i s f i e d t h a t any a t t e m p t to c u t down t h e number of F e d e r a l r e s e r v e banks would be r e s i s t e d i n t h e c o u r t s and l e a d t o long drawn out l i t i g a t i o n which would be most i n j u r i o u s t o t h e Federal Deserve System, and t h a t he had determined t o v o t e to d i s m i s s the '-hole m a t t e r . 3 Diary', p . 117, S e n a t o r Hoke Smith had p r e v i o u s l y t o l d t h e w r i t e r of a s i m i l a r c o n v e r s a t i o n w i t h Mr. Harding. 3 Diary, p. M5. Thus Mr, Warburg's m a j o r i t y of f o u r had dwindled to a m i n o r i t y of three. - 33, - X-6715 The w r i t e r was f a r t h e r i n f o r m e d , on t h e v e r y "best a u t h o r i t y , t h a t one o t h e r member of Mr* Warburg * s " M a j o r i t y " had r e a c h e d the same conclusion. Perhaps t h e s e members had l e a r n e d of the i n f o r m a l a c t i o n of the Federal A d r i s o r y Council i n unanimous o p p o s i t i o n t o any c u t t i n g down of F e d e r a l r e s e r v e "banks a t t h e p r e s e n t t i m e . 3 D i a r y , p . 114. Thus, i f a f i n a l , v o t e had "been taken on November 22nd, - wholly a p a r t from t h e A t t o r n e y General 1 s o p i n i o n , - t h e Committee r e p o r t would have been d e f e a t e d "by a v o t e of f i v e to two and the whole matt e r would have p a s s e d i n t o o b l i v i o n . -XIVI t s h o u l d f u r t h e r be p o i n t e d out t h a t a l t h o u g h Mr. Warburg, i n h i s book, over and over a g a i n e x p r e s s e s h i s c o n v i c t i o n t h a t t h e number of F e d e r a l r e s e r v e banks s h o u l d be reduced f o r t h e good of t h e System and of t h e c o u n t r y , y e t he took a v e r y d i f f e r e n t p o s i t i o n i n a d d r e s s e s made by him a t about t h a t time and l a t e r , a s t h e f o l l o w i n g q u o t a t i o n s w i l l show: I n an a d d r e s s d e l i v e r e d a t C h a r l o t t e , North C a r o l i n a , on November 23, 1915, - only one day a f t e r t h e f i n a l d i s p o s i t i o n by the Board of the r e d i s t r i c t i n g r e p o r t , i n r e v i e w i n g t h e f i r s t y e a r ' s o p e r a t i o n of t h e F e d e r a l Reserve System, Mr. Warburg s a i d : " I am l o o k i n g back upon the f i r s t y e a r w i t h f u l l s a t i s f a c t i o n . " ( I t a l i c s mine) Again, i n the same a d d r e s s he s a i d : . - 22 - X-6715 " I t was a d i f f i c u l t problem to w r i t e so i n t r i c a t e a law as the F e d e r a l Eeserve Act* I t i s a v e r y remarkable achievement to have p u t upon the books a s t a t u t e which has brought i n t o l i f e a system which has proved i t s e l f e n t i r e l y workable and s u c c e s s f u l * " ( I t a l i c s mine) 2 - 350, 351. As one of the Committee, he a l s o r e p o r t e d to t h e Board on December 2, 1915, t h a t " t h e Federal Reserve System whether w i t h twelve "banks or e i g h t "banks w i l l prove of i n e s t i m a b l e v a l u e . " ( I t a l i c s mine) 1 - 434. I t has a l s o been claimed t h a t Mr. Warburg's demand f o r r e d u c i n g t h e number of F e d e r a l r e s e r v e banks i s i n c o n s i s t e n t with h i s o f t r e p e a t e d recommendation t h a t a p o r t i o n of the p a i d - i n c a p i t a l be r e t u r n e d by the F e d e r a l r e s e r v e banks to the member bank s t o c k h o l d e r s * . I f s t r o n g enough t o be a b l e to r e t u r n p a r t of t h e i r p a i d - i n c a p i t a l , s u r e l y they were s t r o n g enough to e x i s t without the n e c e s s i t y of merging some of them w i t h r e l a t i v e l y s t r o n g e r banks. Mr. Warburg makes t h i s recommendation u n e q u i v o c a l l y i n h i s a d d r e s s a t S t . P a u l , Minn., on October 22, 1915, - j u s t one month b e f o r e the Board meeting of November 22, 1915 ( 2 - 3 1 0 ) ; and a l s o i n h i s a d d r e s s a t A t l a n t i c City on June 9, 1916 (2 - 432). In a l e t t e r to Senator G l a s s , however, d a t e d February 29, 1915, he q u a l i f i e d t h i s recommendation, f a v o r i n g a temporary r e t u r n of the p a i d - i n c a p i t a l of some of t h e Federal r e s e r v e b a n k s . This recommendation was based on the f e a r t h a t f a i l u r e t o p a y d i v i d e n d s might h u r t the p r e s t i g e of t h e Federal r e s e r v e b a n k s , and 196 - 23 - X-6715 a c c o r d i n g l y he f a v o r e d paying back a p a r t of the p a i d - i n c a p i t a l , thus r e d u c i n g the n e c e s s i t y f o r e a r n i n g s . I n connection with the above l e t t e r to Senator Glass, i t i s s i g n i f i c a n t to p o i n t out t h a t , up to June 30, 1916, the only hanks which had d e c l a r e d d i v i d e n d s were the Federal Reserve Banks of A t l a n t a , D a l l a s , and Richmond, - f o l l o w e d "by Kansas City i n J u l y - while the r e l a t i v e l y s t r o n g banks, e x c e p t i n g only Chicago, d i d not b e g i n to d e c l a r e dividends u n t i l much l a t e r , almost a t the end of the year 1916. Thus the p r e s t i g e of t h e Federal Reserve System which Mr. Warburg was t r y i n g t o p r o t e c t by r e t u r n i n g p a r t of t h e p a i d - i n c a p i t a l of the F e d e r a l r e s e r v e banks, was b e i n g i n f a c t maintained by some of t h e r e l a t i v e l y weak banks which Mr. Warburg wished to e l i m i n a t e . Another i n t e r e s t i n g f a c t to n o t e i s t h a t t h e Federal Advisory Council, on ITovember 18, 1915, - t h e day a f t e r the d i s c u s s i o n i n t h e Board on the Committee's p r e l i m i n a r y r e p o r t , - voted i n f a v o r of r e t u r n i n g t w o - t h i r d s of the p a i d - i n c a p i t a l of a l l of the Federal r e s e r v e banks to the member bank s t o c k h o l d e r s . 3 D i a r y , p . 110. The Federal Advisory Council c o n s i s t s of bankers r e p r e s e n t i n g the twelve F e d e r a l r e s e r v e d i s t r i c t s , and the above v o t e was an i m p r e s s i v e t r i b u t e t o t h e soundness and s u c c e s s f u l o p e r a t i o n of the twelve F e d e r a l r e s e r v e banks, and u t t e r l y i n c o n s i s t e n t w i t h Mr. Warburg 1 s claim t h a t the number of Federal r e s e r v e banks should be reduced. -24 - X-6715 To cap t h e c l i m a x , the F e d e r a l Advisory Council, on t h e same d a t e , - November 16, 1915, i n f o r m a l l y c o n s i d e r e d the q u e s t i o n of r e ducing the number of F e d e r a l r e s e r v e "banks, and w h i l e many t h o u g h t i t could w i s e l y be done, y e t i t unanimously was of t h e o p i n i o n t h a t i t s h o u l d n o t be u n d e r t a k e n a t t h e p r e s e n t t i m e . 3 D i a r y , p . 114. -XVMr. Warburg goes out of h i s way to drag i n t h e q u e s t i o n of r o t a t i o n of the o f f i c e of Governor. He charges t h e then Governor w i t h s u b s e r v i e n c y t o S e c r e t a r y McAdoo, and s t a t e s t h a t t h e i n d e p e n d ence and p r e s t i g e of t h e Board make i t i m p e r a t i v e t h a t one of t h e o t h e r f o u r a p p o i n t i v e members s h o u l d be the n e x t Governor. 1 - 445. A p p a r e n t l y t h e b a r e s u s p i c i o n t h a t the Governor was i n harmony w i t h the views of t h e P r e s i d e n t of the U n i t e d S t a t e s and the S e c r e t a r y of t h e T r e a s u r y was a s u f f i c i e n t b a s i s f o r the demand t h a t he s h o u l d be d i s p l a c e d and h i s p l a c e f i l l e d by one of t h e " M a j o r i t y . " The f a c t a l s o t h a t any member of t h e Board should be e i t h e r a p r e s e n t or former o f f i c e r of t h e United S t a t e s , seems t o have a l m o s t i n f u r i a t e d Mr. Warburg; and y e t , n o t long b e f o r e , i n o u t l i n i n g t h e p r i n c i p l e s of a m o d i f i e d C e n t r a l Bank of I s s u e , he f a v o r e d a c e n t r a l body a t Washington ( c o r r e s p o n d i n g t o the F e d e r a l Reserve Board) to c o n s i s t , i n p a r t , of t h e S e c r e t a r y of the T r e a s u r y , the Comptroller of t h e Currency, the T r e a s u r e r of t h e United S t a t e s , and ( i t a l i c s - 25 - X-6715 1w 9 o8 mine) s i x members of Congress1 2 - 77. Mr. Warburg o u t l i n e s the e f f o r t s he made t o f o r c e t h e P r e s i d e n t t o p r o v i d e f o r r o t a t i o n i n the o f f i c e of Governor, and e v i d e n t l y b e l i e v e s i t was through h i s i n s i s t e n c y t h a t the t h e n Governor was n o t r e d e s i g n a t e d , a l t h o u g h r e a p p o i n t e d f o r a t e n - y e a r term. The w r i t e r t a k e s a l a n g u i d i n t e r e s t only i n t h i s m a t t e r * b u t would p r e s e n t t h e f o l l o w i n g b r i e f s t a t e m e n t of t h e f a c t s . Mr. Warburg s t a t e s t h a t two a p p o i n t i v e members of the Board had an i n t e r v i e w w i t h t h e P r e s i d e n t and s t r o n g l y u r g e d t h e n e c e s s i t y of r o t a t i o n i n the o f f i c e of Governor. 1 - 445. This meeting took p l a c e d u r i n g t h e week p r i o r t o June 19, 1916. 3 D i a r y , p . 233. Mr. Warburg a l s o s t a t e s t h a t he i n t e r v i e w e d S e c r e t a r y McAdoo and gave him a memorandum on t h e same s u b j e c t on August 3 , 1916, 1 — 445. The w r i t e r w i l l n o t u n d e r t a k e to e x p r e s s any o p i n i o n a s t o t h e e f f e c t on the P r e s i d e n t and S e c r e t a r y McAdoo of Mr. Warburg's a t t e m p t to f o r c e r o t a t i o n i n t h e o f f i c e of Governor, b u t w i l l merely p o i n t o u t one r e a s o n , s u f f i c i e n t a t l e a s t f o r h i m s e l f , why he was n o t r e d e s i g n a t e d a s Governor, v i z . - t h a t on Monday, June 1 9 t h , and a g a i n on June 3 0 t h , he informed S e c r e t a r y McAdoo t h a t w h i l e he would be g l a d t o be r e a p p o i n t e d f o r a new t e n - y e a r term, he p e r s o n a l l y had no d e s i r e t o be r e d e s i g n a t e d a s Governor, and begged him n o t to h e s i t a t e to drop h i s name i n t h a t c o n n e c t i o n , and even s u g g e s t e d a n o t h e r member f o r Governor, 199 - 26 - X-6715 i n response to Mr. McA&oo's q u e s t i o n . 3 Diary, p . 235, 240. On J u l y 21, 1916, the w r i t e r informed one member of the Committee who had seen t h e P r e s i d e n t , of t h i s conclusion, adding t h a t he was now merely a d i s i n t e r e s t e d s p e c t a t o r and would l o y a l l y support whomsoever the P r e s i d e n t might designate* 3 D i a r y , p . 246. Some l i g h t on t h i s m a t t e r may a l s o "be thrown by a q u o t a t i o n from a l e t t e r s e n t to the w r i t e r by P r e s i d e n t Wilson on August 10, 1916; " . . . I can not send you a note a t t h i s p a r t i c u l a r time w i t h o u t e x p r e s s i n g my g r a t i t u d e and a p p r e c i a t i o n f o r the generous and p u b l i c - s p i r i t e d a t t i t u d e you have taken i n the m a t t e r of the Governorship of the F e d e r a l Reserve Board, as r e p o r t e d to me by Mr. McAdoo...." (Signed) Woodrow Wilson. Mr. Warburg makes a n o t h e r i n t e r e s t i n g s t a t e m e n t , - t h a t Mr. Delano was not r e d e s i g n a t e d as Vice Governor b u t "was s a c r i f i c e d i n o r d e r to save appearances f o r t h e Governor." 1 - 453. That the w r i t e r d i d not consider "appearances saved" f o r himself by the f a i l u r e to r e d e s i g n a t e Mr. Delano as Vice Governor would seem to appear from the f a c t t h a t on June 19, 1916 (3 D i a r y , p . 235), on June 30, 1916 (3 Diary, p . 2 4 0 ) , and even as l a t e as August 9, 1916 (3 D i a r y , p . 270) he suggested to S e c r e t a r y McAdoo the a d v i s a b i l i t y of d e s i g n a t i n g Mr. Delano as Governor of the Board! As to why Mr. Warburg was d e s i g n a t e d as Vice Governor i n p l a c e of Mr. : 200 X-6715 mm 2 7 Delano, the w r i t e r has no r e c o l l e c t i o n , tout he i s s a t i s f i e d t h a t the d e s i g n a t i o n of Mr. Warburg as Vice Governor sprang from no d e s i r e t o " s a v e appearances" f o r the w r i t e r . • -XVI- I n summing up t h i s u n f o r t u n a t e c o n t r o v e r s y , t h e w r i t e r would p o i n t out t h a t the t h r e e members r e f e r r e d t o toy Mr. Warburg a s the "Minority" had a l l had much to do with the p r e p a r a t i o n and f i n a l d r a f t of the F e d e r a l Reserve Act, - the w r i t e r having "been charged ' toy S e c r e t a r y McAdoo w i t h the duty of examining c r i t i c a l l y a l l changes i n the "bill as p a s s e d toy the House, suggested toy the Senate Committee. N a t u r a l l y t h e s e t h r e e members of the Board would r e q u i r e cogent reasons f o r such a r a d i c a l change i n the Federal Reserve Act as was demanded toy the R e d i s t r i c t i n g Committee of t h e Board, e s p e c i a l l y a f t e r the e x p e r i e n c e of only one y e a r ' s o p e r a t i o n of the System. These t h r e e members were p e r f e c t l y f a m i l i a r w i t h Mr. Warburg 1 s determined b u t f r u i t l e s s e f f o r t s , while the Act was pending i n Congress, t o l i m i t the number of Federal r e s e r v e banks to f o u r , or to s i x as a maximum. They c o r d i a l l y accepted the w i l l of Congress i n f i x i n g the number a t between e i g h t and twelve. While t h e w r i t e r would have p r e - f e r r e d beginning w i t h a s m a l l e r number than twelve, Federal r e s e r v e banks, he l o y a l l y a c c e p t e d the d e c i s i o n of the Reserve Bank Organization Committee, c o n s i s t i n g of the S e c r e t a r y of the Treasury, the Comptroller of t h e Currency, and the S e c r e t a r y of A g r i c u l t u r e , Mr. Houston, i n f i x i n g the number a t twelve. The t h r e e of us were f i r m i n t h e ; 201 X-6715 28 c o n v i c t i o n , however, t h a t 110 r e d u c t i o n i n the number should be made, - even assuming the Board had the n e c e s s a r y power, - u n l e s s and u n t i l the r e s u l t of experience i n the workings of the System c l e a r l y demo n s t r a t e d t h a t a r e d u c t i o n i n number was a b s o l u t e l y n e c e s s a r y f o r the good of the System and of the c o u n t r y . They f e l t t h a t the r e p o r t of the R e d i s t r i c t i n g Committee r e v e a l e d no such n e c e s s i t y . They f e l t t h a t any a t t e m p t to reduce the number of Federal r e s e r v e "banks would "be r e s i s t e d i n t h e c o u r t s and would cause c o n f u s i o n , u n c e r t a i n t y , and l a c k of confidence i n the F e d e r a l Reserve System, - a r e s u l t s p e c i a l l y to he avoided a t t h a t time when the world war was r a g i n g i n Europe. Their f e e l i n g i n the m a t t e r was a l s o confirmed by the knowledge t h a t t h e members of t h e Federal Advisory Council, - on November 16, t h e day f o l l o w i n g the d i s c u s s i o n i n the Board a l r e a d y r e f e r r e d t o , - a f t e r i n formal d i s c u s s i o n , were unanimously a g a i n s t any a t t e m p t to reduce the number of F e d e r a l r e s e r v e banks a t the p r e s e n t time. F i n a l l y * one member of the Committee and one o t h e r member of the Board, whatever t h e i r former views may have been, reached the conc l u s i o n t h a t a r e d u c t i o n of the number of Federal r e s e r v e banks should n o t be u n d e r t a k e n a t t h a t time. Thus, as once b e f o r e s t a t e d , i f a f i n a l v o t e had been taken a t the meeting of t h e Board on November 22, 1915, wholly a p a r t from the a d v e r s e opinion of the Attorney General, the R e d i s t r i c t i n g Committee's r e p o r t i n f a v o r of r e d u c t i o n i n t h e number of Federal r e s e r v e banks would have been d e f e a t e d by the d e c i s i v e v o t e of f i v e to two, and 202 - 29 - X-6715 Mr. Warburg's " M a j o r i t y " of f o u r wo I d have dwindled i n t o a f e e b l e • M i n o r i t y " of two* -XVIIThe w r i t e r b e l i e v e s t h a t by thus " l i f t i n g the v e i l * a t the p o i n t where Mr. Warburg ceased t o l i f t i t , he has exploded the myth of a combination or c o n s p i r a c y on the p a r t of the P r e s i d e n t and o t h e r o f f i c e r s of the United S t a t e s t o suppress debate i n the Board; and he i s f i r m l y of t h e opinion t h a t the subsequent marvellous work of the twelve Federal r e s e r v e banks i n b e a r i n g on t h e i r s h o u l d e r s , l i k e A t l a s , the c r e d i t burdens of the whole world d a t i n g and s i n c e the war, w i l l have convinced the most s k e p t i c a l t h a t the f a i l u r e of the a t t e m p t t o reduce the numbet of t h e Federal r e s e r v e banks has enured to the b e n e f i t not only of the System b u t , a s w e l l , to the b e n e f i t of t h e e n t i r e people of t h e United States.
@FedFRASER