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To be released for the morning papers of Sunday, April S, 1917. A Synopsis of Address by HOF. PAUL U . WARBURG before The Commercial Club, Chicago, April 7, 1917. Business men must feel toward government boards and commissions as lawyers do toward the Supreme Court, Paul M. Warburg, vice-governor of the Federal Reserve Board, told the Commercial Club of Chicago last evening. Boards and commissions for the regulation of business- are necessary to thorough organi zation and steady leadership which cannot be furnished by changing party government but only by fairly permanent, non-partisan and expert bodies. Mr. Warburg's subject was "Government and Business" and he covered the field generally by showing industrial, finan cial, and governmental tendencies and particularly by illustra tions drawn from his experience as a member of the Federal Re serve Board. He showed the development and increase of govern ment's interest in business and indicated the belief that busi ness men had not evidenced keen appreciation of the underlying reasons. He said the concern of government for business would grow greater and that in Europe at the end of the war "the most efficient government promotion of industries in many lines will be held to exist in actual government ownership and operation." "More than ever before," he continued, "will states become solid industrial and financial unions effectively organized for world competition, driven by the necessity of perfecting a X-6 9 B-2 . system of the greatest efficiency, economy, and thrift in order to meet the incredible burdens created by the war." Of the expert commissions who are to represent governs ment in the regulation of business, Mr, Warburg said: "Our ability to handle effectually the greet economic problems of the future will depend largely upon developing boards and commissions of sufficient expert knowledge and in dependence of character. This will be possible only if both government and the people fully appreciate the importance of such bodies, so that the country may find its ablest sons willing to render public service worthy of the public sacrifice it entails. "Business men must feel toward these boards as law yers do toward the Supreme Court. Just as any lawyer right be expected to give up a highly remunerative practice in order to accept a call to the Supreme Bench, so the government must feel that it is entitled to ask the best business minds to serve on a supreme bench, if you please, of transportation, banking, or trade. If in England, France, and Germany the flower of the nation always stands ready to serve its government, why should our country find its citizens less ready to follow its call? Men are willing to serve their country if they feel that the sacrifice involved is commensurate with the result to be achieved and if they can count upon the confidence, the sympathy, and support of the people. How much have business, railroads, ani banking done in this respect to enhance the attractiveness of these government positions? Have they trie: to do everything in their power to help in the public work and to promote a x_69- E~3 syir.pathetic understanding? Or have many done the best they could to belittle it; to lament unnecessary government interference and to discourage those charged with the duty d f carrying into effect the people's will?" Mr, Warburg, in answering this question, said he had no personal reason for complaint, but that everything should be done to secure for these commissions the mpst capable men. "The higher the estimation the country places on the work of thdse boards, the more the country realizes the importance of having the ablest men serve it, the greater will be the chance of securing and retaining for these boards the services of leaders in their respective callings. Men who join such com missions or boards do not want empty compliments or praise. There is but one possible compensation to which they aspire, and that is success in their efforts. If the public is interes ted in their efforts, if it trusts them and wishes them to pre vail, their battle is half won. Intelligent understanding and a sympathetic and cooperative attitude is all that they require.1 In outlining the necessity for commissions to regu late business, Mr. Warburg told how the industrial development in Europe had permitted the sustaining of a larger population than when the chief interest was agriculture. Larger popula tion made possible larger tar returns and greater armies. This condition made the food question important and ocean control took its place as 'the great problem. Success in war depends on financial strength and the ability to mobilize industries. X-69 B-4 This explains why European countries, in questions of commerce and production, ha ve long ceased to be sirrply regulators and have become active promoters of business. Transportation is an essential aid to production and so railroads have been sub jected to variations of government influence. After summing up the conditions in this respect and the intensifying influence of the wa r, Mr. Warburg sa id the great debts of the warring nations would compel a continua tion of their .regulation of business. * "I have outlined these conditions," said Mr. Wa rburg "in order to a sk the q uestion: 'In the face of the ultra- orga. nization to be expected of other countries, can we afford to believe that when peace is restored we can meet this compe tition, or hold our own, unless we likewise systematize or organize our individual efforts?' Furthermore, if in Europe it is necessary to h a v e governments take an.active part in organizing industries and banking, may we assume that it can be done without government regulation in a country which by law and sentiment much more than Europe is opposed to extensive combinations in industries and banking?" Mr, Warburg said that there was general agreement that the operation of industries by party government in the United States should be avoided. "Where regulation iS required." he said, "and where regulation borders on the field of opera tion, it is best exercised through non-partisan government bodies. The task of government regulation is as complex as it is ungrateful. It is largely a judicial function. Those charged with it must hear the producer and the consumer, the shipper and the carrier, the borrower and the lender, and find a course that is fair to all, at the same time taking into con sideration the larger question of the interests of the entire country". "Efficient government regulation must conscientiously weigh all these aspects with fairness toward all, with malice toward none. It cannot please all sides; it probably will in variably displease some party involved in the question, or even all. But the test of its work does not lie in praise or blame. The test is, 'Has its work been fair, and, first of all, has it been constructive?' "When by reduction of rates and improvement of ser vice, excessive dividends .on watered stock are cut, no harm is done, provided the country at large profits from such action If, however, by going to an extreme in this direction, the corporation's credit is impaired and its ability to grow and expand thereby destroyed, regulation proves a failure. A carrier, by exacting extortionate rates, may hurt its own interests because it is bound to weaken or even destroy the shipper. Conversely, the shipper, by securing excessively low rates, may destroy the railrbads' ability to serve him well, or to serve him at all. But these two conflicting interests, themselves often engaged in a life and death struggl with their own competitors, cannot take any but a strictly selfish view and there must be a power to intervene between them, protecting them from each other, and safeguarding the public interests. Without governmental bodies of this nature, which take a .judicial and at the same time c o n s t r u c t i v e point of view, the only remaining solution would be government owner ship and operation. "All this is so obvious i.hat 1 feel like apologizing for taking your time in stating it; but if it is obvious that these bodies perform functions of the very highest importance in regulating transportation and finance, in developing equi table tariffs, and in seeking to develop ways and means by which our industries may organize for joint and effective com petition in foreign fields, why, then, if this is so obvious, does business look upon the work of these bodies, generally with apathy, and frequently with i11-disguised animosity?" Mr. Warburg said that he believed the reason for this attitude was that we are a highly individualistic people and cherished personal liberty and naturally resent any kind of regulation as bothersome and unnecessary interference; moreover, American business men are self-reliant and think that any government requirement or regulation "is bound to be theoretical rather than practical; extreme and destructive rather than helpful." In explanation of this Mr,, Warburg said: "True democracy cannot resent self-imposed regulation as an infringement on personal liberty; it would be that only if it were imposed by others. We willingly accept police re gulations as measures adopted for cur own personal safety. Why, then, should we revolt against regulation that deals with the much larger.question of national protection? "Putting the question in this way is to answer it. x - s 9 ~-b 'B ecause than that in our da i l y life, w e value our p e r s o n a l 7 ;.£>45 interest higher of the c o u n t r y . ’ "These last months have brought us face to face with problems of extreme gravity. Their redeeming feature has been that they have awakened in us the willingness to consider our country firsts and to place our personal comfort and interest where they belong - in the second row; But our lesson would be only half learned if we did hot begin to apply it in'peace as well as in times of stress or war. "The scope of government regulation in business mat ters all over the world will not decrease but rather increase in the next twenty-five years. succeed without it. Modern states can no longer For us it is no longer the question of whether we shall or shall not have government regulation, or promotion, in certain branches of our business life. lem is to find the most efficacious form. The prob Whether democracy will prove itself capable of dealing effectively, fairly, and promptly with the intricate economic problems of the modern state will depend largely upon our ability to develop to their proper degree permanent and capable expert boaids and commissions, assuring that measure of stability and reasonable promptness in action without which healthy progress cannot be made". As an illustration of some of his points, Mr. texo'ur said that for nearly three years the Federal Reserve Bou^d had been striving towards the perfection of the greater fin ancial mobilization which would be made permissible by amend rrent of the Reserve Act. "How many business men," he asked, "have followed the work of the Board; how many have raised a hand in its support? How many realize that what really caused the fatal delay in acting upon this legislation was, a s we have rsasons to believe* a side-issue bearing no relation to the proposed amendments? It was the question of whether there should be added to the amendments the right to make certain exchange charges, abolished by the Federal Reserve Act, but i which a large number of small country banks want to see res tored. Whether or not these charges should be permitted or refused is a matter for Congress to decide, but it doss not seem reasonable that vital legislation should be withheld or delayed at this time on account of an issue which ought to be settled independently upon its own merits. "I have mentioned this incident because I have been wondering at the .apathy of business men in this connection. It has also been a source of surprise to me that the business man has not yet fully realized the fact that the entrance of the State banks and trust companies into the Federal Reserve System is his concern." Mr. Warburg pointed out that the burden of giving financial protection to the country is now borne by the 7,500 National banks. In case of real strain, he said, the savings banks, trust companies, and State banks will have to depend upon the Federal Reserve System. "Early training in banking in .Europe," said Mr. Warburg, "has inculcated in me an aversion to banking by re gulation when, by intelligent voluntary action of the banks, X -69-B the same result can he achieved. 9 But in Washington I am con stantly met with the view that without compulsion it is im possible in the United States to make any headway. unwilling to surrender to that point'of view. I have been I liked to think of the Federal Reserve System as of a club which the strongest and best banks consider it an'honor to join, and not as of a I 'club' to swing ever the heads of the banks in order to coerce them into sound banking cooperation. The present condition of having 7,500 banks carry the burden for 37,000 is unfair both to the member banks and the best interests of the country. The strong non-member banks who, knowing the facts, do not re move this inequality will, in time, force the government to do its duty in adjusting the matter. But if Congress finally should be forced to swing ’the big stick’ they will be the ones to complain most loudly about the ’nuisance and unfairness’ of governmental compulsory regulation." In conclusion Mr. Warburg said: "The broader concep tion of genuine citizenship will perceive in government regu lation not unwelcome and arbitrary restraint to be resented by liberty-loving men, but self-imposed rules established for mutual advantage and protection. "Aristotle, in defining the essential characteristics of liberty, said, 'It is to govern and in turn to be governed,' and this thought has lost nothing of its force even though 2,000 years have passed since it was expressed. "Liberty without government is anarchy. "Government without cooperation of the governed is dutocracy. ,2246 X—6 9 - B 10 "To govern and in turn to be governed is the only form of true liberty. "In this conception there is nobody governing and nobody governed. We all govern and serve alike and together. We all serve one master; the only master that no libertyloving man need be ashamed to serve - our country."
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