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gone on record as being in favor of such de­
velopment and has appropriated the taxpay­
ers’ money to help bring about such develop­
ment: Now, therefore, be it
Resolved, That we, the Supervisors of the
County of St. Lawrence, favor the develop­
ment of the power of the St. Lawrence River
and urge our Congressman and Senators to
support any treaty or necessary appropriation
of money and to use their influence to help
bring about this development for the ines­
timable benefits which it will bring to this
north country; and be it further
Resolved, That a copy of this resolution be
sent to Congressman K i l b u r n , our United
States Senators, the clerk of the Board of
Supervisors of the County of Franklin, and
the clerk of the Board of Supervisors of the
County of Jefferson.

Ill His Annual Message to the New York
State Legislature the Distinguished
Governor of That State, the Honorable
Herbert H. Lehman, Comes Out Un­
qualifiedly for the St. Lawrence River




Wednesday, January 22, 1941
Mr. CULKIN. Mr. Speaker, the so­
cially minded and able Governor of New
York, Hon. Herbert H. Lehman, in a spe­
cial message to the legislature of that
State, called fcr the enactment of a broad
program designed to improve the indus­
trial well-being and promote the social
welfare of the people of the State.
Perhaps the most important of his rec­
ommendations was an unqualified and
sweeping request to.the legislature that
the power resources of the St. Lawrence
River be developed in collaboration with
the Federal Government. The Governor
in his message states that for many years
he has been an ardent advocate of this
development, and that he now believes
that this development and utilization is
an urgent national necessity. The Gov­
ernor expresses the hope that favorable
congressional action will be forthcoming
as soon as the final agreement with
Canada is reached, so that the low-cost
power of the St. Lawrence can contribute
at as early a date as possible in further­
ing the social well-being and economic
welfare of the people of the State of New
York. Incidentally, he refers to the
future potentialities in the power that
the State owns at Niagara Falls and
voices the belief that further develop­
ment should be had there in the interest
of the Nation.
I trust my own party, now dominant in
the State legislature, will not muff this
great issue and let the Governor run
away with the ball on it. They should^
back him unqualifiedly in his attempt
to complete this great project. The Re­
publican Party’s history on this has been

unfortunate, and to my own knowledge
we have lost three Governorships largely
on this issue.
I am advised that the utilities are not
opposing this development, but certain
interests in New York City and Buffalo,
in collaboration with the railroads, are
setting afloat a great mass of half-baked
propaganda not founded on fact and de­
structive of the real interests of the
people of the entire State.
Governor Lehman is a man of large
affairs, and his clarion call to duty on
the part of the State rises high above the
selfish demand of localities. In urging
the inception and completion of this
great project, Governor Lehman has
joined a splendid company, living and
dead. Woodrow Wilson, Calvin Coolidge,
Herbert Hoover, and the present occu­
pant of the White House repeatedly rec­
ommended this project as an economic
necessity to the real development of
America and an imperative phase of na­
tional defense.
Pursuant to the permission of the
House, I append an extract from the mes­
sage to the legislature in regard to the
development of the St. Lawrence River:
T H E S T A T E 'S


In the power resources of the St. Lawrence
River the people of the State of New York
possess a heritage of great value. I have
long favored their development under a
State self-supporting project. I have helped
to safeguard and further such a project.
During the term of my predecessor the
long-developing public-power policy of the
State of New York finally was enunciated in
the terms of the Power Authority Act. In
1933, during my first term as Governor, com­
plete recognition was secured for the State
project in an accord between Federal and
State authorities, embodied in resolutions
adopted by the United States House of Repre­
sentatives upon recommendation of the
President and the leaders of both parties. In
1934 the legislature adopted measures to
permit municipalities of the State to dis­
tribute electric current, subject to local ref­
erendum elections. This legislation was en­
acted in response to my recommendation that
it was in part needed to broaden the market
and to increase the benefits accruing from
the State’s public project on the St.
I believe the development and utilization
of St. Lawrence power is an urgent necessity.
Because of this belief I conferred last sum­
mer with the trustees of the power authority
and thereafter presented to the President
proposals looking toward the immediate un­
dertaking of the St. Lawrence development.
I pointed out that, in my opinion, there was
authority for initiating the project under
the Boundary Waters Treaty of 1909 and
recommended that preliminary engineering
work be started at once.
On October 16 the President, by Executive
order, appointed the St. Lawrence Advisory
Committee, directing it to proceed with the
preliminary work and allocated $1,000,000
for the task.
In the selection of this committee the in­
terests of the State of New York were again
recognized by the appointment of a repre­
sentative of the trustees of the power au­
thority, serving with representatives from
the Department of State, the Corps of En­
gineers, United States Army, and the Federal
Power Commission. In Canada a similar
committee has been established, composed
of representatives from corresponding Do| minion and provincial authorities. Thus,
j the four Governments directly concerned
| with the project in the International rapids


section are today working in harmony to
make the development serve public needs on
both sides of the border, through cooperative
efforts of Federal agencies of the United
States, Dominion agencies of Canada, the
Power Authority of the State of New York,
And the Hydro-Electric Power Commission
of the Province of Ontario. I consider New
York’s continued active collaboration in this
work of great importance.
Since the setting up of the United States
Committee, President Roosevelt, on December
4, signified his intention of presenting to the
newly elected Congress the question of im­
mediate development of the St. Lawrence
River. This decision I welcome as a means
of advancing the State’s project in the Inter­
national Rapids section.
I hope that favdtable congressional action
will be forthcoming as soon as final agree­
ment with Canada is reached, so that the
low-cost power of the St. Lawrence can con­
tribute at as early a date as possible in fur­
thering the social well-being and economic
betterment of all the people of the State of
New York.
And this brings me to speak of another
great power resource the State possesses in
the Falls of the Niagara River. There the
potentialities are comparable to those of the
St. Lawrence. I hope to see a public develop­
ment of the latent power resources of Niag­
ara, so that the people of the State, whether
in New York City, Buffalo, Binghamton, Al­
bany, or on the farms, may participate in its
benefits as well as those of the St. Lawrence.
Both of these great water powers belong to
the people of the State and must be pro­
tected, I have on two former occasions rec­
ommended a constitutional amendment de­
signed to write into the State constitution
the safeguard that the water-power resources
owned by the State shall forever remain in­
alienable for the use of the people and not
of private utility companies. I again recom­
mend the adoption of this amendment to
the constitution.

Hon. Robert L. Owen Outlines Monetary
Program To Meet America's Present





Wednesday, January 22, 1941

Mr. VOORHIS of California. Mr.
Speaker, former Senator Robert L.
Owen, of Oklahoma, occupies a unique
position in the field of monetary science
in the United States. For years his has
been a clear, strong voice outlining a
road which America should long since
have followed.
It is with deep sense of gratitude that I
am able to have permission to have
printed in the R ecord herewith a letter
from Senator Owen expressing his gen­
eral approval of my speech of January
13 analyzing the report of the Federal
Reserve Board. But I appreciate still
more the opportunity to include this
letter in the R ecord for the reason that
Senator Owen outlines in the letter his



own constructive program. It is emi­
nently worth reading by every Member of
Congress as well as by the people of the
Nation generally.
The letter follows:
W a s h i n g t o n , D. C., January 18, 1941.
Hon. J e r r y V o o b h i s ,
House of Representatives.
M y D e a b M r . V o o r h i s : Your speech on the
report to Congress of the Federal Reserve au­
thorities I thought an exposition of great
value and fundamentally sound. -A second
reading confirmed my impressions that you
had mastered the fundamentals of this prob­
lem and made yourself competent to advise
the Congress and the Government agencies.
President Roosevelt was elected on a plat­
form which attributed the*depression to the
"indefensible expansion and contraction of
credit for private profit * *
By such
means the panic of 1920-21 took place, the
boom of 1926-29, and the collapse of that
boom, 'and the depression of 1932 resulted,
with 14,000,000 unemployed, and we have not
yet recovered.
President Roosevelt, when nominated and
elected, in his addresses in 1933 clearly set
forth a sound policy which advocated the
restoration of the predepression price level
and the establishment of a dollar whose debtpaying, purchasing power should not change
from one generation to another. The policy
of President Roosevelt has not been carried
out by his appointees on the Federal Reserve
Board. The Federal Reserve banks under the
leadership of the Board between March 1933
and March 1934 contracted credit over $3,000,000,000 and nullified the Thomas amendment,
in which’Congress proposed to expand credit

$ 6 ,000 , 000 ,000 .

The Federal Reserve Board now commends
the repeal of the Thomas amendment by
which the $6,000,000,000 expansion could take
place; and commends also the repeal of the
issuance of silver certificates against silver
seigniorage. The Board has now endeavored
to cooperate with the five presidents of the
-• Federal Reserve banks on the open market
committee and with the Federal Advisory
Council. The open market committee now
consists of eight bankers and three members
not bankers. It consists of five private per­
sons representing private interests and six
members of the Federal Reserve Board.
May I be permitted to suggest to you what I
think is fundamentally necessary?

1. It is necessary to respect the Constitu­
tion of the United States, which vests in Con­
gress the exclusive right to coin (create) and
regulate the value of money (art. I, sec. 8,
par. 6, Constitution).
2. To regulate the value of money it is
essential to regulate the volume of money in
3. To regulate the volume of money in cir­
culation requires a Federal Reserve Board
exclusively representing the public interest,
and exclusively representing the Congress, and
exclusively subject to the direction of the
Congress should, by legislative mandate,
give the power necessary to the Board to ex­
pand and contract the volume of money, both
currency and demand deposits. Demand de­
posits transact over 95 percent of our national
monetary business. They function through
checks which circulate at par, and are con­
vertible into legal tender money on demand.
At present these demand deposits are created
by the banks as a result of public and private
loans. These demand deposits should be cre­
ated by the Federal Reserve banks exclusively
and not by the member banks.
The question arises: How could people who
need money for constructive purposes obtain

it except through loans from the member
panics? The answer is: The banks have over
$7,000,000,000 of capital which could be
loaned. They have available for such pur­
poses the savings accounts and time deposits
amounting to about $30,000,000,000 which
could be loaned for constructive purposes
with entire safety. When, or if, member
banks need more money with which to make
loans, they could get it by borrowing from the
Reserve banks. But they should not be per­
mitted to create money by converting private
property into money through loans, or by
converting public bonds into money by the
purchase of the public bonds from the Gov­
ernment or from States.
The money which is employed by the coun­
try should not be based on debt. The country
should not be penalized in its productive,
-constructive labor by the compulsory require­
ment to pay an interest penalty to private
persons for the manufacture of such money.
Such a tax is a special privilege and deeply
against the public interest in that it de­
stabilizes the debt-paying, purchasing power
of the dollar, and impairs the stability of our
national monetary unit, and our national me­
dium of exchange, and our national measure
' of value. It further imposes a heavy burden
on the taxpayers for the unearned interest on
such bonds.
Congress by legislative mandate should in­
struct the Board to liquidate the stock of the
Federal Reserve banks, repay the member
banks the amount invested, and convert the
12 banks into 1 bank with the 12 branches
and subbranches now or hereafter established.
The member banks, moreover, could act
for depositors who have Idle money on de­
posit and arrange the loan of their money
for a reasonable commission.
The vital effect of this system would be
that the money of the country could have
its volume established and maintained at a
point which would give complete stability to
the purchasing-debt-paying power of the
money in circulation. At present, of the ap­
proximately $32,000,000,000 of demand de­
posits, about $4,000,000,000 are held inactive
as deposits of the United States and various
subdivisions thereof, representing tax money
in the slow process of collection' and dis­
bursement. At least half of the remaining
$28,000,000,000 are inactive, not in circula­
tion, held by corporations, trust companies,
insurance companies, and individuals as idle
money, causing what the officials of the
Treasury and Federal Reserve Board loosely
call an "easy money market," meaning that
the United States can obtain the loan of this
idle money at an extremely low interest rate.
Of course, member banks prefer to lend
money to the Government at a low rate
rather than to lend it to the public even for
constructive purposes at a higher rate. The
banks have a terrifying memory of what
happened to them in the last 10 years, in
which 10,000 banks failed because of the vio­
lent convulsion which took place in the
value of property when the contraction of
credit took place. The average of the value
of stocks listed on the New York Stock Ex­
change fell to one-sixth of the predepression
price, which meant that the dollar was buy­
ing six times as much in this form of prop­
erty as in the predepression days. Millions
of borrowers of the banks were made in­
solvent and 10,000 banks failed in conse­
It has been said with truth that the tragic
depressed condition of the last 10 years has
been due to lack of confidence. But the lack
of confidence is well founded when the United
States is operating on a financial system that
has no stability. Yet complete stability is
easily obtainable now. There Is no longer
any danger of a runaway stock market. There
is no longer any reason to fear a sudden and

J an u a r y 22

violent expansion of credit by the banks; but
the law should be modified so as to prevent
the possibility of such a contingency as an
inflation of credit by the banks. This can
be done by requiring 100-percent reserves
against demand deposits, where United States
bonds and other sound bankable assets, if
necessary, can be classified as equivalent to
the cash required for 100-percent reserves.
The Federal Reserve banks should be
further stabilized by eliminating Federal
Reserve notes, and eliminating any require­
ment for 35-percent gold or lawful money
against deposits. All forms of paper money
should be abolished except a United States
currency issued by the Federal Reserve Board
to take the place of our other outstanding
forms of paper money. This paper money
should replace the gold certificates in the
Federal Reserve banks, which cannot be used
as a domestic medium of exchange. The
gold against which these certificates have
been issued should belong exclusively to the
United States, available to the Federal Re­
serve banks to the extent of international"
requirements, and available for the United
States to employ when normal conditions
are restored internationally following this
The powers of the open market committee
should be exclusively vested in the Federal
Reserve Board.
The members of the Board should be re­
quired by Congress to take a special oath
pledging themselves to carry out faithfully
the instructions of the Congress in its legis­
lative mandate requiring the Board to re­
store the predepression price level and main­
tain it at approximate par, subject to future
orders of the Congress.
The Congress should beware of permitting
the opposition to the public control of the
volume and value of money by Congress
from diverting the attention of Congress
from the main point by piling, up a colossal
record of matter which is not material to the
solution of this question. The questionnaire
framed by the experts of the Treasury, the
Federal Reserve Board, and others would
probably take some thousands of pages if
fully answered in detail. The questionnaire
Itself takes over 80 pages.
Certainly, the agencies now dealing with
this question should be concentrated and
simplified. The Comptroller of the Currency
should be transferred to the Federal Deposit
Insurance Corporation. The F. D. I. C. should
be made a subdivision of the Board subject
to its control. The Secretary of the Treasury
should be required to cooperate in his fiscal
operations with the Board with a view to
maintaining the stability of the debt-paying
purchasing power of money.
The responsibility should be put upon the
Federal Reserve Board and they should be
held responsible, to the Congress, subject to
a vote of no confidence in case they fail to
carry out the reasonable expectation of the
Congress. Let it be remembered that the
Congress in this vital matter represents the
people of the United States. The Congress
can be depended upon to be absolutely Just
and fair in its appraisal of the performance
or nonperformance in an acceptable manner
of the members of the Board.
The control and creation and regulation of
the value of money under the Constitution
of the United States is a solemn, serious, and
imperative duty of the Congress, not to be
transferred to the Federal Reserve Board ex­
cept as an agency, much less to a Board that
has shown Itself to be an agency of privately
controlled banks functioning according to
the policy and folklore of those under whom
we have had the tragedy of the last two
great depressions within two decades.
Yours respectfully,
R obert L. O w en . ~



much of it is being unwisely and ineffi­
ciently spent during the present emer­
I feel that there is not a Member of
this body who does not want our Gov­
ernment to receive a dollar for every
dollar spent. I believe every Member
feels that it is our duty to know. With­
out question, I feel that every Member
will give this resolution full support.

Mr. SPRINGER. Mr. Speaker, I ask
unanimous consent to extend my own re­
marks in the Appendix of the R ecord,
and to include therein an editorial ap­
pearing in the Palladium-Item, of Rich­
mond, Ind.
The SPEAKER. Is there objection?
There was no objection.
[The matter referred to appears in the

Mr. VORYS of Ohio. Mr. Speaker,
H. R. 1776 is the most important bill this
House has ever considered. It involves a
complete change in the way of life of our
Republic, both internally and in our for­
eign relations. Every one of us is in ac­
cord with the purpose of the bill as ex­
pressed in its title, “To promote the de­
fense of the United States.” Many of us
feel that the methods now provided by
the bill defeat its stated purpose. All of
us should reserve final judgment until we
vote on the final form of this bill, but. in
the meantime, we should exchange freely
our present views on this bill and the is­
sues involved. In this spirit I wish to of­
fer the following comments on this bill,
after 3 days’ preliminary analysis, before
the hearings begin:
First. This is the first time “aid to
Britain” has ever been considered by
Congress or by the people as a legal meas­
ure of domestic and foreign policy. We
are not now talking about sympathy for
Britain, friendship for Britain, private
aid to Britain, or permitting Britain to
aid herself under our laws, but military,
governmental, legislative aid to Britain.
Second. “Aid to Britain” as a policy
has never been approved by a vote of the
country or by Congress. Since both can­
didates for President took the same stand,
the people could express no choice in the
election. In every bill that has come be­
fore Congress to date, “aid to Britain” has
been officially disavowed as the purpose.
Third. In the present state of our na­
tional defense we will have nothing to
spare for many months for “aid to Brit­
ain” which cannot be given under exist­
ing laws. The chances are that invasion
of Britain will be postponed while we de­
bate this bill. Most observers agree that
Hitler will try a knockout invasion of
Britain as soon ns we finally decide upon
all-out “aid to Britain,” but before we are
ready to do anything about it. Therefore
deliberate consideration of this bill is in
itself an incidental “aid to Britain” which
all should approve.
Fourth. This bill gives the President
power to give away anything to any other
country, after seizing it in this country,
without limit in law. It is not a blank
check, for there are limits to what you
can do with a blank check. It is more
appropriate to say that this bill makes

the President executor of the will of a
dead republic, for under it we surrender
our democratic way of life now, for fear
of a future threat to our democratic way
of life. The oldest and the last constitu­
tional republic surrenders its freedom in
order to avoid war, with the probable re­
sult that the newest dictatorship will soon
go to war.
Fifth. The lease-lending policy without
the “silly dollar sign” means that we are
adopting the barter system of the Nazis.
If we are to adopt this system, then we
should take over every possession in this
hemisphere of those with whom we bar­
ter. until the end of the war, not as a
mortgage or another “silly dollar sign”
security but just to show that those we
aid trust us as much as we trust them.

Mr. MUNDT. Mr. Speaker, I ask
unanimous consent to extend my remarks
and to include an editorial published in
the best city in America, my home town.
The SPEAKER. Is there objection?
There was no. objection.
[The matter referred to appears in the


The SPEAKER laid before the House
the following communication, which was

T ucson, Akiz., January 6, 1941.
Hon. Sam R ayburn,

Speaker, House of Representatives,
United States, Washington, D. C.
Sir : In accordance with your designation
of me, pursuant to House Resolution 13,
Seventy-seventh Congress, adopted by the
House of Representatives, to administer the
oath of office to Representative-elect Edwin
M. Schaefer, of the Twenty-second District
of Illinois, I have the honor to report that
on the 6th day of January 1941, at the city
of Tucson, State of Arizona, I administered
the oath of office to Mr. S chaefer, form pre­
scribed by section 1757 of the Revised Stat­
utes of the United States, being the form
of oath administered to Members of the
House of Representatives, to which Mr.
Schaefer subscribed.
I have the honor to be
Yours respectfully,
Albert M. S ames,

Judge of the United States
District Court of Arizona.

the U nited States D istrict
Court for the District of Arizona.
U nited States of America,

District of Arizona, ss:
I do solemnly swear that I will support and
defend the Constitution of the United States
against all enemies, foreign and domestic;
that I will bear true faith and allegiance to
the same; that I take this obligation freely,
without any mental reservation or purpose
of evasion; and that I will well and faith­
fully discharge the duties of the office on
which I am about to enter. So help me God.
Edwin M. Schaefer.
Subscribed and sworn before me this 6th
day of January 1941.
,Albert M. Sames,

United States District Judge.

Mr. McCORMACK. Mr. Speaker, I
offer the following resolution, which I
send to the desk.
The Clerk read as follows:
House Resolution 59
Whereas E dwin M. S chaefer, a Representa­
tive from the State of Illinois, from the


Twenty-second District thereof, has been
unable from sickness to appear in person to
bo sworn as a Member of this House, but
has sworn to and subscribed the oath of
office before Judge Albert M. Sames, author­
ized by resolution of this House to admin­
ister the oath, and the said oath of office has
been presented in his behalf to the House,
and there being no contest or question as to
his election: Therefore
Resolved, That the said oath be accepted
and received by the House as the oath of office
of the said Edwin M. S chaefer as a Member
of this House.

Mr. McCORMACK. Mr. Speaker, I
ask unanimous consent that, when the
House adjourns today it adjourn to meet
on Thursday next.
The SPEAKER. Is there objection?
Mr. MARTIN of Massachusetts. Mr.
Speaker, I reserve the right to object. I
shall not object, because I understand
this is an arrangement which is perfectly
satisfactory to the chairman of the Com­
mittee on Foreign Affairs. It is the pur­
pose of our Committee on Committees to
meet tomorrow to fill vacancies on the
Republican side on the Committee on
Foreign Affairs. I understand from the
chairman that if that election does take
place he is willing to have the Members
sit in the hearings on Wednesday and
Mr. McCORMACK. Mr. Speaker, I can
see no objection to that. As a matter of
fact that is the proper procedure to
My friend from Massachusetts has
talked with the chairman of the Com­
mittee on Foreign Affairs. I assure the
gentleman that Twill see that that under­
standing is carried out, as far as I can
do so.
Mr. FISH. And I assume that those
Members will have a right to vote in the
committee if anything is considered?
Mr. McCORMACK. I would like to
have the gentleman from Massachusetts
obtain that promise from the chairman
of the committee.
Mr. MARTIN of Massachusetts. The
request is for an adjournment until
Thursday. I said that our Committee on
Committees might have a meeting tomor­
row morning to fill the three vacancies
which exist on the Committee on Foreign
Affairs. I understand it is perfectly all
right for those three people, who will not
formally become members of the commit­
tee until the House elects them on Thurs­
day, to sit in at the hearings in the mean­
Mr. BLOOM. That is perfectly satis­
The SPEAKER. Is there objection to
the request of the gentleman from Massa­
chusetts [Mr. M cC ormack]?
There was no objection.

The SPEAKER. Under previous or­
der of the House, the gentleman from
California [Mr. V oorhis] is recognized
for 25 minutes.
Mr. VOORHIS of California. Mr.
Speaker, it is my purpose this afternoon
to discuss the recent report of the Federal
Reserve Board to the Congress; and since



J a n u a r y 13

I have rather carefully prepared my the value of real wealth relative to
conditions which required special treat­
statement on the subject, I would like money. And yet it is periods of declin­
ment. it is to be hoped that these same
to request that I be permitted to com­
ing dollar value and increasing value for
plete it before I am interrupted, at real wealth that have almost always been mistakes are not to be made again and
which time I will be very glad to answeir the periods of prosperity. I believe the that if specific prices rise too fast or too
any questions that anyone wants to direct reason for this is that we have probably far specific and not general measures will
be taken to meet the situation.
to me.
never had sufficient really honest money
The report has opened up the whole to carry on the business of the Nation F R A C T IO N A L R E SER V ET RS Y SBTLEEM IT S E L F C A U S E O F
question of the monetary and credit sys­
properly. The fact of the matter is that
The Board quite properly points to the
tem of the United States and the matter there are still in this country at least
of mobilizing the monetary resources of 8,000,000 people out of work, that the excess reserves existing in the commer­
the Nation for the national-defense ef­ general price level $pr basic agricultural cial banks as the main source of its con­
fort as well as for that critical future commodities is hardly 60 percent of the cern over the possibility of an inflation­
period when expenditures for armament predepression price level, and that the ary condition arising at some future time.
will inevitably have to be reduced and general all-commodities price index But instead of advancing a clear-cut and
when the future of democratic govern­ stands at approximately 79.6 percent of ultimately effective program for dealing
with this problem of excess reserves, with
ment itself will depend upon whether or that predepression price level.
its accompanying possibility of a tremen­
not the Congress has a workable and rea­
O U R F IR S T J O B ---- F U L L P R O D U C T IO N
dous multiple expansion of bank credit,
sonable answer to the problems of debt
The first main point that I want to the group making this report proposes
and the supplying of an adequate flow
of active buying power for the Nation. make about the report of the Board, only halfway measures in its own par­
therefore, is to say with all the emphasis ticular field of bank-credit control and
At the outset it should be noted that this
report comes to the Congress, not from at my command that the primary effort lays«great emphasis on the curtailment
a governmental or public body but from of every single person charged with re­ of the monetary powers of the President
a group of essentially private bankers. sponsibility today in the United States and the Treasury, in whose case, what­
The advisory council and the presi­ should be to bring about as speedily as ever may be said of the inadvisability of
dents of the Federal Reserve banks can possible full production of wealth, full scattering monetary powers all over the
governmental structure of the country,
employment of our people, and the full­
certainly not be held to be in any real
we are at least dealing with govern­
sense public officers at all; and so far as est possible use of all the natural, indus­
the Board of Governors is concerned, trial, and human resources of the United mental officials responsible to the people
while it is appointed by the President, its States. When such a condition has been of the country. It would have come with
job consists primarily of the administra­ achieved it will be time to talk of meas­ far better grace had the Board asked for
tion of affairs of the 12 central Federal ures to check possible inflation, and I sufficient power in its own proper field,
Reserve banks, the entire capital stock should like to point out that in the namely, that of the control of reserves
of which is owned by the private mem­ Board’s recommendations regarding tax­ and consequently of the multiple expan-,
ber banks of the System. In short, when ation, contained in the fifth point of its slon of bank credit instead of asking that
the powers of other agencies of our Gov­
this report asks Congress to curtail the report, the Board itself states that—
ernment be extinguished or curtailed.
Whenever the country approaches a condi­
monetary powers of the President and
tion of full utilization of its economic ca­
This brings me to another of the cen­
the Treasury and to increase the mone­
tary powers of the group making the re­ pacity with the appropriate consideration of tral points I wish to make, namely, that
both employment and
port, what is really being asked is an Should be balanced. production the Budget we should at this time consider the cen­
tral question as to whether this Nation
increase in the power of the private bank­
ing system itself over the monetary and
With this statement, as, indeed, with or any other nation can ever have a
credit resources of the United States.
all the recommendations of the Board sound and dependable monetary and
W E R E 1 2 C E N T R A L B A N K S P U B L IC B A N K S ,
regarding taxation, I am in full accord, credit structure so long as a system of
but it only goes to reemphasize the im­ fractional reserves is in effect in its bank­
Were the 12 central Federal Reserve portance of our pursuing a course in ing system. For such a system gives to
banks national institutions, as they could which nothing whatsoever will be done the banking system the power to create
be made by the purchase of their capital to prevent the speediest possible realiza­ money for the purpose of making loans,
stock by the Congress, the situation would tion of the condition of full utilization of thus circumventing an explicit provision
be an entirely different one, and a report our economic capacity, to which the of the American Constitution, which
from the Board of Governors could then Board itself makes reference. For the vests in Congress the sole power to “coinbe viewed in an entirely different light objective of a balanced budget, to which money and regulate the value thereof.”
from the one in which it must under every conscientious person must look for­ The Board proposes that the Federal
present circumstances be viewed. Even ward and for'which every conscientious Open Market Committee be empowered
such Members of. Congress as are strongly person must work, is entirely dependent to increase reserve requirements to twice
inclined to agree with the Board’s con­ upon an increase in tax revenues to be the present statutory requirements and
tention that there are too many mone­ achieved not by increasingly heavy gov­ that this power be extended so as to cover
tary powers in the hands of too many ernmental levies against an inadequate all banks in the country, and not merely
Government agencies at present will find national income, but by a vastly increased member banks of the Federal Reserve
it difficult, if not impossible, to feel that national income, from which even on System. The Open Market Committee
present tax rates a very large amount of consists largely of a group of private
the Board of Governors and its openbankers who are the presidents of cer­
market committee are the proper agen­ revenue would be derived.
tain Federal Reserve banks. What is
cies from a truly national viewpoint in
L E T U S N O T F O R G E T M IS T A K E S O F 1 9 3 7
therefore proposed here is a thing which
which to lodge increased powers.
Surely the gentlemen making this re­ seems to me strikingly like the power ex­
port have not forgotten what happened ercised over the credit resources of the
to us in the year 1937 when the country country by the Bank of the United States
We should have learned by this time was on the point of achieving a real re­ against which President Andrew Jackson
to expect the Board and the banking covery, but when the precipitous inaugu­ conducted his historical battle.
group making this report to be pro­ ration of a deflationary program by the can be no doubt of the disturbing There
foundly concerned about any possible Board and the Congress simultaneously which the power to change reserve re­
tendency in the economic conditions of brought about the sharpest drop in pro­ quirements within wide limits will have
the country to reduce the purchasing duction and in employment in the whole
power of interest, or, in other words, to history of this country. Nor is the ex­ upon most of the small banks of In­
country, particularly in rural areas.
increase the value of real wealth relative cuse frequently advanced that a few mo­ deed, it Is precisely those banks, most of
to money; and we should have learned nopoly administered prices had risen too whom are not now parts of
to correspondingly expect very little con­ fast by any strain of imagination a valid Reserve System, which would the Federal
suffer most
cern on the part of this group over an one for having taken measures which
to deflate most
increase in the purchasing power of in­ penalized the whole economy in place of severely as a be forced a bald order to
result of
terest, or, in other words, a deflation in dealing specifically with those monopoly sharply
sharply increase their cash reserves.



The most important thing to any con­
scientious banker is to know precisely
where he stands, and it is my considered
• opinion that even from the standpoint of
the majority of the banks in the country,
let alone for the moment the interest of
industry, agriculture, and the people gen­
erally, it would be far preferable to in­
troduce in a fair and equitable manner
a 100-percent reserve system for demand
deposits at this time .and to put our en­
tire bank system on a 100-percent safe,
100-percent dependable, and 100-percent
constitutional basis. I shall return to
this consideration in a moment.

But in order to understand thoroughly
its importance it is necessary to consider
one or two other proposals of the Board
and the bankers who join with the Board
In the recommendations. The report
suggests that the power of the President
to issue $3,000,000,000 of Government
money, which was granted to him in the
Thomas amendment, should be taken
away. It also proposes that the power
of the Treasury to issue silver certificates
against some billion and a half dollars of
silver seigniorage should be revoked, and
in the third place it proposes that if
bonds are to be sold by the Treasury that
they be sold to private individuals and
nonfinancial corporations rather than to
banks, for the reason that if they are
sold the banks will buy them with
newly created deposits on their books,
thus increasing by the amount of the face
of the bond issue the amount of credit
In existence in the country. One of the
most important questions which America
must face as she confronts this vast pro­
gram of defense expenditures is the ex­
tent to which these expenditures are
going to add to an interest-bearing debt
and lead eventually to a possible insup­
portable debt structure in this country.
And it is important for us to understand
thoroughly the fact that whether we
finance the defense program by interestbearing bonds or by a noninterest-bear­
ing use of Government credit, future tax
revenues must be expected to retire either
of these at some future time. It is there­
fore primarily and purely a question as
to whether we desire to saddle our people
with the necessity of paying interest upon
and eventually retiring out of future tax
revenues a huge interest-bearing debt or
whether we wifi be sensible and patriotic
enough to use the sovereign power of the
Nation to create its own credit directly in
the form of non-interest-bearing notes or
other credit instruments and provide an
appropriate tax mechanism to satisfac­
torily retire these credit issues when and
if necessary to prevent inflation from re­
sulting. I might remark aside that this
very question is being discussed at this
very time in the British Parliament. And
Since so much has been said regarding
the disastrous German inflation of the
post-war period, I think it is important
to point out that the cause of this infla­
tion was not the fact that the Govern­
ment issued money but rather the fact
that the German nation had, during the
World War period, accumulated such a
staggering burden of interest-bearing
debt that the easy way out of the situaNo. e— a '

tion was an inflation of the currency up
to the point where that debt would be
wiped out. It is,. I think, of the most'
tremendous importance to the United
States that we be clear in our thinking
on this matter and govern our action
The point of my discussion immedi­
ately foregoing is this: The reason the
Board wants the President’s power to
issue the $3,000,000,000 and the Treas­
ury’s power to issue certificates against
silver seigniorage extinguished is because
it knows, as does everybody else, that the
exercise of these powers would not only,
under present circumstances, put into
circulation the amount of money that
might be issued under either of these
powers but would also add still further
to reserves in the banks and make pos­
sible, through the fractional reserve sys­
tem, a multiple expansion of bank credit
on the basis of those reserves.
Hence, in the last analysis, what the
Board is trying to accomplish by asking
for the taking away of these powers is
for the protection of the power of the
private banks to expand on the basis of
fractional reserves, and thus to create the
medium of exchange which American
business uses. It is probably true that
the very existence of this power in the
private banks, coupled with the large
volume of issues of tax-exempt securities
by the Treasury, has been one of the
primary reasons why the banks of the
country have not made more commercial
loans or active investments in recent
years. They have had too considerable a
business creating money for the Govern­
ment on the basis of gilt-edged securi­
ties to care to engage in venture business.
I do not believe we can blame the banks.
An interpretation, therefore, of the
Board’s recommendation would be this:
That so long as the fractional reserve
system exists, the financial powers of the
country will possess an argument which
they will present against every proposal
that the Government in the name of the
people exercise its fundamental right of
sovereignty through an issue of money
or through use of its own basic credit!
That argument will be that if any Gov­
ernment agency does this, it will increase
excess reserves.

As a further means of prbtecting the
existing unsatisfactory system, the Board
proposes a sterilization of gold which may
be acquired in the future. In simple
words, what this means is that the people
of America are to purchase gold from
abroad by issuing interest-bearing bonds
with which to buy it and are then to bury
the gold and make no further use of it
in any way whatsoever. Such a program
not only means an increase in the in­
terest-bearing public debt but is about
as economically indefensible a procedure
from every reasonable standpoint as I
can conceive. I should be the last per­
son to advocate a return to the gold
standard; but if gold is to be purchased
at all, certainly it is that the purchase
should be accomplished by means of noninterest-bearing national money or credit
secured by the gold itself. We have gone
quite far enough, in my opinion, with this
method of basing the monetary system of


America on an interest-bearing public
The gold certificates so far issued have
in effect been similar to non-interestbearing bonds, and while they have had
the bad effect of preventing governmental
use of the gold, they have at least had the
virtue of not adding to the public debt.
The Board’s objection to them, of course,1
and its suggestion that gold be sterilized
instead arises from the fact once again
that the gold certificates have added to
bank reserves and contributed therefore,
to the possibility of future bank credit
inflation. So far as the President’s power
to further devalue the dollar in terms of
gold is concerned, it may well be that in!
the present state of foreign trade it is
far less important than it was earlier
when there existed every possibility of
foreign nations devaluing their own cur­
rency, and thus in effect raising the cost
of American products in terms of their
currency. Nevertheless, it seems to me
that the Board’s proposal really consti­
tutes a suggestion that the relationship
of our dollar to gold be frozen at $35 per
ounce and it is certainly conceivable that
at some future time we might under these
circumstances see a revival of the old
practice of speculation by the interna­
tional banking fraternity in the curren­
cies of various countries without any
power in the hands of any governmental
agent in America to forestall this.
There is much to be said for the
proposal that our dollar be completely
divorced from gold, so that international
shipments of the yellow metal would
have no effect on the dollar’s value, but
if a fixed relationship is to be maintained
it seems to me extremely unwise to make
it an absolute rigid one, and while I
frankly believe that the power in this
respect should be lodged in an agency of
the Congress rather than in the Presi­
dent, I, nevertheless, believe that the
power to change the relationship of our
dollar to gold should be present some­
where in some governmental body so long
as a fixed relationship is maintained. Of
course, we know that the main purpose
of gold purchases today is in order to give
to the British Empire additional buying
power in the United States. Assuming
that this is a good reason, it still seems to
me true that either we should make some
national monetary use of the gold pur­
chased instead of bonds or else we should
cut our dollar completely loose from gold
and purchase it at whatever its current
market price might be. This whole gold
question is one of the most difficult ones
of all and I certainly do not want to
represent myself as prepared to give a
final answer to it.
As a means of preventing further ex­
pansion of our money supply, the Board
has suggested that Treasury bonds bo
sold only to private individuals or cor­
porations but not to banks. The reason,
of course, is that banks make purchases
of such bonds with new deposits created
for that purpose, whereas private indi-1
viduals and nonfinancial corporations dol!
not enjoy this essentially governmental
economic privilege. I should like to point
out, however, that just as long as the
fractional reserve system is in effect, par­
ticularly as long as it is possible for



banks to utilize Government bonds as
collateral for Federal Reserve note issues,
it will be altogether possible for private
individuals to purchase the bonds from
the Treasury and then to present them at
banks as security for loans, whereupon
the banks will be in a position to create
deposits in an amount equal to the loans
to be made, so that we come back once
again to the fact that the real key to this
whole situation is the fractional reserve
system itself and that until that is funda­
mentally corrected we can hardly hope
for a really dependable and controllable
monetary and credit system.




Since I have spoken so much of the 100percent system, I should like to point out
a few facts regarding it. To require its
establishment by the banks of the coun­
try at the present time would, of course,
make it necessary and certainly not more
than fair to see to it that the banks were
able to establish dollar-for-dollar re­
serves for demand deposits without de­
flationary or harmful consequences.
That this is altogether possible from the
standpoint of our banking system as a
whole will be clear from the following
figures—the total of demand deposits in
all banks, using December figures for
Federal Reserve member banks and June
figures for all other banks amounts to
$31,960,000,000. Against these deposits,
however, the banks have the following
cash resources and Government bonds:
Cash reserves with Federal
Reserves.._____ ________ $13,751,000,000
Cash in vault____________
1,105, 000,000
Direct Government obliga­
tions---------------------------- 15, 691, 000, 000
Fully guaranteed obliga­
3, 975, 000, 000
tions---------------------------Total............ ...............

34, 522,000,000

Thus it will be plain that, taking the
banking system as a whole and leaving
out of account completely cash balances
held by one bank with another bank, the
available coverage for demand deposits
exceeds the sum total of the demand de­
posits by approximately two and one-half
billion dollars. This, of course, does not
mean that all the individual banks in
the country have sufficient cash plus
Government bonds to cover their demand
deposits. In such cases, if it was desired
by the banks, loans at no interest of
sufficient cash to make possible 100-per­
cent coverage of demand deposits could
be made to individual banks by the
Federal Reserve, and in spite of the fact
that this would be in effect giving the
banks that amount of cash, nevertheless
it seems to me that this would not be too
heavy a price to pay to get our monetary
system onto a sound and workable basis.
. I have, of course, assumed that banks
will be permitted to count direct and fully
guaranteed obligations of the United
States as a portion of the cash reserves.
I should like to point out that this pro­
cedure would logically imply that when
such bonds reached maturity they would
be retired by the simple process of re­
placing them with new cash created for
that purpose. Thus that portion of the
public debt now held by banks would be

easily extinguished as an accompanying
advantage to the establishment of a 100percent reserve.
The question will inevitably be asked
where the banks will secure money for
the purpose of making loans with a 100percent reserve system in effect. The
answer to this is severalfold. In the)
first place, they would have their own'
money—that is, their capital and surplus.
In the second place, they would have
money deposited with them under cir­
cumstances where the depositor was de­
liberately and intentionally placing his
money in the bank for investment pur­
poses. This is what really happens in the
case of savings and time deposits. In
contradistinction to demand deposits,
where the depositor—at present errone­
ously—thinks his money will be kept for
him by the bank until he asks for it. In
.the third place, the 100-percent reserve
system need not mean the end of the re­
discount privilege which banks now ex­
ercise in connection with the Federal
Reserve banks. Such a procedure is, I
agree, a compromise with sound mone­
tary principles, but would probably not
be harmful as a means of transition un­
til a system of interbank loans is per­
fected to take care of any need for credit
in particular banks. In other words, it
would be quite as possible then as now for
expansion to take place on the basis of
legitimate commercial demand, although
I am frank to say that I believe the ideal
monetary system would be one in which
no money whatsoever was ever created for
the purpose of making a loan but where
all loans were made by preexisting


This brings me back to where I started
from, namely, to the point that the 12
central Federal Reserve banks should be
made the central banks of the American
Nation instead of private banks as they
now are. For if this change were ef­
fected, and if then the rediscounting
privilege were still continued in effect, the
advantage from an expansion of the
monetary supply of the country on the
basis of an increase in its business ac­
tivity and production would be derived
not by the private banking system as now
but rather by the Nation as a whole.
That this would be of tremendous conse­
quence from the standpoint of a bal­
ancing of a budget without ruinously
heavy taxation is, I think, very clear. Of
course, what ought to happen in the
case of expanding demand for money is
that the additional money needed should
be created by the duly authorized agent
of Congress.










The Board is, of course, entirely right
that if further borrowing is to be resorted
to by the Treasury it should be accom­
plished on the basis of taxable rather
than tax-exempt securities, and I think
the Board is also right in its contention
that if Congress is to expect an orderly
control of our money and credit system
it has got to give some agency the power
to accomplish this, and it must not at the
same time lodge powers in other agencies
which can nullify the action of the body

J a n u a r y 13

supposed to be responsible for the main
results. If we are to take seriously this
justifiable contention on the part of the
Board, then certainly the time has come
for us to consider this whole ma’tter in
fundamental fashion, to set up an agen­
cy—one agency directly responsible to
the Congress of the United States—
which will be charged with the respon­
sibility of giving to the United States of
America, both now and in the future, a
dollar of stable and dependable purchas­
ing and debt-paying power. Such an
agency would have to exercise the sole
and exclusive right of the original cre­
ation of money or any substitute there­
for in the United States, and it would
certainly have to have the cooperation of
the Congress in devising such tax laws as
could operate effectively to check real
inflationary tendencies when they appear.
This could probably be best accomplished
by means of some rather general tax
whose rate could be varied from time to
time, depending upon whether or not it
was desirable to withdraw from circula­
tion a certain amount of money or to
expand the circulating medium.

In many respects the Board of Gov­
ernors, the presidents of the banks, and
the Advisory Council have performed a
real service, for they have brought to the
attention of the Congress the central and
fundamental nature of one of the greatest
problems connected with our defense pro­
gram and with the future of our Nation’s
economic order. But I profoundly wish
that the Board had strengthened its own
position by suggesting, first, that it be
made a bona fide public body free to act
solely in the public interest through the
purchase of the capital stock of the 12
central Reserve banks by the Congress.
And I also wish that they had asked in
more fundamental fashion for a correc­
tion of what seems to me the central
difficulty of our present system—namely,
the fractional-reserve system itself. I
dare hope that the time may come in the
United States when by means of vesting
in an agency of Congress the sole power
to originally create money and credit in
America and by providing specifically
that such power will be used for the sole
purpose of maintaining a stable value in
the dollar and facilitating a continuous
expansion of our commerce and indus­
try; I dare hope that when we have done
these things we can then proceed to bring
to an end the encroachment upon the
legitimate field of private banking—
namely, the field of making loans, by in­
numerable Government agencies. When
government creates money but never
loans it, and when private banks loan
money but never create it, we shall have
approached as nearly to an ideal mone­
tary system as in my judgment it is
possible for us to do. The first step
toward bringing about such a system is,
as I have already said several times in
this speech, the purchase by Congress of
the 12 central Federal Reserve banks.
[Here the gavel fell.]
Mr. MURDOCK. Mr. Speaker, I ask
unanimous consent that the gentleman’s
time may be extended 5 minutes.

Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102