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Hon. Jerry Voorhis, House of Representatives. My dear Mr. Voorhis: Your speech on the report to Congress o f the Federal Reserve au th orities I thought an exposition o f great value and fundamentally sound. A second reading confirmed my impressions that you had mastered the fundamentals o f th is problem and made yo u rse lf competent to advise tne Congress and the Govern ment agencies. President Roosevelt was elected on a platform which a ttribu ted the depres sion to the "in d efen sib le expansion and contraction o f c re d it fo r private p r o fit . . . " . By such means the panic o f 1920-21 took place, the boom o f 192629, and the collapse o f that boom and the depression o f 1932 resulted with 14,000,000 unemployed, and we have not ye t recovered. President Roosevelt, when nominated and elec te d , in his addresses in 1933 c le a r ly set fo rth a sound policy which advocated the restoration o f the pre depression price le v e l and the establishment o f a d o lla r wnose debt-paying, purehas ing power should not engage from one generation to another. The p o lic y o f President Roosevelt has not been carried cut by his appointees on the Federal Reserve Board. The Federal Reserve banks under the leadersnip o f the Board between March, 1933, and March, 1934, contracted c r e d it over £ 3 -b iliio n and n u llifie d t he Thomas Amendment, in which Congress proposed to expand c re d it $ 6 -b illio n . The Federal Reserve Board now commends the repeal o f the Thomas Amendment by which the $6 - b illio n expansion c ould take place; and commends also the repeal of the issuance o f s ilv e r c e r t ific a t e s against s ilv e r seigniorage. The Board has now endeavored to cooperate wi t h t he f i v e presidents o f the Federal Reserve banks on the Open Market Committee and with the Federal Advisory Coun c i l . The Open market Committee now consists o f e ig ht bankers and three mem bers not bankers. I t consists o f fiv e p riva te persons representing private in te rests and six members o f the Federal Reserve Board. May I be permitted to suggest to you what I think is fundamentally neces sary? Hon. Jerry Voorhis - 2 - January 13, 1941* What is Neccesary in a Sound Monetary System 1. I t i s neccessary to respect t he Constitution o f t he United S tates, which vests in Congress the exclusive rig h t to coin (c re a te ) and regu late t he value o f money (A r t ic le I , Section 3, Paragraph t>, C o n stitu tio n ). 2. To regulate the value o f money i t is essen tia l to regu late the volume o f Money in c irc u la tio n . 3. To regulate the volume o f money ia c irc u la tio n requires & Federal Reserve Board exclu sively representing the public in te r e s t, end ex clu sively representing the Congress, and ex clu sively subject to tae d irectio n o f tbs Congress. Congress saould, by le g is la t iv e mandate, give the power necessary to the Board to expand sod contract the volume o f money, both currency and demand deposits. Demand deposits transact over n in e ty -fiv e per cent o f our national acaetaiy business. They function thru checks milch circ u la te a t par, and are con vertib le into le g a l tender money on de^m i. i t present taese deaand deposits are created by the banks as a re su lt o f public and p riva te loans. There de.auad deposits saould be created by the Federal Reserve banks ex clu sively and not by the member banko. T*i£ t uustioa a ris e s ) hov» could people rho need money fo r constructive purposes obtain i t except thru loans from the member banks? The answer is : the banks have over | 7 -b illio n o f c a p ita l wnich could be loaned. They have a v a ila b le fo r such purposes the savings accounts and time deposits amounting to about $3C -biliion which could be loaned fo r con*tru ctive purposes with en tire s a fe ty , ^hen or i f member banks need more money with which to make loans, they could Le t i t by borrowing from the Reserve bunks. But they 3 QOuld lot be permitted to create money by converting priv te property into money thru loans, or by converting public bonds into money by the purchase o f the public bonds from tne Government or from s ta tes. The a. nev which is employed by the country should not be baaed on debt. The country saould not be penalised in i t s productive, constructive labor by the compulsory requirement to pay aa in te re s t peri<y to p riva te persons fo r the manufacture o f such money. Such a tax is a special p r iv ile g e and deeply against the public in te re s t in that i t d e s ta b ilis e s the debt-paying, purchasing power o f tne d o lla r, and impairs tne s t a b ilit y o f our national monetary unit, ana our national medium o f exchange, and our national measure o f value. I t fu rth er imposes a Heavy burden on the taxpayers fo r tne unearned in te re s t on suen bends. Congress by le g is la t iv e iaandate suouid in stru ct the Board to liq u id a te the stock o f toe Federal Reserve banks, repay the member banks the amount invested, and convert the twelve banks into one bank with the twelve branches Hoa. Jerry Voor’ais -3 ~ January 18, 1941 and sub-branches now or h ereafter established. The member banks, moreover, could act fo r depositors woo have id le money on deposit and arrange ths loan o f th e ir money fo r a reasonable commission. The v i t a l e f f e c t of th is system vtouid be tra*t the money o f trie country could nave i t s volume established and maintained a t & point which rould give complete s t a b ilit y to the purchasing-debt-paying x>»er o f the money in circu la tio n . At present o f the approximately £ 3 2 -b illio n o f demand deposits, about $ 4 -M llio n are held in active as deposits of the United Ztotes and various subdivisions th ereo f, representing tax acney in the slow process o f c o lle c tio n end disbursement. At lea st h a lf o f the remaining $ 2 8 -b i!lio n are in a c tiv e , not In c irc u la tio n , held by corporations, tru st companies, insurance companies, and in dividu als as id le money; causing whet the o f f i c i a l s o f the Treasury and Federal Reserve Board lo osely c a ll an *cs..ny money i* rk e t", aeaning tnat tne United States can obtain the loan o f th is id le money at an extremely lo* in te re s t ra te . Of course member banks p refer to lend money to tne Government a t a low ra te rather than to lend i t to the public even fo r constructive pur poses at a higher ra te. The banks have a t e r r ify in g memory o f whut nappeoed to them in the la s t ten years, in which 10,000 banks fa ile d because o f the v io le n t convulsion which took place in the value o f property waen tne contraction o f c re d it took place. The overage o f the value o f .lacks lis te d on the New York Stock Frchonge f e l l to one-sixth o f the pr©depression pxice, v. aich meant that the d o llft was buying six times as much in th is fo ra o f property t.s in the predepression day*. M illio n s o f borrower* o f tne banka were ai.ee ^ s o lv e n t and 10,000 banks fo ile d in consequence. I t has been said with truth that the tra g ic depressed condition o f the la s t ten years has been due to lack o f confidence. But the lack o f confidence is w ell founded wSien the United States is operating on a fin a n c ia l system tn -t has no s t a b ilit y . Yet complete s t a b ilit y is s a d ly obtainable aov. Theie is no longer ary danger o f a runaway stock market. Tn«s e is no longer any reason to fe a r a sudden and v io le n t expansion o f c r e d it by the banksj but the la * should be modified so as to prevent the p o s s ib ility o f such a contingency as an in fla tio n o f c re d it by tne banka. This can be done by requiring ldw per cent reserves against defend dep osits, where United States bends and other sound bankable assets, i f necessary, can be c la s s ifie d as equivalent to the csgh required fo r 100 per cent reserves. The Federal Reserve banks should be further s ta b ilis e d by elim inating Federal Reserve notes, and elim inating any requirement fo r t h ir t y - fiv e per cent gold or lawful money against deposits. A ll forms o f paper x>ney should be abolished except a United States currency issued by the Federal Reserve Board to taka the place o f our other outstanding forms o f paper money. Unis paper lacaey should replace the gold c e r t ific a t e s in tne Federal Reserve banks, wnich cannot be used as « domestic medium o f exchange. The go la &g. in c t which these c e r t ific a t e s have been issued should belong ex clu sively to the United S tates, a va ila b le tc the fed era l Reserve banks- to tne extent of in tern ation al Hon. Jerry Voorhis - A - January 18, 1941 requirements; and available fo r the United States to employ t hen normal conditions are restored in tern ation a lly fo llow in g th is *a r. The powers o f the Open karket Coauiittee should be ex clu sively vested in the Feaer-1 Reserve Board* The members or the Board should be required by Co agrees to take a sp ecia l o&t'n pledging themselves to carry out fa it h fu lly the instructions of the Congress in i t s le g is la t iv e Mandate requ iring the Board to restor e the predeprecision price le v e l and maintain i t at approxiA.te pur, subject to future oraers o f the Congress. The Congress should oewure o f permitting the opposition to the public con trol o f the volume and value o f awaey by Congress frott d iv e rtin g the atten tio n o f Congress from the main point by p ilin g up a co lossa l record o f a r t ie r which is not m ateriel to the solution o f this question. The questionnaire framed by the experts o tne Treasury, toe Federal Reserve Board and others would probably take some thousands o f pages i f fu lly answered in d e t a il. The questionnaire i t s e l f take* over eighty pages. C erta in ly, the agencies now d eaiia* &ith ta is question should be concen trated and s im p lifie d . The Comptroller o f the Currency should be transferred to tne Feaer&i Deposit Insurance Corporation. The FDXC should be made a subdivision o f the Board subject to i t s co n tro l. The Secretary o f the Trea sury should be required to cooperate in rue f i s c a l operations with the Board with a view to is&latalnia? the s t a b ilit y o f the debt-paying purchasing power o f ukoney. The re sp o n sib ility should be put upon tne Federal Reserve Board end they should be held responsible to the Congress, subject to a vote o f no confidence in case tney f a i l to curry out the reasonable expectation o f the Congress. Let i t be remembered that the Congress in th is v i t a l matter represents the people o f the United States. The Congress can be depended u^on to be absolutely ju st and f a i r in it s appraisal o f tne performance or non-performance in an accept able manner of the members 01 the Board. The con trol and creation ana regu lation o f the value o f aaonty under the Constitution o f the United States is a solemn, serious, and imperative duty o f the Congress, not to be transferred to the fe d e ra l Reserve Board except as an agency, much le .s to a Board th&t has shown i t s e l f to be an agency o f p r i v a te ly con trolled banks functioning according to the policy an* fo lk lo r e o f those under whoa ve nave had the tragedy o f the la s t two greet depressions vitru n two iec&des. Yours re s p e c tfu lly , Robert L. Owen. rxG/eg
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