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A N A D V E N T U R E IN
C O N S T R U C T IV E F IN A N C E







AN ADVENTURE IN
CONSTRUCTIVE FINANCE

GARDEN

CITY

NEW YORK

DOUBLEDAY, PAGE & COMPANY
1927




•v




J

CO N TENTS
PACE

CH APTER

I.

Romance in the Garb of History

I

“ The Unseen Guardian Angel”

IS

I I I.

A D iary of Things Imagined

37

IV .

Origins of Financial Freedom

58

V.

Wilson Appears in the Picture

73

A Threatening Flank Movement

93

II.

112

A Memorable Currency Caucus .

133

Sharp Fight in the House

*49

The Struggle Before the Country

162

A Diverting Party Break
Various Extraordinary Occurrences

197

X II I .

The Bank Bill in Conference .

212

X IV .

The Miracle Accomplished

225

V II.
V III.
IX .
X.
X I.
X II .

XV.
X V I.




A M yth Destroyed

.

Old Guard's Last Stand
V

00

The Bankers Excluded

HH

V I.

.

.
.

.

237
255

vi

CONTENTS

C H APTER

X V II.

PA G E

A

“ Conspiracy” That Didn’t
O c c u r ..................................... 273

X V I I I. A Summary of Achievements

.

290

Appendices —
A. Speech of Hon. Carter Glass, De­
cember 22, 19 13
...3 17
B. Text of the Federal Reserve Act . 337
I n d e x .............................................................. 419




I alone am responsible for the narrative here
presented, which has been written out of my own
knowledge of the circumstances recited and my
observation of the events. This one thing 1 do
know and assert, in whatever degree the state­
ment may seem to lack proper reserve, that there
is no man living who, from beginning or in
the progress or at the ending of federal reserve
legislation, was more closely or constantly than
I privy to and identified with the consideration
and enactment of the law under which the
federal reserve banking system was set up.
There were not many important things said on
the subject, and fewer written, that have not a
place in the vast abundance of memoranda of
all kinds which I assembled in that period, em­
bracing several thousand letters, monologues,
drafted bills, private minutes of House com­
mittees, conferences and party caucuses, with
data of other descriptions, public and con­
fidential.
Ever since the enactment of the federal reserve
law it has been m y intention to write, some day,




V ll




Vlll

INTRODUCTION

a story of the many inside events word of which
never reached beyond a closely restricted circle
and had no such thing as current newspaper at­
tention. There were also incidents of the pro­
tracted and, sometimes, hitter struggle which,
while given a passing notice, were never ade­
quately explained or comprehended in their
startling significance. Realizing how hard it is
to adorn a narrative about a dry, complex prob­
lem with imagery sufficient to engage and retain
popular interest, I was not over-eager to enter
upon a task for the pursuit of which, in a literary
sense, I was conscious of an acute deficiency.
Best done, the accomplishment would require a
rich vocabulary, with a dexterity of expression
which would give colour and animation to the
scenes and occurrences depicted. And it was
this thought that conspired with an equally
valid obstacle, in the nature of a ceaseless oc­
cupation with public business, to postpone for
thirteen years this attempt to relate briefly, in
simple fashion, the real history of the Federal
Reserve Act.
Very likely my desire to tell the dramatic
story would have abated, and even faded away,
as so often happens with cherished intentions,
had not there recently issued from the presses a
work by Doctor Charles Seymour, a professor of
history at Yale, in which the paternity of the Fed-

INTRODUCTION

IX

eral Reserve Act and its particular management
are placidly ascribed to Colonel E. M . House,
whose “ Intimate Papers” are presented as the
source of this astounding pretension. Because
the rank and vocation of the editor of that work
are calculated to get for this utterly unfounded
claim a measurable credence among those un­
acquainted with the facts, my purpose to present
the real truth of the matter has been sharply
revived and here is put into execution, to the
end that this narrative may overtake and
destroy the fiction which has been launched by
Professor Seymour in the guise of history.
Whatever defects may attach to what appears
in these pages, I think it must be conceded that
there has been no imitation of the artifice con­
stantly employed by the editor of the House
Papers of substituting inference for fact and
making deduction answer for proof. Neither
has one particle of use been made of delusive
implications. Conversely, what is meant is
said outright. Not only have the facts been
exactly stated; but, in every case, they have
been fortified by literal corroboration, which can
not be brought in question. Of the negligible
instances of conjecture which m ay seem to in­
volve personal motives it can confidently be
said that the related circumstances afford full
justification. At no point has there been at-







X

INTRODUCTION

tempt to twist the truth awry to confirm a pre­
conceived conclusion.
Among the half-dozen critical friends to whom,
as a precaution, I chose to submit the manuscript
of this narrative, was one of a pacific nature, with
long and varied experience in giving advice. He
frankly suggested that the first three chapters of
the book might be omitted since, in his judgment,
the remaining chapters, which tell a constructive
story, “ constitute a devastating refutation of the
things with which the controversial chapters
deal.” Of this I venture no doubt; but, yielding
obedience to a sense of indignation subordinate
only to a desire to tell the truth, I am resolved
to let the entire chronicle stand as indicative of
both my knowledge of the facts and my feeling
at the attempt to pervert them.
C a r ter G l a s s .
Montview Farms,
Lynchburg, Virginia,
December 23, 1926.

A N A D V E N T U R E IN
C O N S T R U C T IV E F IN A N C E







2

AN ADVENTURE IN CONSTRUCTIVE FINANCE

Intimate Papers of Colonel House, I shall have
to confess a total inability to discriminate fact
and fiction, albeit I have acquired, among those
who best know me, the reputation of being a
severely practical person.
It is not especially important to have it pre­
cisely determined who was the author of what is
known as the Federal Reserve Act. To whom
may fairly be ascribed the greatest measure of
credit for setting up this notable banking system
is of little consequence in comparison with the
universally conceded fact that the system, by
whomsoever conceived, has proved the most
feasible and effective scheme of national reserve
banking ever devised. I f there was a trace of
exaggeration in the estimate of that seasoned
English economist who declared the federal re­
serve system “ worth to the commerce of America
more than three Panama Canals,” nevertheless,
it must be conceded that, in the orucial test of a
world war, it was found to be more indispensable
to civilization than three times three Panama
Canals. This merely means that I agree with
the considered judgment of those eminent
bankers of this and other lands who have said
that the World War could not have been financed
but for the Federal Reserve Act. And if not
financed, of course, it could not, except at in­
finitely greater sacrifice, have been won by the

ROMANCE IN THE GARB OF HISTORY

3

United States and associated nations. Thus,
in a final analysis, the real value of this one
achievement of Wilson’s administration might
be fairly appraised by simply leaving to the hu­
man contemplation what further slaughter and
destruction would have ensued or what would be
our situation to-day had we lost the war with the
Central European Powers!
While, as I have said, it is not vital to the in­
terest of current history that we should know
precisely about the paternity of the Federal
Reserve Act, at least it would seem obligatory
upon those acquainted with the facts not to sit
silent or remain acquiescent when serious at­
tempt is made by persons of repute to establish
as the truth an utter perversion of the circum­
stances connected with this remarkable legisla­
tion. Culpability, in such event, would be ac­
centuated if it should appear that such literary
legerdemain applied to federal reserve legislation
is, if uncontradicted, to be received as imparting
verity to other asseverations which may or may
not be quite as mythical, but which kindredly
affect the reputation of a great man now
dead.
It was this latter consideration that instantly
engaged my thought on reading the chapter of
the Intimate Papers of Colonel House in which
Professor Seymour, by capricious arrangement







4

AN ADVENTURE IN CONSTRUCTIVE FINANCE

and preconcerted deduction, would have it ap­
pear that Woodrow Wilson possessed no knowl­
edge of banking and currency matters nor had
any understanding of the philosophy of the
problem; that he was compelled to rely on the
profound discernment of Colonel House, por­
trayed by Professor Seymour as the real author
of the Federal Reserve Act and the concealed
manager of the legislation before Congress!
Of all repugnant things, to me the most ob­
jectionable is to feel obliged to project one’s
self into personal controversy which may neces­
sitate a recital in some detail of the disputant’s
part in a transaction affecting the public welfare.
However, so amazingly contrary was Professor
Seymour’s “ historical narrative” to everything
that I know to be true of federal reserve legisla­
tion, both as to its inception and its direction at
Washington and elsewhere, that I find myself
unable to resist the impulse to strip it of all dis­
guise and reveal the disingenuous nature of it.
An exceptionally pleasant personal contact with
Colonel House and consequent estimate of his
character would make me hesitate to believe
that he could be willing to assume one particle
of responsibility for the manipulation practised
b y his editor in the use of certain scanty data or
for the meanings attached thereto. At the same
time, it puzzles one’s understanding to arrive

ROMANCE IN THE GARB OF HISTORY

$

at a rational explanation of Colonel House’s
silence in the face of this altogether remarkable
performance.
Fortunately for the trust, Professor Seymour
summons witnesses who are readily available for
cross-examinaton— indeed, for actual confuta­
tion of the alleged facts as far as their knowledge
extends. For example, at the end of a long prel­
ude in which Professor Seymour to his own
satisfaction establishes in Colonel House the au­
thorship of the Federal Reserve Act and the
managerial force behind the legislation, he says:
“ Few persons suspected the share taken by
Colonel House in the formation and passing of
the Federal Reserve Act, and he said nothing
that might enlighten the public. Towards the
end of December, 19 13, after the Senate had ap­
proved the bill, House was discussing it with
two outstanding journalists, Lawrence of the
Associated Pibss and Price of the Washington
Star. ‘ I wish you would let me tell about your
activities in making the bill,’ said the latter.
But the Colonel was obdurate in his insistence
upon silence. ‘ Will you stay over to see it
signed?’ asked Lawrence. But now that the
main job was accomplished, House admitted he
lacked sufficient interest in any mere ceremony to
keep him in Washington.”







6

AN ADVENTURE IN CONSTRUCTIVE FINANCE

Recalling distinctly that Mr. Lawrence had
been assigned to cover federal reserve legislation
before the House and Mr. Price all important
events at the White House for the period indi­
cated, it was to me incredible that either of these
gentlemen could have surmised that Colonel
House had any hand in the formation or manage­
ment of federal reserve legislation or was en­
titled, by reason of any such supposition, to
figure at a ceremonial in celebration of the event.
I therefore addressed a note to Mr. Lawrence
under date of April 3, 1926, in which I said:
U nited S ta t e s S en ate
Washington, D. C.

April 3 / ’26.
D ear M r . L a w r e n c e :
. . . In the Intimate Papers of Colonel
House, recently from the press, I notice a state­
ment by Professor Seymour to the effect that Mr.
David Lawrence, of the Associated Press, and
M r. Price, of the Washington Star, had besought
Colonel House, when the Federal Reserve Act
was about to be approved by the President, to
permit them to tell what they knew of the
former’s great contributions to the solution of
the federal reserve problem. Colonel House, it
is alleged, obdurately refused to do this; but, con­
textually in the book, crafty manipulation of

ROMANCE IN THE GARB OF HISTORY

7

random extracts from Colonel House’s diary
conveys an implication that Colonel House was
largely the author of the Federal Reserve Act
and “ the unseen guardian angel” of the entire
legislative proceeding.
As chairman of a subcommittee, and subse­
quently as chairman of the Banking and Cur­
rency Committee of the House in 19 12 - 13 , I was
directly charged with the duty of initiating and
managing to its conclusion legislation for reform
of the banking and currency system of the
country. I f there was a single day from the
spring of 19 12 to December 22, 19 13, that I was
not, along with my colleagues, aggressively at­
tentive to the assignment, I do not recall what
day it was; hence I have imagined that I had
some familiarity with the events of that period.
I f there is a single sentence in the text of th
statute which was written or suggested b
Colonel House, or if there is a solitary provision
of the measure the substance of which had its
origin or primary advocacy in that quarter, I con­
fess utter ignorance of the fact.
Since it is my purpose soon to write a chronicle
of federal reserve legislation with its many
dramatic episodes, will you not do me the favour
immediately to disclose to me your actual
knowledge of Colonel House’s vital contributions
to the measure and to its management in Con-







8

AN ADVENTURE IN CONSTRUCTIVE FINANCE

gress? Perhaps you m ay be willing to tell me
the things that Professor Seymour so singularly
omits from his narrative in such degree as to
make his story as printed seem little, if at all,
short of parody. To relieve the Seymour ac­
count of this interpretation, I would like you
to point out those parts or provisions of the
Federal Reserve Act, in any of its stages, with
which Colonel House had anything whatsoever
to do or with which any one of the bankers whose
names figure cryptically in his diary had any­
thing to do.
Woodrow Wilson is dead and cannot, even if
he ever would have bothered to do it, respond to
the amazing suggestion that he had to be tu­
tored by Colonel House in the elementals of the
banking and currency problem. The maladroit
suggestion, if it m ay not be called an actual as­
sertion, by Professor Seymour, is so directly in
contravention o f the facts as I know them that I
confidently assert there is notone particle of truth
to it. And in a little while I shall present evi­
dence from the record to justify my characteriza­
tion of this performance unless, in the meantime,
you will be good enough to supply me with the
contrary information which Professor Seymour,
after Mr. Wilson’s death, says you possess.
Sincerely yours,
C ar t e r G l a s s .

ROMANCE IN THE GARB OF HISTORY

9

Responsive to this inquiry, Mr. Lawrence
said he had no recollection of the circumstance
cited and no knowledge of federal reserve legisla­
tion apart from that obtained day by day from
the chairman of the House committee having
the problem in charge.
Later, Mr. Lawrence sent a formal acknowl­
edgment of the foregoing note in which, misap­
prehending that I was trying to identify my­
self explicitly with the measure, he was at
pains to recall this writer’s part in the prepa­
ration and passage of the currency bill. This
was gracious enough but was not what was
wanted. Mr. Lawrence was again asked to
fortify, if he could, Professor Seymour’s as­
tounding postulate with respect to Colonel
House’s initiative and guardianship of the bank
bill. On April 28th, Mr. Lawrence wrote:
Washington, D. C.,
April 28/26.
D ea r M r . G l a s s :
. . . I am sorry I do not have any first­
hand information on this subject. In fact, I
have only a vague recollection that we corre­
spondents in Princeton, in the pre-inauguration
days, were told either by Governor Wilson or
someone who spoke for him that Colonel House
was to present to you some ideas that he had







10

AN ADVENTURE IN CONSTRUCTIVE FINANCE

gathered with reference to proposals for cur­
rency reform, which were then being discussed.
Whether these were ever presented, I do not
know. I remember your own visit to the cottage
in Princeton in December, 19 12, and that I as
Associated Press correspondent wrote a dis­
patch to the effect that you had discussed cur­
rency proposals with Mr. Wilson. Beyond this,
I have no information on the subject.
Sincerely yours,
D avid L a w r e n c e .
As was confidently anticipated, this one of
Professor Seymour’s witnesses could impart no
corroborative information beyond “ a vague
recollection” of something that was alleged to be
in contemplation, but which never happened.
Before I could dispatch a note to Mr. William W.
Price, in 1913 connected with the Washington
Star, the newspaper writer who, according to
Professor Seymour, was eager to immortalize
Colonel House, that gentleman wrote me as
follows:
Washington, D. C.,
April 25, 1926.
M y dear S enator G l a s s :
I understand there is a statement in the In ­
timate Papers of Colonel House to the effect that I

ROMANCE IN THE GARB OF HISTORY

It

asked his permission in December, 19 13, to
make public his part in the formulation and
passage of the Federal Reserve Act. As a mat­
ter of simple justice . . .
I think it my duty
to write you and say that I have no recollection
of any such conversation with Colonel House or
of ever having in my mind that Colonel House
did have an influential hand in this particular
legislation.
To the contrary, it is my distinct recollection
that President Wilson did give you the bulk of
the credit for framing and getting through the
opposing currents of Congress this most useful
and valuable act— so much so, in fact, that it was
confidential information with me for a long
time that your achievement would eventually be
rewarded by the President, if he ever had op­
portunity, by appointment as Secretary of the
Treasury.
Yours truly,
W. W. P r ic e .
Since neither party to a litigious proceeding
may discredit his own witnesses, it must be in­
ferred that this phase of the Seymour narrative
is pretty definitely disposed of by the testimony
of the two ranking newspaper men the sub­
stance of whose letters is above quoted. Even
so, the distinguished professor of history still







12

AN ADVENTURE IN CONSTRUCTIVE FINANCE

has the supporting force of his own or somebody
else’s invention about the “ obduracy” of
Colonel House in refusing to be honoured by
those gathered at the White House on the eve­
ning of December 2 3 ,19 13 , to witness presidential
approval of the first revolutionary banking and
currency measure passed by Congress within a
period of half a century.
Was it exactly “ obduracy” that Dr. Sey­
mour’s great banking philosopher manifested
in disdaining credit for his masterpieces, or was
it that innate modesty which is the “ ornament
of a meek and quiet spirit” ? Either one or the
other, how prodigiously amused Colonel House
must have been at the ensuing seance! The
play of Hamlet with the Dane in flight! Worse
than that: the President of the United States
consciously party to a counterfeit performance
in decorating men who had only a paltry share in
an economic and legislative achievement the
genius and strategy of which were furnished by
the reticent and retreating figure on the Congres­
sional Limited! Since Woodrow Wilson, for
constitutional reasons only, did not consider it
expedient to have Colonel House sign the
President’s name to the engrossed currency bill,
surely Professor Seymour must think that Owen
and McAdoo and I should at least add to Colonel
House’s collection of mementoes the gold pens

ROMANCE IN THE GARB OF HISTORY

13

with which the presidential signature was at­
tached. Also, he should be given the signed bill
engrossed on parchment, now in my library, and
likewise the first ten-dollar federal reserve note
printed, hanging against the wall of a national
bank of my home town in Virginia. What a
travesty that White House proceeding was!
And what a farce to which the President wilfully
lent himself, according to Dr. Seymour!
On the other side, and contrary to this
Seymour coinage, if it be reasonable to assume
and easy to prove that President Wilson, with
complete knowledge of every circumstance, was
on December 23, 19 13, entirely sincere in his
ascriptions of praise, modestly withholding only
any reference whatsoever to his own inestimable
contributions to an epochal political and legis­
lative achievement, it follows inevitably that
this narrative of the Yale professor, as to its
meaningless facts no less than to its fanciful
deductions, is utterly devoid of value. Standing
by itself as an appraisal of the character and
accomplishments of Colonel House, it would
leave him in a sorry plight, indeed, after the
story should be divested of its fictional aspects;
and this even with all the D iary entries attested
as an accurate recital of things that happened,
rather than, as in many instances, a droll mis­
interpretation of sayings and events.







14

AN ADVENTURE IN CONSTRUCTIVE FINANCE

But for Colonel House’s cumulative admis­
sions of his own extraordinary achievements in
nominating and electing Mr. Wilson to the Presi­
dency; in selecting the Cabinet and administer­
ing the affairs of government; in trying vainly to
avert war and vainly trying to terminate it; in
preparing for the conflict and arousing the fight­
ing spirit of the nation; in enlightening, persuad­
ing, and frightening European potentates and
directing the statecraft of belligerent and neutral
countries alike—but for these really fine things
to commemorate the almost supernatural great­
ness of Colonel House, the tawdry embellish­
ments of Dr. Seymour about his “ guardian
angel’s” imaginary part in federal reserve leg­
islation would assume the guise of what Edmund
Burke describes as “ giving splendour to obscur­
ity and distinction to merit undiscerned.”

C H A P T E R II
‘‘ t h e

u n seen

g u a r d ia n

a n g el”

A Unique Way of Establishing an Hypothesis—Is History
Merely What a Writer Would Have It?— Some Rank
Absurdities Exposed

JT H O R S H IP of the Letters of Junius will
remain a mystery to the end of time. Not
even the skill of M acaulay in assembling and
dissecting data and contrasting syntheses could
leave more than a presumption in favour of Sir
Philip Francis. And likewise, the writer of the
Sonnets and the Plays attributed to Shakespeare
is not yet sufficiently identified to the satisfaction
of many men of letters. Three hundred years
after the Stratford player’s death, there are those
who believe that pilgrimages to the Avon should
be directed to Saint Albans. On the contrary,
not even the affirmative testimony of the famous
Promus, or the Northumberland House scratchbook of Sir Francis Bacon, with its multitude of
“ parallelisms” of thought and phrases identical
with those found in the Sonnets and Plays,
have made a convincing impression on Shakespeareans. In the Book of Genesis it is recorded







l6

AN ADVENTURE IN CONSTRUCTIVE FINANCE

that God said, “ Let there be Light; and there
was Light.” Y et skeptics, who also are great
scientists, pronounce this story of the creation
oriental nonsense!
But the professor of history to whom was con­
fided the task of editing and publishing the In ­
timate Papers of Colonel House has discovered a
new and quick w ay of establishing an hypothe­
sis and having it accepted for the truth. The
invention should enhance his reputation as a
teacher of history. To prove the economic vision
of Colonel House and to confirm his own astute
conjecture as to the paternity of the Federal
Reserve Act, Professor Seymour’s penchant
for research was rewarded by finding in Philip
Dru a reference to banking and currency so
pregnant with light and learning as to settle
definitely for all time the origin of federal reserve
legislation. P hilip Dru, it may be explained,
personifies the title of that work of fiction as­
cribed to Colonel House from which, it is gravely
alleged, Woodrow Wilson drew inspiration for the
few things he did as President of the United States
without the corporeal aid of Colonel House.
L et’s see how impressively and with what
consummate ingenuity Professor Seymour ad­
duces evidence of Colonel House’s prescience
and his ripened capacity for dealing with prob­
lems so complex as to have baffled statesmen for

“ t h e u n s e e n g u a r d ia n a n g e l ”

17

a quarter of a century: Enumerating the mis­
takes of the founders of the Republic, Colonel
House, masquerading as Philip Dru, started a
crusade on paper for reformation in government.
Although President Wilson did not live long
enough to be used as an agency for precipitating
the suggested revolution in the parliamentary
system of the nation, he was utilized in time to
give the country an improved banking and cur­
rency system conceived by Colonel House and
by him formulated and managed through both
Houses of Congress. As already noted, Mr.
Wilson was permitted to sign the Act himself, be­
cause the Constitution required this much. But
that the architect and builder was Colonel
House, there is here presented the significant
reference to the currency problem found in
Philip Dru, written by Colonel House in the lat­
ter part of 19 12, and exhibited by Dr. Seymour
in 1926 as conclusive of the point in question:
“ Philp Dru also provided for the ‘ formation
of a new banking law, affording a flexible cur­
rency bottomed largely upon commercial assets,
the real wealth of the nation, instead of upon
debt, as formerly. . . .
Its final construc­
tion would completely destroy the credit trust,
the greatest, the most far-reaching, and under
evil direction the most pernicious trust of all.*”







18

AN ADVENTURE IN CONSTRUCTIVE FINANCE

It is not with malice, but with genuine amuse­
ment, that I seem to remember having read and
heard something of this nature away back
yonder, prior to the Indianapolis conference of
currency experts, twenty years before Colonel
House, in Texas, had begun to set up magistrates
and create Senators. For eight years in the
Banking and Currency Committee of the House
o f Representatives, from time to time earnestly
striving for reserve banking legislation, this
exact phrase, quoted by Professor Seymour from
Colonel House’s P hilip Dru as a revelation of rare
sagacity, had been bandied about a thousand
times before we ever tackled the measure known
now as the Federal Reserve Act. “ An elastic
currency,” based on commercial assets, rather
than “ a rigid currency,” based on the bonded
indebtedness of the nation, was alleged to be the
goal of the Indianapolis bill and, years later,
o f the Walker bank bill, the Fowler bill, the
Williams bill, the Vreeland bill, the Aldrich bill,
and the composite Vreeland-Aldrich bill. The
National Monetary Commission, and the Citi­
zens’ League organized to finance and otherwise
promote the central bank plan projected by it,
crammed this idiom to the point of satiety.
The phrase became so trite as once to overtax
the patience of a profane colleague and provoke
the expletive: “ Oh, hell! Everybody wants

“ th e u n seen

g u a r d ia n

an g el”

19

that; but nobody seems to contrive a w ay to get
it!” But, as casually furnished to Colonel
House by a distinguished economist and put on
the pen-point of Philip Dru, the phrase, to our
Yale professor, assumed the aspect of a divine
command.
In brief, paraphrasing Genesis,
House in a novel exclaimed: “ Let there be a
Flexible Currency; and there was a Flexible
Currency!” —this for Dr. Seymour was crowning
evidence of Colonel House’s marvellous per­
spicacity and his gift for legislative detail. And
the professor is simple enough to imagine that
there is nobody left, after Mr. Wilson’s death,
who might be expected authoritatively to reveal
the childishness of such fudge!
The Creator of the heavens and the earth did
not deign to argue the question or to supplement
the fact by proof. Professor Seymour in sifting
the “ intimate papers” of Colonel House to justify
his singular premonition of his friend’s genius
for economics and his craftsmanship in statutory
construction, piles circumstance on circumstance
in the process of demonstrating his case from the
confessions of the Colonel’s own D iary! Strict
fairness to Colonel House compels the state­
ment that in none of these notations does he
precisely assert for himself the paternity of the
Federal Reserve Act. It is only by conjoining
the context of the Seymour story and the entries







20

AN ADVENTURE IN CONSTRUCTIVE FINANCE

of the House D iary that we get from this literary
alchemy a blend which has altogether the
flavour of asserted authorship. For this false
compound Professor Seymour seems primarily
responsible, albeit Colonel House cannot escape
a share of culpability as long as he gives to this
book the sanction of his silence. It is a part of
the purpose of this chronicle to examine the
House D iary and clearly to set in view the utterly
futile nature of the entries upon which the
Yale book-maker has relied to misappropriate
credit for the greatest legislative achievement of
Woodrow Wilson’s administration.
Preliminary to presentation of the Diary
items, the editor of Colonel House’s Intimate
Papers makes many assertions on no visible
authority beyond his own inaccurate surmises.
There is not the scratch of a pen from any
corroborative source; nor could there be, for
Professor Seymour’s narrative on “ Currency
Reform” is a profanation of history. He avers
that, in the autumn of 19 12 and spring of 19 13,
“ even in the midst of forming a Cabinet, House
worked constantly on the currency problem,”
and then continues:
“ The task which Colonel House set himself
was primarily to prevent the President-elect
from committing himself to any one scheme until

“ t h e u n s e e n g u a rd ia n a n g e l ”

21

the problem had been thoroughly studied; later
he guided the measure so that it was left in
the control of experts and preserved from the
heresies of political incompetents. The Colonel
was the unseen guardian angel of the bill, con­
stantly assisting the Secretary of the Treasury
and the chairmen of the Senate and House
Committees in their active and successful labour
of translating it into law.”
Reserving the right, of course, to alter,
amplify, or discard entirely the currency scheme
verbally outlined to him by me at Princeton on
December 26, 19 12, and later submitted in a
preliminary draft at the Executive offices in
Trenton on Janu ary 30th following, M r. Wil­
son may be said to have already “ committed
himself” to every fundamental provision of the
Federal Reserve Act before Colonel House
could have known what was contemplated or
what the bill actually would contain.
When the currency bill was in shape to be
‘ ‘ translated into law,” Colonel House was three
thousand miles away. He set sail for Europe
before he could even have guessed the personnel
of the committee which was to have charge of
it, for the committee had not yet been named.
The impertinent assertion that “ he guided the
measure so that it was left in the hands of







22

AN ADVENTURE IN CONSTRUCTIVE FINANCE

experts and preserved from the heresies of
political incompetents” is as offensive a fabri­
cation as was ever penned on paper. Until
his boat was about to leave the wharf, he had
not seen a draft of the measure, and should
not then have been permitted to see it. The
only technician in whose hands it had ever
been was Dr. Willis, the expert of the sub­
committee of which I was chairman. Colonel
House, on the eve of his departure, procured
from a high official an incomplete copy of the
bill. Sailing on the same vessel was a distin­
guished banker whom he apparently had con­
stituted his tutor in currency matters; and pretty
soon there came back from this latter gentleman
in Switzerland two rather impatient but precise
criticisms of the federal reserve bill, for private
circulation among a select group of bankers.
Thus the chief contribution of Colonel House
to currency reform up to this moment was to
get an adverse critic to bombard the measure.
He seems also to have succeeded in teasing the
credulity of other bankers by stimulating their
belief in his intimate association with the work.
As for “ preserving the bill from the heresies of
political incompetents,” it would be interesting
to have Professor Seymour tell us exactly how it
happened. No legislative measure ever de­
vised was subjected to fiercer partizan attack

1

“ t h e u n s e e n g ua rd ian a n g e l ”

23

than this very currency bill; and the bitterest
critics, as the most pestiferous, were two politi­
cians in Congress from Colonel House’s own state.
It is a pity the magician did not wave his wand
in their direction. He might have saved us the
trouble of pounding them to pulp and mercifully
preserved them from painful humiliation. It
was in reference to one of these politicians that
Henry Watterson reproved the chairman of the
committee for “ using dynamite where insect
powder would do.”
A simple narrative of facts, which may readily
be verified, will demonstrate how impossible
it was for Colonel House, in the autumn of 19 12
and in the spring of 19 13, to have performed the
great things to which Professor Seymour so
swiftly bears witness: As chairman of a sub­
committee, the present writer in that period
was deeply engrossed in currency matters; but
the House Committee on Banking and Currency
which dealt with the federal reserve bill was not
yet named for the Sixty-third Congress and,
hence, was without a chairman from March 4th
until June 3, 19 13. It was not certain that I
would be made chairman1, as powerful central
nrhe plan which was finally determined upon (by the advocates of a
C^ tr3f kan*0 was that of arranging to supersede Mr. Glass in the head­
ship of the Committee—Mr. Glass was the second member in seniority
or rank in the Banking and Currency Committee; and, upon the retire­
ment of Chairman Pujo, the headship of the whole Committee would
naturally pass to him—the problemwas simply that of securing a com-







24

an

ADVENTURE IN CONSTRUCTIVE FINANCE

bankers were feverishly manoeuvring to prevent;
therefore, the work then being done by me and
by the subcommittee expert at my direction was
based on a mere contingency. For this reason
it was kept fairly well to ourselves. I did not ac­
quaint my intimate friends in Congress with the
exact nature of the work; how utterly foolish, then,
for Dr. Seymour to assume that I was telling a
total stranger like Colonel House all about i t !
There was no Senate Committee on Banking
and Currency in the autumn of 19 12 , nor until
March 18, 19 13 , when such a committee was
named for the first time in the history of that
body. Senator Owen, born in the same town
within one block of my birthplace, was its first
chairman. It could not have been known to
Colonel House or to anybody else that the
Senate would set up such a committee, and much
less could it have been conjectured that Mr.
Owen would be made chairman of it if con­
stituted. Hence, Colonel House in this period
had no occasion to “ aid” a chairman of a Senate
committee that had no existence in the prepara­
tion of a currency bill of which Colonel House
could have no knowledge. And here it may be
related that former Senator Owen, in personal
conversation with me, flatly contradicted the
bination that would transfer the succession in some other direction.—
H. Parker Willis in The F ed era l Reserve System .

“ t h e u n s e e n g ua rd ian a n g e l ”

25

statement of Dr. Seymour that Colonel House
“ constantly assisted” him in federal reserve
matters. Mr. Owen not only entered a general
denial and made sharp characterization of
Professor Seymour’s “ historical” twaddle, but
later sent me this note:
Washington, D. C.,
September 15, 1926.
H onourable C a r t e r G l a s s .
United States Senator,
Washington, D. C.
H ear S e n a to r :
In response to your inquiry, I briefly reply that
Colonel E. M . House had nothing to do with in­
fluencing my activities in connection with the
Federal Reserve Act, nor do I recall any item
in the bill which he sponsored. M y first draft,
before you and I consulted with regard to it, had
no item in it due to any suggestion from him.
Yours very respectfully,
R o bert L. Ow e n .

In m y service as congressional subcommittee
chairman, charged with a solution of the currency problem, Colonel House saw me briefly
three times: first as a total stranger, to “ size
me up,” I think, for a group of bankers; next to







26

AN ADVENTURE IN CONSTRUCTIVE FINANCE

talk patronage, and lastly to learn something
about the currency bill which Professor Seymour
says Colonel House constructed! In my service
as chairman of the Banking and Currency Com­
mittee of the House, named while Colonel House
was abroad, I recall no contact, direct or indirect,
with him for a time long before the currency bill
was introduced in Congress until long after it
had been enacted into law and approved by the
President. Thus, if in this severely careful
recital of the extent to which Colonel House
“ constantly assisted” the chairmen of the Bank­
ing and Currency Committees of the Senate and
House Professor Seymour can find warrant
for his medley of amazing misrepresentations,
nobody should begrudge him the comfort
derived.
And how unspeakably ridiculous Dr. Seymour
needlessly makes himself and Colonel House,
too, when he weaves into his story this bit of
transparent rubbish:
“ Colonel House was indefatigable in providing
for the President the knowledge that he sought.
He collected in his study the banking laws of
every nation in Europe. He gathered reports
and abstracts from college professors of eco­
nomics and banking. But he laid chief stress
upon his frequent conferences with the bankers

“ t h e u n s e e n g ua rd ia n a n g e l ”

27

themselves, especially those who had had prac­
tical experience in drafting previous bills for
Republican Administrations.”
All th is: as if Woodrow Wilson, historian, stu­
dent of government, President of Princeton,
Governor of New Jersey, President-elect of the
United States, was not perfectly aware of the fact
that there was immediately at hand, in bound
annotated volumes, the completest library
in the world on banking and currency, freshly
assembled by the National M onetary Commis­
sion at a cost to the federal contingent fund of
^I02,357.37! All this baffling chatter: as if the
chairman of the House subcommittee had not
fully apprised M r. Wilson of the hearings ar­
ranged, the tomes of data collected, the unending
stream of currency bills en route to the com­
mittee “ morgue” ! All this amusing fiction: as
if the President had not seen the committee’s
prepared questionnaire already posted to college
professors, textbook writers, bankers, and busi­
ness men, some of these names suggested by
Governor Wilson himself! Before leaving Tren­
ton for the inaugural ceremonies at Washington,
Mr. Wilson, as my letter files abundantly at­
test, was fully advised of the nature and effect
of hearings had at the Capitol and the character
o f persons examined. Embraced in the list







28

AN ADVENTURE IN CONSTRUCTIVE FINANCE

were many eminent bankers, statists and po­
litical economists of this and other countries.
Y et Colonel House, according to the ebullient
editor of the Intimate Papers, was “ indefatigable
in providing for the President knowledge” that
the President already abundantly possessed and
that Colonel House himself had no use fo r! Was
there ever such artlessness?
And what person with a child’s knowledge of
legislative processes at Washington could repress
a smile at Professor Seymour’s comic prattle
about “ the stress laid” by Colonel House on the
latter’s “ frequent conferences with bankers who
had had practical experience in drafting previous
bills for Republican administrations.” This is
so to speak, Dr. Seymour’s chef d'oeuvre! It is a
suggestion sui generis! Nothing comparable to
it adorns the annals of legislative contrivance.
Colonel House, the “ silent partner” of a Demo­
cratic President and, according to Seymour
the “ guardian angel” of currency reform under
a Democratic administration, conspiring with
bankers who had failed utterly under Republican
regimes, in expectation that they might succeed
under adversary auspices!
The absurdity of this recital by Colonel
House’s editor is abated not one whit by the
fact that there were no such bankers. In the
half century dating from the enactment of the

“ t h e u n s e e n g ua rd ian a n g e l ”

29

national bank act, not a single comprehensive at­
tempt was made by Congress even to consider
a reserve banking measure. There was in this
period no persistent effort at a revision of the na­
tional bank act with a view to a readjustment
of the currency system. The Walker emergency
bill was a feeble approach, but Representative
Walker was dead and not available for confer­
ence with Colonel House. The Fowler bank zone
bill had some sound and feasible provisions, but
was not drafted b y bankers. Representative
Fowler himself appealed so little to a Republican
administration that Speaker Cannon summarily
deposed him as chairman of the House Com­
mittee on Banking and Currency for even daring
to disturb the sanctity of the national bank act.
Neither the Vreeland bill nor the Aldrich bill,
separately or conjoined, pretended to be more
than a transient makeshift for emergency pur­
poses, and their authors bitterly opposed the
bill which Dr. Seymour imputes to Colonel
House; so, who and where were the bankers
frequently consulted by Colonel House “ who
had had practical experience in drafting bills for
Republican Administrations” ?
The banking and currency bill appended to
the report of the National Monetary Commis­
sion, which took the name of Senator Nelson
W. Aldrich, was submitted to a Democratic







30

AN ADVENTURE IN CONSTRUCTIVE FINANCE

Congress, but was never considered by a com­
mittee of either House. This bill provided <fa
central bank of banks, for banks and by banks.”
It is said to have been largely the craftsmanship
of two highly intellectual persons, one a banker
of international repute and in every w ay an
accomplished gentleman. Hence, divested of
all mystery, what Professor Seymour should have
said in truth was, that Colonel House, knowing
next to nothing of the currency problem himself,
sought the tutelage of this very banker, became
an advocate of the Aldrich scheme, and en­
deavoured to ensnare President Wilson into a
repudiation of his party’s platform declaration
against a central bank! In a letter to Mr. Wil­
liam J . Bryan, telling of a talk with Mr. Wilson
on general topics, Colonel House wrote;
“ He [Wilson] is also opposed to the Aldrich
plan, but I think you are both wrong there.
You will have to convert me the next time I see
you. I am inclined to think that Aldrich is
trying to give the country a more reasonable
and stable system.”
In a word, Colonel House favoured the Aldrich
scheme, as many others did, without knowing
why. That nobody ever weaned him from the

“ t h e u n s e e n g u a rd ia n a n g e l ”

31

central bank idea1 which had been taught him by
his banker friend is as literally true as that Wil­
son never did “ ultimately accept House’s argu­
ments for centralized control of banking,” as
asserted by Seymour. In a letter to Governor
Wilson pretending to describe his first interview
with me in Washington, Colonel House made a
statement and employed a species of sophistry
which were carefully expunged from the letter
as presented by his editor of the Intimate Papers.
The letter preceded my visit to Princeton and
was among Mr. Wilson’s papers when I arrived.
The part of it which was not printed by Dr.
Seymour read:
“ It was interesting to hear him [Glass] tell of
Bryan and the suggestions made by him. I ran
over briefly what I considered might be a satis­
factory measure. He replied that it seemed all
right, but it looked as if I had in mind central
control. I told him that no measure could be
efficient that did not have a central control.
He then said that the platform forbade it. In
this, however, I think he is mistaken.
“ The platform says: ‘ We oppose the socalled Aldrich, plan for the establishment of a
^Wherever the term “central bank” occurs in this narrative it means
a central bankof banks,” dealingonly with member banks of a system,
and not a central bank in the European sense, transacting business with
the public. No American banker advocated a central bank of the lat­
ter description.







32

AN ADVENTURE IN CONSTRUCTIVE FINANCE

central bank/ This does not mean, I take it,
that the central banking idea is opposed but that
the Aldrich plan for a central bank is opposed.”
Why this extract was by Professor Seymour
omitted from Colonel House’s letter to Mr. Wil­
son as printed in the Intimate Papers is matter for
curious conjecture. Its publication would have
figured me in something that did not occur as
well as in something that was never said__in
which circumstances I might have been expected
to enter a specific denial. It likewise would
have revealed Colonel House as still an ad­
vocate of a central bank, even if to get it he must
outwit the party platform on which Wilson was
elected.
At the time indicated, my information was
limited and my education neglected with respect
to “ the mysterious Colonel House.” I did not
know there was such a person in existence.
That November day in Washington, wherever I
went it seemed I had barely missed an eager
telephone call from Albert Burleson. When
found and told that Colonel House was anxious
to see me at the home of Hugh Wallace, I
startled my Texas colleague by asking, “ Who is
Colonel House?” To this extent had I been
immersed in the currency problem: that I had
not discovered Mr. Wilson’s “ other self!” On

THE UNSEEN GUARDIAN ANGEL

33

the way to the Massachusetts Avenue residence,
Burleson, much amused at my delinquency, set
me wise by whispering how “ close and con­
fidential a friend” House was to Wilson. He
supplemented this act of kindness by telling me
Colonel House wanted to discuss with me “ the
factional politics of Virginia” with a view to a
suitable distribution of federal patronage under
the approaching Democratic administration.
To me, who regarded the federal patronage
system with unspeakable dislike, this appeared
to be an extraordinary incident.
I saw and talked with Colonel House alone in
a high-up room of Hugh Wallace’s home. He
no more “ ran over briefly” with me what he
“ considered might be a satisfactory [currency]
measure” than did I run over with the predeces­
sor of George I I I the original draft of the Dec­
laration of Independence.
Neither did I give Colonel House, as stated in
the letter to Mr. Wilson, an interesting story of
Mr. Bryan’s suggestions to me with respect to
currency reform; for at that time Mr. Bryan had
not parted his lips to me on the subject. Ap­
parently in a very casual way, Colonel House, in
that conference, touched on currency matters by
avowing his partiality for the Aldrich banking
scheme. When I reminded him that we were
precluded from considering the Aldrich scheme







34

AN ADVENTURE IN CONSTRUCTIVE FINANCE

b y reason of the fact that Mr. Wilson and the
next ensuing Congress had been elected on a
party platform which, in terms, rejected the
Aldrich bill, Colonel House suavely replied: “ I
fear, M r. Glass, you attach too much importance
to party platforms.” Had Colonel House men­
tioned to me the casuistical distinction with
which, in the unpublished paragraph of his letter
of November 28, 19 12, he sought to impress
M r. Wilson, he would have been cautioned to
read the Baltimore platform and note that its
declaration was against “ the Aldrich plan or a
central bank.” Thus, as we proceed, the reason
for the Seymour excision of this paragraph of the
House letter to Wilson is gradually disclosed.
As it is said a rose by any other name smells
just as sweet, so Colonel House, in this sup­
pressed extract from his letter, indubitably
implied that a central bank bill with somebody
else’s name substituted for that of Aldrich would
flank the party platform and answer as well as
the Aldrich scheme! He would evade the party
platform by changing or to fo r— not greatly,
but technically altering its meaning. Perhaps
one should not harshly blame Dr. Seymour for
casting out this monkey wrench in his proc­
ess of establishing for Colonel House paternity
of the Federal Reserve Act. It breaks down his
machinery.

“ t h e u n s e e n g u a rd ia n a n g e l ”

35

As for M r. B ryan’s views on impending cur­
rency legislation, at the brief interview had with
me in Washington Colonel House manifested
rather than expressed nervous concern lest the
Nebraskan should be permitted to dominate the
situation. I told him in a sentence that Mr.
Bryan’s known ideas about such matters in no
sense accorded with m y own; and, while he would
not be permitted to control legislation, I should
not refuse to hear his suggestions nor fail to seek
his cooperation whenever such a course seemed
expedient. M r. Bryan had in House and Senate
a formidable following, and it would be tactless
to estrange him. This was every word said
about M r. Bryan.
The interview of Colonel House with me at
the Wallace home in Washington, misrepresented
in the particulars enumerated, as well as in
others, terminated with an exceedingly brief ref­
erence to Virginia politics in which the two
Senators from that state were by Colonel House
plied with verbal caustic. T hey were at the
time political adversaries of mine and had vigor­
ously fought M r. Wilson; yet it seemed a little
singular that a total stranger should have so
quickly assumed the task of excluding them from
the light of the President-elect’s countenance
and confiding to me the impossible and unwel­
come responsibility of dispensing federal patron­







36

AN ADVENTURE IN CONSTRUCTIVE FINANCE

age in my state. This patronage talk was, of
course, a mere gesture to conceal the covert
purpose of the conference which Colonel House
had sought with me; and I left the house per­
plexed, if not a little inflamed, at what began
to dawn on me as a trip of inspection by my in­
terrogator.
It was patent that, among other things,
Colonel House had come or been sent to Wash­
ington to “ look me over,” as a horseman will
lift the tail and also peer into the mouth of an
animal to be raced. With increasing suspicion
and a little sense of humiliation, I began to
wonder if Governor Wilson, suspecting my
capacity for the difficult enterprise ahead, had
dispatched a factotum to measure my knowledge
of the currency question. Or was it that certain
inveterate advocates of a central bank scheme
were skirmishing to determine their line of
strategy? I was to learn definitely that Mr.
Wilson experienced no lack of confidence in me.
I have yet to learn that Colonel House was not
an emissary of certain central bankers.

C H A P T E R III
A DIARY OF THINGS IMAGINED

A Worthless Witness for the Imposture— Utterly Deceptive
Implications Laid Bare— Colonel House Wrote no Word
in Federal Reserve Act

A N D now, the D iary: that we m ay see how
/ i worthless a witness it is to identify Colonel
House as the author of a single sentence or the
proponent of a solitary provision of the Federal
Reserve Act. One may not be sure from it
that Dr. Seymour’s hero of currency reform had
an idea of what had been done or should be done
or might be accomplished in that direction. To
begin, there is this entry:
“ December IQ, IQ12: I talked with Paul W ar­
burg over the telephone regarding currency re­
form. I told him of my Washington trip and
what I had done there to get it in working order.”
So! What had Colonel House done? What
could he have told Paul Warburg he had done?
In his letter of November 28th preceding, pur­
porting to give Governor Wilson an account of
his visit to Washington, the statement is made




37




38

AN ADVENTURE IN CONSTRUCTIVE FINANCE

that, in general conversation, he met certain
enumerated persons, not one of whom had any­
thing whatsoever to do with the conception,
the construction, or enactment of the Federal
Reserve Act beyond the quite inevitable fact
that, bound by congressional caucus action
several of them voted for the bill. On Colonel
House s list was the Texas politician who liter­
ally was laughed out of the Democratic caucus
lor his clownish attempts to defeat the measure.
In the letter to Governor Wilson, it is not re­
corded that Colonel House mentioned the subject of currency legislation to any person on his
hst but me; and I have already set down with
sufficient clarity the utterly inconsequential na­
ture ot his fleeting conversation with me at the
home of Hugh Wallace. So what sleight-ofand thing had this economic wizard done to
get currency reform “ in working order” over­
night, months before a hearing was had, before
a sentence of the bill was written and even beore M r. Wilson had indicated to those in charge
his attitude on the subject ?
g
r o ! t ° rt T 11 tW° m° nths Iater> on February 26,
irraffi
t ^ entry
CXaC.t’
C° Ionel
irradiating
in the
D iary:House makes this
f, T —
t0 the Harding dinner and talked with
the guests invited to meet me.
It was an in-

A DIARY OF THINGS IMAGINED

39

teresting occasion. I first talked with Mr. Frick,
then with Denman and afterwards with Otto
Kahn.”
And all this under the page title o f “ CurrencyReform” ! It is not clear whether the Harding
mentioned is he who wrote me from Birmingham
a clever plea for a central bank and afterward
became an outstanding governor of the Federal
Reserve Board or the Harding who became
United States Senator from Ohio and later Presi­
dent of the United States. In either case, it
may safely be conjectured that Harding gave
House an esculent meal; but what has this gas­
tronomic story to do with the paternity of the
Federal Reserve Act? Are we asked to believe
that this or any other Harding was tactless
enough at that dinner to suggest to Colonel
House how to write the currency bill which, three
months before, on a flying trip to Washington,
the Colonel had “ gotten in working order” ?
As to M r. Frick, was the dinner before or after
his attempted assassination by a disappointed
workman, and was this incident the topic of
conversation ? And Denman! I seem to remem­
ber a person of that name who, when I was
Secretary of the Treasury, “ raised merry hell,”
and had to be curbed, about certain ocean
freight-rate discriminations; I am not sure this




......




40

AN ADVENTURE IN CONSTRUCTIVE FINANCE

was he. Anyhow, were he and Colonel House
trying to fix up shipping board troubles? But,
with the highly estimable Mr. Otto Kahn
thrown in for good measure, exactly how did this
D iary entry enable the Yale historian to detect
Colonel House as the author of the Federal
Reserve Act ? What had his dinner with these
reputable gentlemen to do with currency reform?
What, in heaven’s name, had they, individually
or collectively, to do with the legislation?
In conjunction with the last foregoing item,
Professor Seymour, to establish his thesis,
surely must have relied on the next succeeding
two extracts from this convincing D iary:
“ March 1 3 , 1 9 13 : Vanderlip and I had an
interesting discussion regarding currency re­
form.
March 27, 1 9 13 : M r. J . P. Morgan, Jr ., and
Mr. Denny of his firm, came promptly at five.
McAdoo came about ten minutes afterwards.
Morgan had a currency plan already formulated
and printed. We discussed it at some length.
I suggested that he should have it typewritten
and sent to us to-day.”
Professor Seymour thoughtfully explains that
Mr. Morgan was required to incur the expense
and trouble of having his plan typed in order to

A DIARY OF THINGS IMAGINED

41

fool the President and the chairman of the House
Banking and Currency Committee into the be­
lief that this was not “ a cut-and-dried plan”
which a powerful financial magnate was seeking
to “ impose” on Congress! It is needless to ask
or to imagine what became of Mr. M organ’s plan,
if he was at pains to have it typed. The per­
plexing thing is, what on earth did Colonel
House want with it, since he and “ Philip Dru”
had devised a plan long before, which Colonel
House, on the top floor of Hugh Wallace’s
palatial residence in Washington had, the pre­
ceding November, “ gotten in working order” for
quick passage by Congress ? T h at’s the ques­
tion: why should he have put upon the Morgan
stenographer the exasperating task of typing a
currency bill for which there was no need? M r.
Morgan and his stenographer should not have
been thus trifled with. ’Twas bad treatment.
Needless to add, those charged with the prepara­
tion of currency legislation never heard of Mr.
Morgan’s bill.
But let us not lightly pass by the point that
Colonel House’s D iary here records the im­
pressive fact that he “ had an interesting discus­
sion regarding currency reform” with Vanderlip.
It would be impious to suggest that Frank
Vanderlip hoped to teach Wilson’s “ silent
partner” anything about banking and currency.







42

AN ADVENTURE IN CONSTRUCTIVE FINANCE

The only sane inference one may get from this
important entry, aside from Dr. Seymour’s lucid
assumption that it is contributory proof of
House’s paternity of the Federal Reserve Act,
is that the discussion was a “ dog-fall.” It being
confessed by Colonel-House that he conceived
the Reserve Act, the fact that Mr. Vanderlip
violently opposed it to the bitter end would seem
to imply that neither of these gentlemen in this
memorable discussion convinced the other. And
Vanderlip never having pretended to be the
author of the currency act, and there being no
other participant in that historic discussion,
Dr. Seymour feels safe in his conclusion that in
House he had discovered the artificer of the fed­
eral reserve system. That is to say, Colonel
House dined with two bankers, an industrialist,
and a seafaring man in February, and talked with
Vanderlip and, finally, with Morgan in March,
a priori he thereafter formulated and became
the “ guardian angel” of the Federal Reserve
A c t! And trumpery like this struts in the garb
of history!
And next! Unwatchful of his flanks and fo r­
getting he had met and “ outlined” to me his
currency plan at Mr. Wallace’s home in Wash­
ington the previous November and had, in
December, reported it “ in working order” to
Paul Warburg, the Colonel’s Diary, as ma­

A DIARY OF THINGS IMAGINED

43

noeuvred by Dr. Seymour, drops back a peg and
on January 8, 19 13, records:
“ The Governor [Wilson] agreed to put me in
touch with Glass, Chairman of the Banking and
Currency Committee, and I am to work out a
measure which is to be submitted to him.”
This is all literally and consecutively true save
in two or three trivial particulars. (1) Colonel
House having met me in November as the close
and confidential friend” of M r. Wilson and,
according to his solemnly recorded confession,
outlined and arranged for his currency plan,
there was no need of an introduction by Governor
Wilson in January. (2) It happened that I was
not made Chairman of the Banking and Cur­
rency Committee until the following June 3d,
after the amusing stratagems of the Aldrich
central bankers to prevent had ceased to vex
the appointing power. (3) I f Colonel House was
ever commissioned by the President-elect “ to
work out” a currency measure and submit it to
me, he flagrantly disobeyed orders. Neither
then nor after I became Chairman of the House
Banking and Currency Committee did Colonel
House ever submit to me one line of a proposed
currency bill. Neither did President Wilson
at any time of all my fairly intimate contact







44

AN a d v e n t u r e i n c o n s t r u c t i v e f i n a n c e

with him ever hint that he desired or expected
anything of the kind. He spoke no word, nor
wrote any, that could have caused me to suppose
that he suspected Colonel House of harbouring
an idea on the subject. With these inconsequen­
tial variances, this four-line entry in the House
Diary, paraded by his chosen historian as an at­
testation of the Colonel’s restless activity in
currency reform, is historically accurate. I f
the Professor, in the classroom, is as precise and
impressive as in the pages of the Intimate Papers,
his expositions and deductions must be a price­
less asset of the great university.
Manifestly, also, Governor Wilson was tardy
in keeping his promises; for, according to my
records, in agreement as to dates with the
House Diary, the faithful friend o f Mr. Wilson
did not get in touch with me for the second
time until the following March 24th, nearly
three months after Governor Wilson’s alleged
promise to bring us together and three weeks
after Mr. Wilson became President. How we
managed to navigate the currency boat for that
length of time without the stroke oar of Colonel
House, the D iary does not record; neither does
Dr. Seymour, at this point, venture a customary
inference. At all events, on March 24th, Colonel
House invited me for a drive along the quieter
streets of Washington in a horse-drawn shay.

A DIARY OF THINGS IMAGINED

45

And this episode brings us to the clinching item
in this justly celebrated D iary:
“ March 24., 1 9 1 3 : I had an engagement with
Carter Glass at five. We drove, in order not to
be interrupted. . . .
I urged him not to
allow . . . the Senate Committee to change
what we had agreed upon in any of the essential
features. He promised to be firm. I advised
using honey as long as it was effective, but, when
it was not, I would bring the President and
Secretary of the Treasury to his rescue.
“ I spoke to the President about this after
dinner and advised that McAdoo and I whip the
Glass measure into final shape which he could
endorse and take to Owen as his own.”
Ordinarily, one does not relish being laughed
at; but I confess a hearty participation in the
entertainment which some of my intimate as­
sociates in the Senate have derived from this
unique recital of the Diary. “ Good-morning,
Glass, are you still standing firm?” is the jocose
greeting handed out to me by these comrades
of the toga. It is meant in fun, and in that
sense I enjoy it; ‘but it implies an accusation
that secretly causes me pain. These friends im­
pute to me an excess of tenacity and a degree
of firmness that verge at times on obstinacy.
They laugh outright at the idea that Colonel







46

AN ADVENTURE IN CONSTRUCTIVE FINANCE

House had to ask me “ to be firm” in dealing
with a legislative problem the study of which
for nearly ten years had been a part of my busi­
ness in Congress.
But in the fun of the thing sight should not be
lost of the D iary’s other foolishly improbable
and, indeed, impossible aspects. In the first
place, Colonel House and I had not “ agreed”
to anything essential or nonessential about re­
serve banking. When or where or how was it
possible that we could have agreed on anything?
I had not laid eyes on him nor he on me since
that fugitive meeting, as total strangers, at the
residence of M r. Wallace four months thereto­
fore. In the interim, I had no communication
with him nor he with me, directly or indirectly,
on any subject. I simply knew, from our one
flitting conversation, that he thought he believed
in centralizing bank credits and power, as the
Aldrich bill proposed, and I believed in decen­
tralized credits and power, as the Federal Re­
serve Act provides. Thus we were not in ac­
cord, but in total disagreement, when we
separated after this one brief talk. Moreover,
the Senate committee, instituted for the first
time in the history o f that body, had been
named only six days before. Because he hap­
pened to be a former townsman in Virginia
and a lifelong acquaintance, I knew that Senator

____________

A DIARY OF THINGS IMAGINED

47

Owen, of Oklahoma, had been made chairman.
I did not know his attitude on currency revision,
nor the views of any other member of the com­
mittee, nor can I think Colonel House knew.
There was no reason, therefore, for me or for
Colonel House to suspect Senator Owen or any
other member of the Senate Committee of a pur­
pose or desire to change provisions of a currency
hill of the existence of which they had no knowl­
edge. At that moment, Colonel House had
never seen a sentence of the measure. Not even
the President or the Secretary of the Treasury
had a draft of it. Imagine, in these circum­
stances, the absurdity of such an entry in the
House D iary as is thus said to have been
made!
The real truth is that, on that ride, Colonel
House’s conversation related almost exclusively
to federal patronage in Virginia. When he sug­
gested, for the second time, that the President
would want me to distribute the offices, again I
told him of my distaste for patronage and the
impossibility of disregarding the Virginia Sena­
tors in making appointments requiring confirma­
tion.
Aside from what I have written, the only
thing certainly true about this D iary notation of
March 24th is the fact that we drove together
and a casual reference was made to currency







48

AN ADVENTURE IN CONSTRUCTIVE FINANCE

readjustment, growing out o f Colonel House
asking me “ how the bank bill was progressing.”
In this connection, he was kind enough to assure
me he “ would bring the President and Secretary
of the Treasury” to my assistance should I feel
at any future stage the need of their direct per­
sonal influence. This was encouraging, and I
thanked him at the moment; and later, recalling
this proffered aid, I sent him a letter of thanks
similar to that posted to all those who had given
me an early word of encouragement and also had
been at pains to wire their congratulations on
the triumphant passage of the bill in the House.
But, since I never experienced the least trouble
in getting access to President Wilson or to Sec­
retary McAdoo without the intervention of
Colonel House, the latter was never invited to
act as suggested.
Professor Seymour blandly accepts as cumula­
tive proof of authorship Colonel House’s state­
ment that the latter “ advised the President that
McAdoo and I [House] whip the Glass measure
into final shape, which he could endorse and
take to Owen as his own.” The D iary does not
give the President’s reply to this modest pro­
posal. I f any such thing was said to Mr.
Wilson, it is certain that no such thing was done.
N early a month later, the President asked me to

A DIARY OF THINGS IMAGINED

49

have prepared for him a brief digest of the bill
as then drafted. This was promptly done by the
accomplished committee expert. Colonel House
obtained it from M r. Wilson, instantly sent it to
Mr. Warburg, and later turned in to M r. McAdoo an unsigned and unidentified hostile
criticism of the digest, calling for radical altera­
tions of the bill, which were not made, and ad­
vocating certain things which were not done.
The criticism was afterward traced to M r. War­
burg. And this is the way Colonel House
“ whipped the Glass measure into final shape”
— by getting his distinguished tutor in the
economics of banking and currency to pound i t !
Of course, no censure is attached to M r. War­
burg, for whom I have the highest respect and
warmest personal regard. He simply was un­
alterably hostile to certain fundamental provi­
sions of the federal reserve bill and in plain
terms persistently said so. This he had said at
the committee hearings in Janu ary, which
made it quite futile to have him repeat it in
April as a contribution in writing from Colonel
House to the great cause of monetary reform!
There is not anything of record, nor is there
available evidence of any description, that
Colonel House ever made a pencil mark of his
own on the federal reserve biil or ever offered,







50

AN ADVENTURE IN CONSTRUCTIVE FINANCE

in script or verbally, a provision contained in
the statute. Hence his D iary entries to a con­
trary effect— if not the marquetry of invention,
furnish an inscrutable case of self-deception.
Of all living men, it may be stated in this con­
nection, Dr. H. Parker Willis, expert adviser
of the House Banking and Currency Committee,
should possess an intimate knowledge of things
having reference to the preparation of the cur­
rency bill and its management before Congress.
As answering an inquiry from me, he gives con­
sent to publication of the appended note:
C olum bia U n iv e r sit y

in the C ity of New Y ork
School of Business
Oct. 7, 1926.
D ea r M r . G l a s s :
You have asked me whether I have any rec­
ollection of the participation o f Colonel E. M.
House in the preparation of the Federal Reserve
Act. According to the facts as known to me
and as shown by my carefully preserved records,
Colonel House had nothing whatever to do with
the preparation of the measure. So far as I
know, he never filed with the Committee on
Banking and Currency, or with anyone con­
nected with it, either a draft of a bill, a sugges-

A DIARY OF THINGS IMAGINED

51

tion of a bill, or a recommendation for a provision
in any such bill. He had nothing whatever to
do with the Act.
Yours very truly,
H. P a r k e r W il l is .
S enator C a r t e r G l a ss ,
United States Senate,
Washington, D. C.
In my files there are, I would judge, more than
three thousand letters and monologues relating
to proposed federal reserve legislation. M any
of these letters represent continuous correspond­
ence about the bank bill in process of formu­
lation and after it was drafted. T hey are from
political economists, bankers, merchants, text­
book writers, and others. Among them I
readily recall Sprague, of H arvard; Fisher and
Hadley, o f Y a le ; Kemmerer and Meeker, of
Princeton; Laughlin, of Chicago; Scott, of Wis­
consin; Jenks, of New Y o rk ; Horace White, Sir
George Paish, and Sir Edmund Walker, and so
on. With bankers, the correspondence was
intimate. There are letters from Hepburn,
Vanderlip, Speyer, Warburg, Howe, Frame,
Reynolds, Forgan, Wade, Wexler, Perrin, Dawes,
Hulbert, Nash, and scores of others.
Among
merchants intensely interested, there are letters
from Farwell, Wanamaker, Filene, Simmons,




I




52

AN ADVENTURE IN CONSTRUCTIVE FINANCE

and m any more. There are communications
r°m various group heads representing commerce industry, agriculture, labour, credit men,
etc. There is not to be found a suggestion, an
intimation, or even the scratch o f a pen from
Colonel House. M an y o f the persons enumer­
ated often came to Washington for personal
interviews; and life-wasting days and nights
were spent in m y rooms at the Raleigh Hotel in
discussions with the more important o f them.
, '‘frequently at those discussions were the
really constructive members o f the Banking and
Currency Committee. Never was a word spoken
that would indicate the existence o f Colonel
House, and never a word came to us there or
elsewhere, directly or indirectly, from Dr. Sey­
mour s mysterious author o f the Federal Reserve
Right here it m ay be noted that there is a
nft in the Diary. Curiously enough, Colonel
House omits all reference to the only meeting
with me at which he was given a real exposition
of the Class currency bill. M r. Hugh Wallace
in whose home I first saw Colonel House, invited
the two o f us to meet the Secretary o f the
treasury at dinner early in April. Mr. McAdoo ’phoned to inquire if I would not bring
along a draft o f the bank bill. To this I con­
sented; and there, after dinner, for the very first

A DIARY OF THINGS IMAGINED

53

time, Colonel House heard from me an explana­
tion of this currency measure. The Secretary
of the Treasury discussed details with anima­
tion and evident understanding. Colonel House
was as .quiet as a mouse. If he comprehended
the philosophy or technique of the bill, it did not
seem so to me. This was the feature of the
occasion. It most impressed, as indeed it
amused, me. The conversation terminated with
a request by Colonel House to let him “ have the
bill to study.” This I could readily decline to
do on the plea that I had no duplicate draft;
the only other draft was in the hands of the
committee expert. Next day I related the cir­
cumstance to Dr. Willis, who briefly recounts
the incident in his work on The Federal Reserve
System.
It was immediately after this that the Presi­
dent requested the digest of the bill which
Colonel House quickly obtained and gave to Mr.
Warburg for criticism; and nothing ever seemed
plainer to me after this incident than that
Colonel House, with no technical knowledge of
the problem, or constructive capacity in its legis­
lative consideration, was acting as a medium of
approach to the White House for a group of
bankers which hoped to mould currency legis­
lation. At the head of these the ablest, the intensest, the most agile, the best trained, was Paul







54

AN ADVENTURE IN CONSTRUCTIVE FINANCE

M. Warburg. He had for some years manifested
an intelligent interest in currency reform and
contributed brilliantly to the literature of the
movement. He was a strict consolidationist, a
believer in a single central bank of banks, as all
his associates were. It is not intended to imply
that there was, on the part o f these bankers, any­
thing illicit about the game. They were men of
high character and earnest convictions. They
had convinced themselves that the country could
best be served by their proposed banking
methods, and they wished to reach and impress
the President. Through Colonel House, in the
way indicated, they got access. That is all they
got. T hey did not make the currency bill.
President Wilson from first to last quietly, but
decisively, insisted that these great bankers
whose dinner guest Colonel House so often was
would not be permitted to write a bank bill for
his administration. Again and again he told
me this when I would discuss with him the
manoeuvres and stratagems o f which Professor
Seymour’s “ guardian angel” seemed to think we
were in blessed ignorance. I shall never forget
the very quiet, yet very significant w ay in which
President Wilson one day said: “ Glass, I had not
supposed those gentlemen would be permitted to
have a great deal to do with this business.”
This swift review concludes my examination

A DIARY OF THINGS IMAGINED

55

of Colonel House’s meaningless D iary on “ Cur­
rency Reform” as presented by Professor Sey­
mour in the Intimate Papers. It would prove
tedious to pursue the absurdities running through
the few remaining entries. These trivial nota­
tions have reference to the harmless, as fruitless,
activities of Colonel House after the federal re­
serve bill, without the faintest assistance from
him, had weathered the storm of a party caucus,
passed its ordeal in the House, and was nearing
the end in the Senate. They range from an in­
ferential attempt to tame “ Jim ” Reed to the
Colonel’s imaginary achievement in having the
small group of recalcitrant Democratic Senators
“ whipped into line” for the currency measure. I
cannot speak by authority as to this. I was led
by Mr. Wilson to believe that effective caucus
action in the Senate was chiefly due to the skill
and unmatched persuasiveness of the junior
Senator from Virginia, in constant cooperation
with Mr. McAdoo and the President. It was
this indispensable service that suggested the
presence of M r. Swanson at the signing of the
Act by the President, as it was this exhibition of
genuine loyalty that changed the President’s
sharp disfavour into a lasting feeling of affection
for Swanson. At least, I was so told by persons
about Mr. Wilson, both at the Executive offices
and in the White House.







56

AN ADVENTURE IN CONSTRUCTIVE FINANCE

With the few D iary items that tell of Colonel
House’s remaining dinners and discussions with
bankers who still nurtured, if they did not
proudly cherish, the hallucination that they,
through the President’s stealthy friend, might
affect federal reserve legislation, it is needless to
deal. Neither shall I venture to fathom the
fatuity of those who, failing to escape the magic
of Colonel House’s illusions, in the final exigency
even magnified him into a financial “ Moses” and
craved the distinction, as the Colonel himself
says, o f officiating as his “ Aarons.” Their
failure to sense the real status of things was be­
yond all comprehension. Equally inexplicable
to this day is the singular aberration of Colonel
House in seeming to imagine that he was the
creator and preserver of the federal reserve bank­
ing system and that those who actually conceived
and wrote and translated the measure into law
wrere mannequins on which he fitted his legisla­
tive designs! Better had he remained “ A Man
of M ystery” than to have permitted Dr. Seymour
to reveal him as the central figure of such a the­
atrical sham.
As for Professor Seymour, he is so vividly dis­
closed in the Intimate Papers as to require no
elaboration of his part in the drama. At every
moment, on every page of his Currency Reform
chapter, imagination outraces the truth to its

A DIARY OF THINGS IMAGINED

57

objective; and credit for things accomplished is
grotesquely misapplied. Of Quintus Hortensius
it was said he scrupled at nothing in his eagerness
to win the cause he pleaded. This Cicero must
have known when he entreated written encom­
iums from his pen: “ Letters do not blush; spare
not to praise me, Hortensius.” Both Colonel
House and Dr. Seymour, indoctrinated with this
inspiring thought, have profusely applied it to
book-making and to Diaries. Unsatiated by
self-applause, if Colonel House did not adjure
Professor Seymour’s unblushing commendation,
at least he has willingly accepted and placed on
the stalls volumes of unmerited eulogium, at
which the contriver no less than the recipient
should stand abashed. All which prompts me to
turn with relief from this work of destruction to
an engaging story o f construction.







C H A P T E R IV
ORIGINS OF FIN AN CIA L FREEDOM

The Deficiences and Terrors of the Old Banking System—A
Breeder of Panics—Feeble Remedies Attempted—
Deliverance at Last Offered

T T H E outset of this chronicle, it was said
that a true history of federal reserve legis­
lation, if written with verve and flavour, could
be made to read like a romance. The reform of
the currency was almost a miracle; and the story
of it, with its many sidelights, should not prove
wearisome if told with strict fidelity to the truth,
even though the narrative be devoid, in its text,
of imagination and humour. The grim purpose
and undeviating pursuit of those charged with
the business made it a serious and momentous
task. For nearly thirteen years there have ap­
peared vagrant accounts of the inception and
accomplishment of this legislation, and vari­
ous claims have been set up as to authorship.
Speaking exactly ten years ago to a public
assemblage in Washington from a table at which
sat the President of the United States, the writer
said all he has ever caied to say on this point:

ORIGINS OF FINANCIAL FREEDOM

59

“ As to the Federal Reserve Act itself, there
has been occasional speculation as to who most
deserves credit for its conception and its enact­
ment into law. Its paternity has curiously been
ascribed to men who were savagely hostile to
the a ct; to men who never saw a sentence of the
original draft; to men who could not write its
title in a month’s trial. I know very well the
chairman of the House Committee on Banking
and Currency has been given an undue share of
the praise. . . . But, gentlemen, the serious
fact is that the master mind of the whole per­
formance was Woodrow Wilson’s. It was his in­
finite prescience and patience; it was his courage
and wisdom; it was his patriotism and power— his
passion to serve mankind—that gave zest and
inspiration to the battle for financial freedom.”
Not since then has it seemed worth while to
bother with this aspect of the question until
now, when a professor of history at a great uni­
versity comes forward to assert a claim as utterly
spurious as any ever presented. This is the sole
provocative and, as I venture to think, a com­
plete justification o f putting aside reserve in
order that the truth may be known. And now
for the facts:
^ For fifty years prior to the enactment of the
federal Reserve Act, the United States endured
the handicap o f an unscientific currency system.







60

AN ADVENTURE IN CONSTRUCTIVE FINANCE

Again and again it was pronounced by textbook
writers and experienced bankers “ the most bar­
barous system on earth.” The defects were so
glaring and the failure to remedy them fraught
with such ill consequences as to constitute a
positive indictment of the statesmanship of the
nation. For a part of the time, we rested in the
imaginary security of ignorance; for another
part, we seemed indifferent to our plight, and for
the remainder of the time were afraid to apply
the remedy lest we interfere with the processes
and profits o f a privileged class. For no pro­
tracted period were we without warning. At
nearly every decennial the hateful malady mani­
fested itself in violent financial disturbances
which swept the country from Dan to Beersheba.
Catastrophe had overtaken us five
times within thirty years right in the midst of
great prosperity. Strange to say, prosperity,
under the then-prevailing currency system, was
actually conducive to disaster!
The Siamese twins of disorder were an inelastic
currency and a fictitious reserve system. The
bankers and politicians were perfectly willing to
tackle the task of readjusting the currency; but
the bankers, through sheer acquisitiveness, ob­
jected to interference with their reserve arrange­
ment, and the politicians, through fear of the
bankers, were averse to stirring up enmities

ORIGINS OF FINANCIAL FREEDOM

6l

among men of power. The consequence was
that the sum total of the idle bank funds of the
nation was congested at the money centres for
purely speculative purposes. Nobody seemed
to discern the absolute necessity of subduing at
exactly the same time the twin evils of inelasti­
city in the currency and of pyramiding reserves
by book balances. Little could be accomplished
by correcting one fault and leaving the other to
persist.
The national currency was inelastic because
based on the bonded indebtedness of the United
States. The ability o f the banks to meet the
currency needs of commerce and industry was
largely measured by the volume of bonds avail­
able. And the total was constantly being
diminished by reductions in the national in­
debtedness. For half a century we banked
on the absurd theory that the country always
needed a volume of currency equal to the na­
tion’s bonded indebtedness and at no time ever
required less, whereas we frequently did not
need as much as was outstanding and quite as
often required more than it was possible to ob­
tain. So, when more was needed than could be
gotten, stringencies resulting in panics would
be precipitated, to cure which, for the moment,
clearing-house certificates would unlawfully be
resorted to as a substitute for bank notes. When







62

AN ADVENTURE IN CONSTRUCTIVE FINANCE

currency was redundant, when the volume was
more than required for actual commercial trans­
actions, instead of taking it through the ex­
pensive process of retirement, it was sent by
interior banks to the great money centres to be
loaned on call for stock and commodity gambling.
The Federal Reserve Act revolutionized this
wretched system by providing a reserve bank
currency based on the sound, liquid commercial
assets of the country, responsive at all times and
to the fullest extent to every reasonable demand
of legitimate business. It is issued when needed
and retired when not required. Based on com­
mercial transactions, fortified by a large gold
cover, with the assets of a great banking system
behind them, as well as the obligations of the
government, federal reserve notes are easily
the soundest on earth to-day, being at a premium
in every foreign money market of the world.
At the same time, the Federal Reserve Act
wrecked the old system of reserve deposits,
which was a breeder of panics. As already
pointed out, in seasons of depression, with moder­
ate demands for credits and currency for local
commercial transactions, the country banks
would bundle off their surplus funds to the money
centres, to be loaned, on call, for speculation.
A t periods, with stock gambling in full blast,
trading in business would revive, demands for

ORIGINS OF FINANCIAL FREEDOM

63

credit and currency would ensue, and, with
speculative loans extended beyond all capacity
to pay, the call for funds from “ the street” would
create consternation. Interest charges would
quickly jump higher and higher, panic would
seize gambler and banker alike, and prevailing
prosperity would be superseded by distress
everywhere. Banks would cease payments; mer­
chants would suspend activities; the shops of
industry would close; cars would become idle;
crops would rot in the fields and labour would be
deprived o f its wage. We rescued the reserve
fund from this evil use. It had never been at­
tempted before. The attempt now was a chal­
lenge to the dominating financial interests of
America, and they accepted the invitation to
conflict. It was a memorable fight, in which the
right prevailed and sound economics triumphed.
To within one hour of the final passage of the
bill, the bankers kept up their fusillade against
this reserve provision. Telegrams of protest
were sent to the conference chamber as the
agreed report on the bill was being signed by the
conferees! We cured this financial cancer by
establishing regional reserve banks and making
them, instead of private banks in the money
centres, custodians of the reserve funds of the
nation; by making them also, instead of cor­
respondent banks, the great re-discount agencies







6\

AN ADVENTURE IN CONSTRUCTIVE FINANCE

of the country; by making them minister
to commerce and industry rather than to
the schemes of speculative adventure. The
country banks were made free. Business was
unshackled. Aspiration and enterprise were
loosed. Never again was there to be a money
panic.
While vision and capability, as well as cour­
age, were required to bring about this radical
reformation, preceding events had a powerfully
compelling influence. The frightful panic of
1907, decidedly the severest financial disturb­
ance the country ever had, sharply arrested the
attention of Congress and forced those charged
with legislative authority at least to attempt
remedial action of some kind. The result was
the precarious Vreeland-Aldrich Act, intended
to serve emergency purposes until a permanent
scheme of currency reform might be contrived.
The author of this chronicle, selected by his
minority associates of the House Banking and
Currency Committee to write the dissenting
report, in a brief speech in the House on M ay 27,
1908, described in a few words the minority view
of this entirely specious measure:
“ This report, M r. Speaker, enjoys the unique
distinction of having been signed by all the
Republican conferees of Senate and House, but
not approved by a single one. There is scarcely

ORIGINS OF FINANCIAL FREEDOM

65

a feature of this composite bill which has not
been soundly condemned by the Republican
leaders of Congress. Those features which ap­
peal to members of the House have been merci­
lessly criticized in the other chamber, and those
which suit the Republican managers of the Sen­
ate have been severely denounced here. Thus,
upon high Republican authority, the conference
report embodies a measure which is fifty per
cent. House infamy and fifty per cent. Senate
infamy, thereby making the whole thing utterly
bad. Once I heard John J . Ingalls describe
‘ Paradise Lost’ as ‘ that matchless epic which
everybody praises and nobody reads.’ And so
we have here a bill for which every member on
that side will vote, but in the provisions of which
not one of them believes. What the country
needs is not a legislative deformity for emer­
gency, but a wise and careful revision of the en­
tire banking and currency system of the United
States, whereby panics may be prevented or their
violence diminished.”
B y M r. Gage, Secretary of the Treasury un­
der President M cKinley, the bill was quite as
promptly condemned. M r. Gage said:
“ I have no sym pathy with it at all. I do not
think it is curative. At best it is a patch or a
panacea. I f adopted it probably puts us to
sleep. It is a narcotic that will woo the com-







I

66

AN ADVENTURE IN CONSTRUCTIVE FINANCE

munity into false repose, from which we will
suffer many a nightmare and awaken at last in
trouble and real agony.”
As originally enacted, not one dollar o f emer­
gency currency was ever issued under the terms
of the Vreeland-Aldrich bill, notwithstanding
the frequent attempts to have it appear that the
measure “ saved the situation” at the outbreak
o f the World War in 1914. The truth is that
quite a different statute temporarily averted
a threatened financial upheaval then. The
framers of the Federal Reseive Act had radically
amended the Vreeland-Aldrich Act and pro­
longed its life until the reserve system could be
set up. Even with these material alterations in
19 13 , the Act had to be hastily and radically
changed a second time in 1914 , on the frantic
plea of alarmed bankers, before it could be
made operative in that emergency. And the
$368,000,000 of notes issued under the Act were
retired as quickly as possible after the federal
reserve banks opened for business. The sus­
taining facts in detail were given in an address to
Congress by the chairman of the House Banking
and Currency Committee on September 7, 1916,
in which it was pointed out, among other signifi­
cant things, that two banks in New Y ork City
alone which took out $41,000,000 of the emer­
gency notes in 19 14 could not have gotten one

A

ORIGINS OF FINANCIAL FREEDOM

67

dollar under the terms of the unamended
Vreeland-Aldrich Act. And that the bungling
tax feature of the Act was a vital cause is clearlyattested by the convincing fact that of the
#2,977,066 collected by the Treasury as tax on
emergency notes, only the trivial sum of $ 11,5 5 9
represented collection at a tax equal to the m in­
imum rate of the original Vreeland-Aldrich bill.
As in some sense a justification of its failure to
put the currency system of the nation on a
permanent scientific basis at once, Congress
provided for a Monetary Commission to study
the problem and report. This Commission was
headed by Senator Nelson W. Aldrich and,
after four years of investigation and meditation,
it presented a report accompanied by a proposed
currency bill which became known as the
“ Aldrich plan.” Incidentally, along with other
very considerable expenditures, it accumulated
a library on banking and currency which, as
already stated, cost the Treasury more than
#100,000. The bill that accompanied the report
of the Commission provided for a central bank
to be owned and managed by the stockhold­
ing banks, authorized to do business with
banks only. The central bank was given im­
portant privileges and accorded certain govern­
mental exemptions. It was likewise invested
with unusual powers for a privately owned en­







68

AN ADVENTURE IN CONSTRUCTIVE FINANCE

terprise. The mechanism was quite involved;
but it was so arranged that the larger banks of
the country must inevitably become predomi­
nant and the control o f credits continue to be
exercised by a few powerful institutions in the
large financial centres. Its distinguishing fea­
ture was centralization as against mobilization
of the credits of the nation, the incentive and
power of centralization being its normal state in
contradistinction to mobilization.
The report of the M onetary Commission, with
its accompanying bill, was referred to the Bank­
ing and Currency Committee of the House under
a resolution which contemplated a searching in­
vestigation of what had become known as the
“ Money T rust.”
Contemporaneously it was
desired that steps should be taken also to reform
the defective currency system of the country.
This seemed to necessitate a partition of the
task; and Chairman Pujo divided his committee
into two sections, one to go after “ the Money
D evil” and the other to pursue the constructive
work of revising the currency system. Chair­
man Pujo headed the first section and assigned
to me the chairmanship of the subcommittee to
devise a reserve banking scheme. The Money
Trust investigation under the skilful direction of
M r. Samuel Untermeyer as special counsel, with
his large corps of experts, created for a time a

ORIGINS OF FINANCIAL FREEDOM

69

nation-wide sensation and resulted in some farreaching modifications of then-existing laws
against trusts and illicit control of credits. The
leading figures in that investigation were so
pleased with what they had accomplished as to
become imbued with a desire to supersede the
other subcommittee and take in hand the more
tedious and difficult work of revising the cur­
rency laws; but a quick end was put to this in­
trigue by the refusal of myself and associates
to tolerate interference.
The chairman of the subcommittee to which
was thus committed the task of revising the cur­
rency system had been for ten years a minority
member o f the House Banking and Currency
Committee. He had no special qualification
for the work beyond the information absorbed
in these years of discussion and a reasonable
amount of common sense acquired as a practical
printer and successful newspaper publisher,
supplemented by an observant service in Con­
gress. Among his associates were several mem­
bers of limited banking experience and excep­
tional intelligence otherwise. Authorized by
the subcommittee to make selection of an expert
adviser, fam iliar with banking technique, who
should also be a tested draughtsman, the chair­
man chose Dr. H. Parker Willis, for eleven years
a teacher of economics at Washington and Lee







70

AN ADVENTURE IN CONSTRUCTIVE FINANCE

University in Virginia, but at that time Wash­
ington representative o f the New Y ork Journal
of Commerce, with Treasury assignments.
Dr.
Willis had also been expert adviser to the House
Ways and Means Committee on several im­
portant schedules o f the tariff bill. The selec­
tion indicated was made by the chairman only
after the latter in quite a few intimate talks was
convinced that Dr. Willis entertained views akin
to his own definite idea of establishing a system
of regional banks authorized to issue notes on the
basis of commercial transactions, which notes
would gradually supersede the inelastic bondsecured currency so universally reprobated by
experienced bankers and all enlightened teachers
of economics.
Very likely it would not be interesting to
describe the almost incredible amount of detail
involved in the preliminary work of the sub­
committee, such as the assembling of indispens­
able data, the ascertainment of banking opinion
as to the preconceived system which it was
determined to set up, if possible, and arranging
for the hearings which the committee knew must
be had both for their essential value and in order
to avert the suspicion of attempting a thing of
vital importance behind closed doors. Not all
members of the committee evinced a lively or
constant interest in this tedious feature of the

ORIGINS OF FINANCIAL FREEDOM

71

work, which largely was left to the chairman and
the committee expert. It required time and in­
finite patience. It exacted research and study
by contrast of currency and reserve banking
schemes. Most of these had been designed as
emergency plans, whereas those chiefly engaged
in this work hoped to develop a permanent re­
serve system, operative in times of tranquillity
as well as in periods of financial disturbance.
Indeed, it was hoped to avert eruptions and to
make currency panics a thing impossible of re­
currence.
The stage was being set when events took
place which considerably simplified the per­
formance. The National Democratic Conven­
tion at Baltimore flatly rejected the Aldrich
plan and declared also against the creation o f a
central bank. The Congress being overwhelm­
ingly Democratic, the subcommittee wasted
little time in considering the precluded Aldrich
currency scheme. However, there was never a
moment when the committee could think it was
not at liberty to appropriate any provision of
the Aldrich bill which might, to advantage,
be woven into a regional bank scheme.
The
Baltimore Convention had also nominated for
the Presidency Woodrow Wilson, a real thinker,
whose election as days went by seemed more
than probable.
These happenings, together







72

AN ADVENTURE IN CONSTRUCTIVE FINANCE

with the rejection of the Aldrich plan by the
Roosevelt progressive convention, encouraged
the hope that currency legislation might not,
after all, prove again impossible. The work of
the subcommittee at Washington was greatly
stimulated. Meanwhile, there began to be re­
ceived, in response to the comprehensive ques­
tionnaire prepared by Dr. Willis, innumerable
letters from bankers and not a few from mer­
chants and industrialists of the more alert type.
Among the communications sent in were, of
course, scores from hopeless currency cranks
who had panaceas for every conceivable financial
ill. At this particular time, and very fortu­
nately, we were not bothered by a certain wellmanned and richly financed group which had
been organized to “ educate the country” into
accepting the central bank plan prepared by
direction of the M onetary Commission.
As
yet the subcommittee, with a mere country edi­
tor for its chairman, was not taken seriously;
these gentlemen were reserving their ammuni­
tion for big game at the exigent moment.

CH APTER V
W ILSON A PPEA R S IN TH E PIC TU R E

His Equipment— Invites Author to Princeton— Scene in a
Snowbound Sick Chamber—Origin of the Federal
Reserve Board—Bank B ill Hearings, etc., etc.

T

H E triumph of Governor Wilson for the
Presidency at the November election in
19 12 presented, with respect to federal reserve
legislation, an element of hopefulness and also of
caution. As to the latter phase, it suggested
the uselessness of proceeding along the line
which we very definitely had in mind unless and
until we could get the sanction of the President­
elect. The inspiring feature of the event was
the reflection that we would have an executive
and legislature of the same political faith, thus
avoiding the suspicion and obstruction that
seem inevitable under divided authority. It
was evident that nothing could be accomplished
in a legislative w ay at the ensuing short session
of Congress; but an immense amount o f un­
avoidable work could be done by the sub­
committee if we could know reasonably well the
direction to take. Therefore, I prepared and







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74

AN ADVENTURE IN CONSTRUCTIVE FINANCE

posted a letter to the President-elect at Prince­
ton telling him of the repeated failures of pro­
posed currency bills in Congress and the utter
hopelessness of any legislative achievement with­
out unceasing and stern executive leadership.
To this letter came the following reply, a facsimile
reproduction o f which appears on the page
opposite.
Shortly after his return from Bermuda,
Governor Wilson sent a note to the subcommittee
chairman making an appointment for the day
after Christmas at Princeton to discuss the ques­
tion of federal reserve legislation. It is not
difficult to recall the trepidation one felt in
contemplating an interview of this nature with
a man ripe in scholarship, practised in economics,
a seasoned student of government. Knowing
M r. Wilson’s thorough preparation in the very
fundamentals of such problems, it brings a smile
of derision to contrast his equipment for this
impending service to the nation with the childish
presentation by Professor Seymour of a single
threadbare expression from Colonel House on
the subject of currency reform as evidence of
House’s ability to cope with a matter of such
moment. And Dr. Seymour actually supple­
mented this fine stroke by adducing in evidence
against M r. Wilson’s capabilities a modest dis­
claimer by Mr. Wilson of any intention to pose

My dear Mr. Glasst
I warmly appreciate your letter o f
November 7th. Letters descended upon me in such
a flood that it has been impossible even to sort
them according to thsir importance, and therefore
1 have Just turned yours up from the pile too late,
alas, to arrange for an interview with you before
1 go away to Bermuda on Saturday.
1 shall seek an opportunity as early as
possible after my return to commune with you, beoauee the question of the revision of the currency
is one of such capital importance that I wish to
devote the most serious and immediate attention to
it.
It is very delightful to know that 1 am
going to be assoolated with you in the work at Wash­
ington. 1 shall look forward to it with genuine
pleasure.
Cordially and sincerely yours.

Eon. Carter Glass,
Lynchburg, Virginia*







j6

AN ADVENTURE IN CONSTRUCTIVE FINANCE

as a past master in the solution of such intricate
questions!
Before and during the presidential campaign,
M r. Wilson had manifested an eager interest in
the nation’s credit situation. From both the
economic and political points of view, he dis­
cussed the subject with a clarity and precision
that attracted wide attention and elicited from
the weightier papers and periodicals discriminat­
ing comment. In calmer moments, after the riot
of politics was over, he discussed the question
with deliberate earnestness. Observe the reach,
the genuine comprehensiveness, of this extract
from The New Freedom:
F e d e r a l R e s e r v e S y st e m

‘ ‘ You will notice from a recent investigation
that things like this take place: A certain bank
invests in certain securities. It appears from
evidence that the handling of these securities
was very intimately connected with the main­
tenance of the price of a particular commodity.
Nobody ought, and in normal circumstances
nobody would, for a moment think of suspecting
the managers of a great bank of making such an
investment in order to help those who were
conducting a particular business in the United
States to maintain the price of their commodity;

W ILSO N

APPEARS IN THE PICTURE

77

but the circumstances are not normal. It is
beginning to be believed that in the big business
of this country nothing is disconnected from
anything else. I do not mean in this particular
instance to which I referred, and I do not have in
mind to draw any inference at all, for that would
be unjust; but take any investment of an indus­
trial character by a great bank. It is known
that the directorate of that bank interlaces in
personnel with ten, twenty, thirty, forty, fifty,
sixty boards of directors of all sorts, of railroads
which handle commodities, of great groups of
manufacturers which manufacture commodities,
and of great merchants who distribute com­
modities; and the result is that every great bank
is under suspicion with regard to the motive of
its investment. It is at least considered possible
that it is playing the game of somebody who has
nothing to do with banking, but with whom some
of its directors are connected and joined in in­
terest. The ground of unrest and uneasiness,
in short, on the part of the public at large, is the
growing knowledge that many large undertak­
ings are interlaced with one another, indistin­
guishable from one another in personnel.
“ Therefore, when a small group of men ap­
proach Congress in order to induce the committee
concerned to concur in certain legislation, nobody
knows the ramifications of the interests which







78

AN ADVENTURE IN CONSTRUCTIVE FINANCE

those men represent; there seems no frank and
open action of public opinion in public counsel,
but every man is suspected of representing some
other man, and it is not known where his con­
nections begin or end.
“ I am one of those who have been so fortu­
nately circumstanced that I have had the op­
portunity to study the w ay in which these things
come about in complete disconnection with
them, and I do not suspect that any man has de­
liberately planned the system. I am not so
uninstructed and misinformed as to suppose that
there is a deliberate and malevolent combination
somewhere to dominate the Government of the
United States. I merely say that, by certain
processes, now well known, and perhaps natural
in themselves, there has come about an extraor­
dinary and very sinister concentration in the con­
trol of business in the country.
“ However it has come about, it is more im­
portant still that the control of credit also has
become dangerously centralized. It is the mere
truth to say that the financial resources of the
country are not at the command of those who do
not submit to the direction and domination of
small groups of capitalists who wish to keep the
economic development of the country under
their own eye and guidance. The great monopoly
in this country is the monopoly of big credits.

WILSON APPEARS IN THE PICTURE

79

So long as that exists, our old variety and
freedom and individual energy of development
are out of the question. A great industrial
nation is controlled by its system of credit.
Our system of credit is privately concentrated.
The growth of the nation, therefore, and all our
activities, are in the hands of a few men who,
even if their action be honest and intended for
the public interest, are necessarily concentrated
upon the great undertakings in which their own
money is involved and who necessarily, by very
reason of their own limitations, chill and check
and destroy genuine economic freedom. This
is the greatest question of all, and to this states­
men must address themselves with an earnest
determination to serve the long future and the
true liberties of men.
“ This money trust, or as it should be more
properly called, this credit trust, of which Con­
gress has begun an investigation, is no m yth; it
is no imaginary thing. It is not an ordinary
trust like another. It doesn’t do business every
day. It does business only when there is oc­
casion to do business. You can sometimes do
something large when it isn’t watching, but when
it is watching, you can’t do much. And I have
seen men squeezed by it; I have seen men who,
as they themselves expressed it, were put out of
business by Wall Street because Wall Street







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

found them inconvenient and didn’t want their
competition.”
Again and again M r. Wilson had declared that
“ America is never going to submit to guardian­
ship. America is not going to choose thraldom
instead of freedom.” And referring especially
to the currency, he exclaimed:
“ Are we going to settle the currency question
so long as the government listens only to the coun­
sel of those who command the banking situation ?
. . . There is a sense in which a democratic
country forces statesmanship upon every man
of initiative, every man capable of leading any­
body; and this I believe to be the particular
period when statesmanship is forced upon bank­
ers and upon all those who have to do with the
application and use of the vast accumulated
wealth of this country. We should, for example,
not only seek the best solution for our currency
difficulties, not only the safest and most scientific
system of elastic currency to meet the conveni­
ence of the country in which the amount of cash
needed at different times fluctuates enormously
and violently; but we should also seek to give the
discussions of such matters such publicity and
such general currency and such simplicity as will
enable men of every kind and calling to under-

WILSON APPEARS IN THE PICTURE

81

stand what we are talking about and take an in­
telligent part in the discussion. We cannot shut
ourselves in as experts to our own business.
We must open our thoughts to the country at
large, and serve the general intelligence as well
as the general welfare.”
And this was the man, just elected President
of the United States, with whom the countryeditor chairman of a congressional subcommittee
was going to discuss a currency measure!
December 26, 19 12 , was a desperately cold
day. The snow at Princeton was two feet deep.
Dr. Willis, the committee expert, had accom­
panied the chairman, prepared to answer or dis­
cuss any purely technical question that might
be projected. I had made a written divisional
memorandum of the bill I desired to outline to
Governor Wilson. The latter had a severe cold
and was propped up on pillows in bed. He had
cancelled every other engagement for the day,
and at once it was suggested that he let us come
another time when he might be in better trim ;
but he insisted on proceeding with the business,
so intent was he on a speedy and sweeping cur­
rency reform. For two hours the situation was
reviewed and the chairman’s memorandum dis­
sected. Toward the end, M r. Wilson announced
it as his judgment that we were ‘ ‘ far on the right







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

track” ; but offered quite a few suggestions, the
most notable being one that resulted in the
establishment of an altruistic Federal Reserve
Board at Washington to supervise the proposed
system. We had committed this function to the
Comptroller of the Currency, already tsaristic
head of the national banking system of the coun­
try. Mr. Wilson laughingly said he was for “ a
plenty of centralization, but not for too much.”
Therefore, he asked that a separate central board
provision be drafted, to be used or not, as might
subsequently be determined, “ as a capstone” to
the system which had been outlined to him.
Calling to mind now that memorable two-hour
interview at which this sick, suffering man
evinced the keenest understanding of what was
being proposed and gave unmistakable evidence
of his own grasp of the problem by suggesting
alterations and additions which afterward with­
stood the test of fierce controversy, it is difficult
to decide whether one should be more amused
than exasperated to find a professor of history,
who thinks the Federal Reserve Board at
Washington has “ five governors” instead of one,
proclaiming that Woodrow Wilson had no in­
telligent conception of the greatest financial
achievement of his own administration! Neither
in this first interview at Princeton nor at any
other did Mr. Wilson exhibit familiarity with

WILSON APPEARS IN THE PICTURE

83

banking technique. Very likely he knew little
about it. But there was never a moment when
he did not know what he wanted done or know
what he would not permit to be done in this cur­
rency proceeding. He did not need, nor did he
ever have, any “ guardian angel” around.
The outstanding features of the currency pro­
posal presented to Mr. Wilson at the Princeton
discussion were (i) organization of a certain
number of regional reserve banks of specified
capital, with a view to decentralizing credits;
(2) a compulsory withdrawal of reserve balances
as then impounded and their transfer to these
regional reserve banks; (3) compulsory stock­
holding membership of national banks under
penalty of charter forfeiture in case of refusal;
(4) associate membership of state banks with
limited privileges; (5) the rediscounting processes
common to such plans; (6) the issuance by the
regional banks of federal reserve notes, based on a
gold and liquid paper cover; (7) the gradual re­
tirement of national bank bond-secured notes;
(8) the joint liability of all the regional banks;
(9) constituting the regional banks fiscal agents
of the government, with a view to displacing
subtreasuries; (10) conversion of United States
2 per cent, bonds into 3 per cent, bonds, with
cancellation of circulation privilege; ( n ) com­
mitting to the Comptroller of the Currency at







84

an

ad ven ture

in

c o n s t r u c t iv e

f in a n c e

Washington full supervisory power over the
reserve system. There were, of course, many
minor details.
As stated, M r. Wilson did not relish the idea
of having a single federal official invested with
complete supervision of such a system and sug­
gested the creation of a federal reserve board.
He likewise thought there should be special
provision for foreign commerce, and made quite a
few other suggestions. I wondered if it might
not be well to go a step further in decentralizing
credits by prohibiting banks from paying interest
on deposits of other banks, by which custom
great sums were drawn, as they still are, from
interior banks and piled up in the money centres
for speculative purposes. Mr. Wilson agreed
that this would be highly desirable, but intimated
a fear that it would encounter such terrific op­
position as to endanger any bill containing such
a provision. Before we left, the President-elect
suggested that the committee hearings which had
been scheduled should be directed to the plan
outlined, with the immediate purpose of develop­
ing its feasibility and disclosing the extent and
nature of banking opposition. This was strictly
done, as may be seen by a cursory examination
of the hearings. Practically every question
asked by the chairman of the committee related
to some provision of the currency measure then

WILSON APPEARS IN THE PICTURE

85

in process of construction. The suggestion by
M r. Wilson as to this procedure fitted in exactly
with the plans I had in mind, since on December
23, 19 12 , three days before going to Princeton, I
had written to the committee expert:
“ It seems to me that should we reach an ap­
proximate agreement with M r. Wilson as to the
salient features of currency legislation it would
be extremely desirable to get men like Hepburn
and Forgan and, indeed, as many of those who
appear at the hearings as we may be able to
persuade, to speak strongly in favour of the
points upon which we m ay agree. To do this
it might be well to have talks beforehand with
some of these gentlemen.”
Since what I am writing is not intended to be a
documentary history, but a brief chronicle of
events, it would be wearisome to traverse the
committee hearings beyond saying that the chair­
man, at the very outset, stated that the com­
mittee felt it was precluded from considering the
so-called “ Aldrich plan” or the establishment of
a central bank. It was explained that no effort
would be made to control the angle of any testi­
mony presented, but that frankness suggested
there should be a complete understanding on this
point. There was vigorous and repeated protest
that party platform declarations should not con­
trol currency legislation; but it was answered







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

that party government was an inevitable process.
Despite this warning, and notwithstanding that
the platform on which Wilson was elected, as well
as the platform on which Roosevelt was nomi­
nated, condemned the scheme, the bankers would
not refrain from advocating the Aldrich plan or
some kind of central bank to be owned and
operated by bankers for bankers.^ There were
some notable exceptions; and it is fair to say
that some of the insistent champions of a central
bank, when brought to a consideration of the
regional scheme as a secondary proposition,
signified a willingness to cooperate with the
committee. For example, George M . Reynolds,
of Chicago, laconically remarked that he “ never
refused half a loaf merely because he couldn’t get
it all.” The hearings were extensive and illu­
minating. They strengthened the determina­
tion of those in charge to proceed with the |
regional banking measure.
On Jan u ary 9th, a letter came from Governor
Wilson asking me to hold myself in readiness for
a further discussion of currency legislation; but
quite a time ensued before anything further was
heard. Meanwhile, the air was filled with ru­
mours of a determined effort either to sidetrack
currency legislation or to set aside the rule of
seniority and select a chairman of the House
Banking and Currency Committee for the Sixty-

WILSON APPEARS IN THE PICTURE

87

third Congress who would be “ less hostile to
the Aldrich bill than Glass.” This particularly
alarmed the committee expert, who had worked
in such accord with me; and he nervously warned
me that a very powerful banker in New Y ork had
said to him two days before that “ there is such a
thing as getting a committee chairman who will
accept our plan.” Somewhat with a view to
determining whether or not this was an issue
which should be met, the following letter was dis­
patched to Governor Wilson:
Jan u ary 27, 19 13.
H on. W oodrow W ilson ,
Trenton, N . J .
D ear G overnor W ilso n :
I received a letter from you under date of
January 9th stating that you considered it desir­
able that you should see me for a further talk on
the currency question and that you would in a
few days suggest a time for another conference.
For fear that failure to promptly acknowledge
your letter may have produced the impression
that I did not think the matter of sufficient im­
portance to pursue immediately, I am writing to
say that I shall be glad to confer at any time that
may best suit your convenience.
In my view it is very important that we should
know your conclusions on currency matters as




r




88

AN ADVENTURE IN CONSTRUCTIVE FINANCE

soon as they are reached, as it would be futile to
proceed upon lines that might be contrary to
your convictions. Indeed, I am inclined to think
that it is going to be a little difficult to enact
legislation even with the full power of the ad­
ministration behind any bill we may agree on.
I am right much encouraged, however, by the
changed attitude of some of the influential
bankers who have appeared before our subcom­
mittee. After being courteously but firmly in­
formed that the committee felt precluded from
considering the Aldrich scheme or a central bank
plan, these gentlemen, as I am privately told,
concluded that they could not carry out M r. X ’s
purpose of “ battering the committee into a re­
pudiation of the Democratic platform,” and they
are now writing me, after conference among
themselves, that they are willing to cooperate
with the committee in trying to secure the best
remedial legislation that it is possible to obtain.
They are expressing a good deal of anxiety for
immediate action.
With cordial regards
Sincerely yours,
(signed)
C a r t er G la ss .
Next day the following letter came, summoning
me to a further conference on the suggested
currency bill:

S tate o p N e w J e b s e t
E xecittve D eeabtkknt

^ *iu ary 2 8 , 1913.

% dear Ur. Glass:*
Thank you for your letter of yesterday.

I

find that 1 shall have 8 comparatively free day on Thurs­
day next the thirtieth.

If It Is not too short a notice

for you, I would he very mch obliged to you If you oould
come up and see me at half past two o'clock In ny office
here on that day.
I am very much pleased and encouraged by your
report of the changed attitude of the men who have been
appearing before your sub-committee.

I have a growing

hope that we are going to work this difficult question out
to a sucoossful Issue.
Cordially yours.

Honorable O&rter Glass,
Washington, D. C.







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This second discussion was at Trenton in the
Executive offices on Jan uary 30, 19 1 3 > when I
presented the first tentative draft of the currency
bill embodying the suggestions made by M r.
Wilson and containing two vitally important
provisions not previously mentioned to him.
One of these, for open market transactions by
regional banks, was suggested by Dr. Willis,
the committee expert. It had the twofold pur­
pose of compelling compliance with the reserve
bank rediscount rate and enabling these banks
to utilize idle funds in dull seasons in order to
earn expenses and acquire a surplus. The pro­
vision was approved by M r. Wilson, but en­
countered bitter opposition from the larger banks
as tending to create competition with them for
business. It, nevertheless, remained in the bill.
The other new provision, suggested by the com­
mittee chairman, proposed an abolition of ex­
change charges and the establishment of par col­
lections. This likewise was heartily approved
by M r. Wilson, but was frantically opposed by a
combination of small banks. T hey carried their
opposition to the extreme point of prolonged
court proceedings, the last of which cases was
recently determined by the United States Su­
preme Court in favour of the validity of the law.
Last year it saved the commerce of the nation
$125,000,000!

WILSON APPEARS IN THE PICTURE

9I

The draft of the currency bill presented to
Governor Wilson at Trenton was not complete,
but it contained nearly every fundamental provi­
sion subsequently enacted into law. M r. Wil­
son left the technique and banking nomenclature
entirely with the committee chairman and the
expert adviser; but there was never the remotest
doubt of his complete understanding of every
important point or of his unyielding purpose to
bring about a readjustment of the country’s
currency system. Aside from his own knowledge
of the general principles involved, my letter
files show that he not infrequently advised with
Professor Royal Meeker and others at Princeton,
and also with a few intimate friends among
experienced bankers. Of this he kept me con­
stantly apprised. He seemed to have very great
confidence in the judgment of E. D. Hulbert, of
Chicago, who ranked along with Hepburn, of
New York, as a scholar among bankers. M r.
Hulbert twice came to Washington to see the
President and the committee chairman about
certain provisions of the bill.
This conference at Trenton seemed to settle
two things: it attached the President-elect to the
regional bank system explicitly and, tentatively,
to the provisions of the measure as far as drafted;
and it disclosed a grim determination on Mr. Wil­
son’s part to brook no interference, if he could







92

AN ADVENTURE IN CONSTRUCTIVE FINANCE

prevent it, with the chairmanship succession.
On this occasion, different from the sick-bed
experience at Princeton two months before, M r.
Wilson showed a real zest in discussing details;
and, while a little disposed to joke about his own
“ ignorance of banking affairs,” he exhibited such
a clear comprehension of the problem as to make
me rather w ary of venturing beyond my depth.
I left Trenton with the leader’s cheering word to
“ Go ahead!”

C H A PT ER VI
A TH R EA TEN IN G FLA N K MOVEMENT

Currency Reform Waits on Tariff—Colonel House Gets Draft
of B ill for Hostile Critics—An Intrigue to Wreck the
Measure—President Wilson Puts an End to It

H E 4th of March soon arrived, and Wilson
was inaugurated President of the United
States. At the same time the tenure of the
Sixty-second Congress expired. With this ended
also the existence of the subcommittee to which
had been referred currency matters. And al­
though the President immediately issued a proc­
lamation for an extra session of Congress in
April, no House Banking and Currency Com­
mittee was named until the following June 3d.
Only the Committee on Ways and Means was
appointed, with a view to concentrating atten­
tion and effort on the tariff. For many weeks
there was speculation in the newspapers and
around the Capitol as to whether the President
would tackle the currency question at the extra
session. I happened to know he would, and was 1
told by him to perfect the bill we had in hand.
The fact that no committee was in existence
was a distinct advantage in that there was no




93




94

AN a d v e n t u r e in c o n s t r u c t i v e f i n a n c e

obligation on me, as merely prospective chair­
man, to confer with any of the few former mem­
bers who were reelected to Congress or with
anybody else. The official connection of the
committee expert was also terminated; but Dr.
Willis generously put himself at my service.
Curiously enough, this is the period of compara­
tive inactivity which Professor Seymour hit
upon to exhibit the wonderful economic and
managerial performances of Colonel House!
Here it may be stated that the currency
measure was so closely guarded for the reason
that every other currency bill had been battered
to pieces by hostile interests before it could get a
start. We suspected that our federal reserve
bank bill would be subjected to the same kind of
attacks should its revolutionary provisions be
prematurely disclosed. Already certain econo­
mists, one or two employed by special groups,
were making desperate efforts to learn what the
bill contained and were endeavouring to have
the present writer accept parts or all of their pro­
ductions. The professional business of the com­
mittee expert kept him in New Y ork for a large
part of his time, and thus he was enabled to feel
the pulse of the banking community. It was at
this time that Dr. Willis wrote m e:
“ While I was a good deal encouraged a few

A THREATENING FLANK MOVEMENT

95

days ago at the fact that the bankers were swing­
ing around into support of something like what
we have been working on, I think it is essential
to bear in mind that they are doing this in full
expectation of getting us to adopt such a "strong’
plan as to come close to the Aldrich plan. This
raises the question whether it is expedient to put
this plan in the hands of any persons to pass
around among themselves until wre ascertain
the prospects in Congress. I shall by the end of
the week have the bill in as good shape as I can
get it. I do not wish to go ahead with new fea­
tures without getting instructions from you, so I
am endeavouring simply to improve it strictly
on lines that you and I have talked of. Might
it not be well when we are ready to show the bill
to invite half a dozen of the best men in Washing­
ton for a conference in executive session?”
To me it did not seem expedient to act on this
suggestion before the House Banking and Cur­
rency Committee should be appointed; and the
text of the bill was kept strictly secret except
from the President and the Secretary of the
Treasury. The latter official was exceptionally
considerate when the situation was explained;
and, as my letter files show, referred all inquiries
and suggestions to me. It was not until April that
Mr. McAdoo exhibited any impatience whatso-







96

AN ADVENTURE IN CONSTRUCTIVE FINANCE

ever; and, as already cited, the text of the bill
was read to him at the home of Mr. Hugh W al­
lace, where Colonel House was a dinner guest.
A little while afterward this latter gentleman
obtained a digest of the bill which he handed to
Mr. Warburg, who wrote the criticism of it pre­
viously referred to in this chronicle. A month
later, on the day before sailing for Europe,
Colonel House managed to procure, mysteriously
from some source, a copy of the bill for dissection
by his banker friends; and thereafter the out­
standing provisions of the measure were freely dis­
cussed and severely condemned in financial circles
before it was even known who would constitute
the congressional committee to consider i t !
In the circumstances cited, the prospective
chairman of the House Committee on Banking
and Currency could think of no reason why he
should not discuss the main features of the bill
informally with certain bankers who were in­
tensely interested in a reform of the currency and
had manifested a natural eagerness to see the
measure. This I cautiously did to my own
great advantage. Moreover, a copy of the bill
was now for the first time given to Senator Owen,
chairman of the newly created Banking and Cur­
rency Committee of the Senate, whose coopera­
tion was earnestly invited. On the third of
June, 19 13 , the Banking and Currency Commit-

A

THREATENING FLANK MOVEMENT

97

tee of the House of Representatives for the
Sixty-third Congress was elected, with the pres­
ent writer as chairman. Among my papers is a
list of the proposed Democratic membership of
the committee sent to me by President Wilson
with the appended note in his own hand asking
if the names proposed were satisfactory:
BANKING AND CURRENCY
1.

C arter Glass o f V irg in ia

2.

C h a rle s

3.

W illiam G. Brown of West V irg in ia

A. K o r b ly o f Indiana

4.

R. J . Bulkley o f Ohio

5.

Robert L. Doughton o f North Carolina

6.

Hubert D. Stephens of M ississip p i

7.

Janes T. Byrnes o f S o u t h Carolina

8.

G e o rg e

9.

Thomas 0 . Patten of New York

A. N e e ly o f Kansas

1 0 . Claudius U. Stone of I l l i n o i s
1 1 . Michael r . Phelan of Massachusetts
1 2 . Joe H. Eagle of Texas
1 3 . O tis T . lin go of Arkansas
1 4 . H. H. S e l d o o r l d g e o f C o lo r a d o

/%<■.
ogL




ye*-

^ (/f y.




98

AN ADVENTURE IN CONSTRUCTIVE FINANCE

Messrs. Doughton, Stephens, and Byrnes de­
clined service and were replaced by Messrs.
Ragsdale of South Carolina; Weaver of Okla­
homa, and Wilson, of Florida. Few members
of the previous committee had been reelected to
Congress and most of the names on the list were
of inexperienced members. While greatly dis­
appointed over the omission of several names 1
much wanted to see, there was no apparent
reason for any objection to those presented.
And, indeed, with one or two exceptions, they
turned out to be as steadfast and earnest and
agreeable a set of fellows as any committee chair­
man ever had the privilege of working with. The
one or two exceptions were ingrained dissidents
or congenital cynics; they caused delay and
created ill feeling, but made not one particle of
impression on currency legislation.
With the selection of the House committee
it became increasingly desirable to be more
communicative, and there were frequent and
very earnest talks with some of the members,
particularly of the old subcommittee, who had
been of infinite help with their suggestions in the
earlier stages. Obviously, it was going to require
caution and tact not to offend the spirit of those
new members of the committee who were already
nettled at the prospect of being asked to accept a
currency measure on faith.

A THREATENING FLANK MOVEMENT

99

In the very midst of these conversations, some­
thing happened that momentarily created con­
sternation. The Secretary of the Treasury, who
had seemed to favour the Glass currency bill and
who repeatedly had been invited to propose any
desirable alterations or additions, appeared to
have been taking advice on the subject from
some of his New Y ork friends. As a result, he
invited me to a conference at a Washington
clubhouse, where I was astonished to be told
that, unless the currency bill should be greatly
revised, the Secretary had reason to believe it
would be unacceptable to conservative bankers
on one hand and to M r. Bryan and his radical
friends on the other. It was beyond my divina­
tion to know how to construct a currency bill
that would please two strictly adversary groups;
but on getting down to details the alterations
proposed by M r. McAdoo did not seem at all
vital, and the committee expert, who was present
at the conference, was directed to prepare the
changes for critical examination. Meanwhile, I
found in my box at the hotel a letter the contents
of which perplexed me. It was from George M.
Reynolds, the great Chicago banker, with whom
I had repeatedly discussed currency matters.
In part it read:
“ I am very sorry indeed I missed you last
evening. I must return to Chicago to-day and







IOO

v

AN ADVENTURE IN CONSTRUCTIVE FINANCE

regret very much I have not been able to see you.
Seeing so many evidences of those in high places
to scatter on the currency question, I feel a most
vigorous effort should be made to have discus­
sion of the matter centred upon your bill rather
than on some others which I regard as unsound
in principle and incorrect in theory; and it was
with a view of doing what I can to assist in en­
couraging the passage of your bill that I desired
to see you. I would have said some things to
you which I do not feel I can consistently write.
I sincerely hope President Wilson is much more
in sym pathy with your bill than some others I
have seen and heard of.
This letter seemed to warn me that somebody
“ in high place” was disposed to “ scatter on the
currency question.” I was not kept long guess­
ing. Before the committee expert could prepare
the alterations in the Glass bill suggested by the
Secretary of the Treasury, M r. McAdoo ’ phoned
for me to come to the Treasury on an important
matter, and there handed me the outline of a
proposed bill to create a bureau bank in the
Treasury with all the elements of a central bank.
The scheme involved a tremendous issue of
treasury* notes to supersede the outstanding
greenbacks and gold certificates and seemed to
contemplate a seizure of the gold in trust behind
the certificates. I had not gotten far in my

A THREATENING FLANK MOVEMENT

IOI

examination of the proposal before I looked up
from the paper and asked the Secretary if he was
“ serious about it.” With characteristic point
and punch he exclaimed: “ Hell, yes!”
I frankly said the scheme was impossible and
could never pass Congress; but M r. McAdoo
insisted it had the endorsement of eminent
bankers and urged me to consider substituting
it for the Glass bill. Senator Owen, he said,
thoroughly approved. This I could readily
believe, for I had heard Senator Owen express
views akin to those reflected by this proposal.
However, I was amazed to be told that practical
bankers favoured the proposition and still more
astonished to have the Secretary name as among
them George M . Reynolds, from whom I had re­
ceived that warning note. I did not know at the
moment that the House committee expert had
been asked to examine and criticize the plan; this
I learned next day. Of course, he condemned it.
Secretary McAdoo gave me permission to take
the plan for submission to bankers with whom I
had intimate contact. Needless to say, I left
the Treasury building astounded. It seemed an
end o f currency reform for the time— a nullifi­
cation o f fourteen months of hard work and in­
conceivable nervous strain. I was never more
certain o f anything in my life than that this
proposal, if seriously attempted, would cause







102

AN ADVENTURE IN CONSTRUCTIVE FINANCE

both a political upheaval in the country and a
revulsion in financial circles. It did not require
many minutes for me to make the wires hot.
To Reynolds, at Chicago, surprise was ex­
pressed at his change of front and even greater
astonishment at his approvalof this novel scheme.
To A. Barton Hepburn, of the Bankers’ Currency
Commission, in New Y ork, was sent an urgent re­
quest for a quick review of the new plan, saying:
“ It is so radically different from anything that
seemed to be in contemplation and so apart from
what I had conceived to be the proper function
of government on this subject, that I find myself
wondering if I know anything about the matter
at all. It seems to me that, should we embark
on a startlingly different proposal from that to
which all our inquiries and discussions have been
directed, we will simply accomplish nothing.”
Telegrams and letters went instantly to Hulbert,
Forgan, Wade, Perrin, and other active figures
in the banking community, as well as to a few
outstanding business men who had taken ex­
ceptional interest in the currency movement.
Quickly responsive wires came from most of
these. Hepburn telegraphed that the proposed
scheme had “ fatal objections, and wrote that
he had so told M r. McAdoo, then in New York.
Jam es A. Forgan, that stern old Scotsman, wired
from Chicago:

“ I f the people in the Treasury Department
interpreted their interview with me to mean that
I approved of their bill, then I must confess that
we m ay expect a reasonable amount of trouble
in dislodging them from their present position,
for I have no hesitation in saying to you that I
told them frankly I regarded the matter as en­
tirely unsound, un-American, contrary to proper
policy, and that I could not agree with them in
the matter at all.
“ Naturally, I handled them with as great con­
sideration and courtesy as possible and did all I
could not to antagonize them personally, in the
hope that I might wield still further influence
in helping to dislodge the idea of a government
bank pure and simple from their minds.




____________________

President Wilson’s special friend among bank­
ers, E. D. Hulbert, o f Chicago, sent a scathing
review of the plan, as did other practical bank
men. George Reynolds, who had been cited as
an advocate of the scheme, wired that he had
“ been misunderstood,” immediately following
with a letter, part of which is appended:

_

Have just read copy of proposed currency
law which you sent me. Consider it impracti­
cable, inadvisable, and unworthy of serious con­
sideration.”




104

AN ADVENTURE IN CONSTRUCTIVE FINANCE

«

“ I am unalterably opposed to the plan, and I
cannot feel that serious consideration will be
given to it by men of affairs, and particularly by
students of this subject.
“ In the event that this reserve scheme of
McAdoo’s does not seriously befog the situation
through getting M r. Wilson himself committed
to it, I am rather inclined to believe it may in the
end prove to be more or less of a blessing in dis­
guise, in helping to concentrate favourable opin­
ion upon your bill.
“ Possibly the fear of the adoption of some such
scheme as has been proposed, wdiich has as its
basis fiat mone^, to say nothing of the wrong
principles in practical application, m ay cause
many who have been more or less rigid in their
views of this question to be a little more yielding.”
From bankers, business men, and trained
economists there came a flood of protests and
alarming predictions. The President, appar­
ently not knowing that I had been apprised of
the proposed substitute, ’phoned me that he had
a paper from M r. Samuel Untermeyer in ad­
vocacy of a new currency scheme, which he
wanted me to examine. Later in the day, he
sent the paper by messenger with the attached
note:

A TH R EA TE N IN G

FLANK

M OVEMENT

105

/ fa * -

C^OUs

J? yz/f~~
* / ?

jfa r ~

/l^ y. y fy

o ^ ^ n sirc.

5

/t t ^ T

„

This was the first I knew of the origin of the
extraordinary plan, although I had long heard
some such queer talk in certain quarters. The
President did not seem especially impressed; but,
conceivably, had given tacit permission for the
experimental attempt at a rival plan which he
had been assured would please the radicals of
his party and not displease the better balanced







106

AN ADVENTURE IN CONSTRUCTIVE FINANCE

element. It also had been represented to him
that the reserve bill which had been worked out
upon lines concurred in, where not actually
suggested by the President, “ was displeasing
to bankers and politicians alike.” Among those
who were thus urging the President to sidetrack
the federal reserve bill, which Professor Seymour
tells us Colonel House conceived and managed
through Congress, was Colonel House himself!
He appeared tip-toeing on the scene as an ad­
vocate of this central-bank-greenback scheme;
and just belnre setting sail for Europe was press­
ing the President for a personal interview for
M r. Untermeyer in order that the bureau plan
might be presented in all its alluring aspects and
the federal reserve bill ditched. When President
Wilson refused, Professor Seymour’s “ guardian
angel of the federal reserve bill” was so intent
on having substituted for it the strange device
of M r. Untermeyer that he besought M r. Wilson
to relent and listen to the wonderful argument of
M r. Untermeyer. He actually proposed to have
M r. Untermeyer slipped into the White House
at night, when “ it is quite possible no one will
know” ! He even took the trouble to suggest
Senator Owen and M r. McAdoo to do the slip­
ping. The only objection Colonel House in­
timated to the scheme was the conspicuous
identification of Mr. Untermeyer with it; and

A THREATENING FLANK MOVEMENT

I0 7

this he proposed to cure by suggesting a w ay in
which Mr. Untermeyer might, by a quick process
of elimination, be taken out of the picture.
Dr. Seymour m ay know an infinite lot about
what he calls “ historicity” ; but as a picker of
“ guardian angels” he may be said to be a little
deficient. And, if the business of a person en­
gaged in “ historicity” is to tell the truth strictly
and altogether, Professor Seymour should ex­
plain why he omitted from the Intimate Papers
of Colonel House a letter to M r. Wilson, bear­
ing date of M ay 20, 19 13 , the inclusion of
which in his chapter on “ Currency Reform ”
would have badly disfigured the wretched pre­
tense that Colonel House had part in federal
reserve legislation. It would have, in direct
contrast, revealed him as an intriguer in the
effort to wreck the federal reserve bill and to
replace it with a bureau central bank, to be
owned and operated by the federal government!
It may be assumed that the failure of Dr. Sey­
mour to print this immensely interesting letter
denotes his differentiation of history from “ his­
toricity” !—the one being the truth revealed
and the other the truth concealed.
Until the President apprised me of the Unter­
meyer paper, I had not imagined the scheme had
yet gotten to him. On the evening of June 5th,
he had me come to the White House for a con­







108

AN ADVENTURE IN CONSTRUCTIVE FINANCE

ference about this new development. Armed
only with several telegrams from leading bankers
and the letter from Reynolds, just taken from
the mail, I went for the discussion. The Presi­
dent had me dissect the Untermeyer scheme.
I tried to make it a vivisection. At the end of
the review, during which he scarcely spoke, Mr.
Wilson quietly said: “ I am surprised, Glass, at
your vehemence. M ac tells me the scheme has
the approval of many practical bankers.” I
asked who they were. “ George Reynolds, for
example, one of twelve men controlling the
credits of the nation.” This I had expected
would be the answer, because the name of no
other banker had been mentioned as sanctioning
the thing. Taking the letter of Reynolds from
m y pocket, I read to the President several of the
very emphatic paragraphs. He made me reread
the clause beginning: “ N aturally, I handled
them with as great consideration and courtesy
as possible.” He appeared to think this evinced
a lack of real courage, if not of frankness, al­
though Mr. Reynolds had explained that he had
felt obliged to be tactful. “ I fear M ac is de­
ceived,” he said, “ but fortunately the thing has
not gone so far it cannot be stopped.” Reaching
for his pen, he made a note on a pad and dis­
missed me.
Other telegrams and letters of protest came in

A THREATENING FLANK MOVEMENT

immediately, until it seemed that the Reynolds
prediction was verified sooner than could have
been expected. The banking community was
badly frightened at this threatening movement
to ditch the federal reserve bill by substituting
for it a government bureau bank in the Treasury.
Some of their wires and letters were sent to the
White House and others to the Secretary of the
Treasury. The blistering comment on the new
scheme by E. D. Hulbert of Chicago was dis­
patched to the President by special messenger in
order to strengthen M r. Wilson’s purpose to
put an end to the move. To Mr. Hulbert the
committee chairman wrote under date of
June 9th:
“ I took the liberty of submitting your com­
ment to the President, knowing he has great con­
fidence in your judgment. Permit me to say
that you not only state the logic of the mat­
ter as to the economics of the proposition, but
you present the political aspect in a striking and
tactful way. Your comment in this respect
accorded so absolutely with what I had said to
the President that I took exceptional delight in
handing him your brief. I am happy to tell
you that Secretary McAdoo to-day assured me
that he would not further press this scheme, but
would accept m y draft of a bill constructed upon,'







IIO

AN ADVENTURE IN CONSTRUCTIVE FINANCE

lines you have approved, as a basis of legisla­
tion.”
The President had given his decision against
the scheme, and McAdoo met the situation like
a prince. Not for an instant did he exhibit a sign
of resentment or even of disappointment. He
felt that he had been misled by some of the bank­
ers who had been more intent on being tactful
than on being frank. From that moment, he
never wavered. E very hour he could spare
from more exigent duties he gave to the currency
problem. He was particularly resourceful in
helping to assuage irritation among the new
members, who naturally felt that, if they were to
assume responsibility, they should have some
part in the preliminaries. It was a delicate task
to convince men of spirit that, in a complex
technical matter, there must be single initative
and leadership in order to get anywhere. M c­
Adoo is one of the few men in the world who can
swear interestingly. During this period he was
positively fascinating. His zest in behalf of
currency reform, with his personal attachment
to the committee chairman, proved a powerful
incentive to success. Without his fine spirit
and absolute dependability, the task of the com­
mittee would have been infinitely harder, if not
well-nigh impossible, But, heaven help us,

A THREATENING FLANK MOVEMENT

III

what a narrow escape that was from wrecking
currency reform and precipitating another gov­
ernment bank upheaval! The ghost of Andrew
Jackson stalked before m y face in the daytime
and haunted my couch for nights.







C H A P T E R V II
TH E

BA N K ERS EXC LU D ED

Not Permitted to Select Members of Federal Reserve Board —
A Dramatic Protest to Mr. Wilson— When a Government
Note I s Not a Government Note

T

A R I F F legislation was nearing consumma­
tion, and it became increasingly necessary
to hurry the currency bill along for introduction
as an “ administration measure,” for only thereby
could we hope to succeed where so many others
had utterly failed. In this interim Secretary
McAdoo and Senator Owen proposed alterations
in the structure of the bill that very greatly
simplified the original method suggested of
electing the boards of directors of the regional
banks and the appointment and operation of the
Federal Reserve Board. It was at this point
that the President had us come to the White
House for a conference concerning that feature
of the bill that gave the banks minority repre­
sentation on the Federal Reserve Board. I was
very definitely committed to giving the banks
some voice. Senator Owen, of the Senate com­

THE BANKERS EXCLUDED

II3

mittee, had sided with Mr. Bryan in opposition.
At the White House conference McAdoo agreed
at first with me; but later in the evening he pro­
posed a compromise. The President decided
against banking representation. This was one
of the crucial questions the President had to
determine. It was evident it might involve
the failure o f legislation by embittering the
bankers should they be entirely excluded. I f
they should be included, Bryan and his following
might revolt. I had urged the “ essential injus­
tice and political inexpediency” of denying the
banks minority representation. The President
was not bothered about the political phase; but
he was willing to discuss the justice of the thing.
So convinced was I that the President was wrong
in his conclusion that I sent him this note; which
is reproduced here to indicate that the President
was not easily persuaded nor the chairman of the
committee entirely complaisant:
“ At the risk of being regarded pertinacious I
am going to ask if you will not consider the ad­
visability of modifying somewhat your view of
bank representation on the proposed Federal Re­
serve Board. The matter has given me much
concern, and more than ever I am convinced that
^ will be a grave mistake to alter so radically
the feature of the bill indicated. Last night,







1 14

AN ADVENTURE IN CONSTRUCTIVE FINANCE

when I came back to my hotel, I found M r.
Bulkley waiting, and he sat with me until past
one o’clock this morning. Knowing that he was
so earnestly for a government note issue and for
government control, I imagined he would be
delighted with the suggested alteration. I told
him of the change without first indicating my
own view; and, much to m y astonishment and
gratification, he instantly and vigorously pro­
tested, saying he had regarded the extent to
which we had already put the government in
control, together with the tremendous power of
the Board, as the real weakness of the bill. He
also said we could not escape the charge of
exposing the banking business of the country to
political control. As indicated to you last night,
M r. Bulkley is a strong man of the committee
with whom we must reckon; hence his view of
this proposed alteration fully confirms my belief
that it would prove an almost irretrievable mis­
take to leave the banks without representation
on the central board. You will note that the
bill requires the three members selected by the
banks to sever all bank connections before
qualifying. Might it not be well at least
to take M r. McAdoo’s suggestion and have
the President select these men from a list
proposed by the banks ? W ith high esteem,

THE BANKERS EXCLUDED

115

The President was adamant; and, if there was
ever a lapse, I soon was to revive the conviction
that M r. Wilson knew more about these matters
than I did. As anticipated, when the bill was
introduced in Congress, bankers raised an up­
roar about this provision. With scarcely sup­
pressed satisfaction, I headed a delegation of
them to the White House to convince the Presi­
dent he was wrong. Forgan and Wade, Sol
Wexler and Perrin, Howe and other members of
the Currency Commission of the American
Bankers Association constituted the party. The
first two, peremptory and arbitrary, used to hav­
ing their own way, did not mince matters. They
evidently were not awed by “ titled conse­
quence,” for they spoke with force and even bit­
terness. Sol Wexler and Perrin were suave and
conciliatory. The President was courteous and
contained. These great bankers, arbiters for
years o f the country’s credits, were grouped
about the President’s desk in the Executive office
adjoining the Cabinet room. I sat outside the
circle, having already voiced my own dissent
from the President’s attitude. President Wil­
son faced the group across the desk; and as these
men drove home what seemed to me good reason
after good reason for banker representation on
the central board, I actually experienced a sense
° f regret that I had a part in subjecting Mr.







Il6

AN ADVENTURE IN CONSTRUCTIVE FINANCE

Wilson to such an ordeal. When they had
ended their arguments M r. Wilson, turning
more particularly to Forgan and Wade, said
quietly: “ Will one of you gentlemen tell me in
what civilized country of the earth there are im­
portant government boards of control on which
private interests are represented?
There was
painful silence for the longest single moment I
ever spent; and before it was broken M r. Wilson
further inquired: “ Whichof you gentlemen thinks
the railroads should select members of the In­
terstate Commerce Commission ? There could
be no convincing reply to either question so the
discussion turned to other points of the cur­
rency bill; and, notwithstanding a desperate elfort was made in the Senate to give the banks
minority representation on the reserve board,
the proposition did not prevail.
It was at this conference that the President
requested the House chairman, as compensation
to the bankers for denial of representation on the
central board, to set up a Federal Advisory
Council, to be composed exclusively of bankers
authorized to sit at stated times with the Federal
Reserve Board in a purely advisory capacity.
This was done and the amendment made in
committee. At this conference also vigorous
protest was made b y the bankers against the
utterly foolish decision to eliminate the bon

THE BANKERS EXCLUDED

II7

conversion provision of the bill, designed to re­
tire, in time, national bank notes. I could never
exactly comprehend how the President or the
Secretary of the Treasury was persuaded to lis­
ten to such a thing, much less momentarily to
sanction it. The primary purpose of the pro­
posed legislation was to rid the country gradu­
ally of bond-secured circulation. Hence, on
learning that this proposal had been abandoned
at the request o f M r. Bryan with the concur­
rence of Senator Owen, while agreeing to intro­
duce the bill with this provision omitted, after
over-night reflection I frankly told the President
and immediately gave out a public statement
of my unalterable intention to have the bondconversion feature restored, if possible, in com­
mittee or in the House. The elimination caused
wide astonishment. It was so unsparingly con­
demned that the provision was restored before
the bill was introduced. E very platform o f the
Democratic party for twelve years had pro­
scribed the inelastic bond-secured currency.
E very currency expert and every teacher of
economics had done likewise, as well as every in­
telligent banker.
After the meeting with the President at the
White House, I agreed with Messrs. Wexler and
Reynolds, acting for their committee, to do
everything possible to restore the bond-refunding







Il8

AN ADVENTURE IN CONSTRUCTIVE FINANCE

provision of the bill and to revise the bankreserve provision so as to permit the central
board, in its discretion, after a period of three
years, to allow 5 per cent, of credit balances kept
with correspondent banks to count as reserve.
It was also agreed that an Advisory Council,
selected by the banks, would be set up. Restora­
tion of the bond provision was regarded by the
chairman as indispensable; the President had al­
ready privately requested the inclusion of an
Advisory Council provision, so the only im­
portant concession involved at this conference
with these bankers related to reserve require­
ments, and I felt absolutely certain the Board
would not use its discretion, after a three-year
test, as these bankers imagined it would. They
agreed explicitly that, if the changes indicated
were made, they would get behind the bill “ with
enthusiasm” and do their best to put the entire
Currency Commission of the American Bankers
Association in motion for it. In a few days
thereafter, I was surprised to receive a letter
from M r. Wexler, approved by M r. Reynolds,
renouncing the agreement and signifying their
unwillingness to support the bill as drawn. The
President and my committee colleagues had been
induced to consent reluctantly to this modifica­
tion of the reserve section, appearing to think
the price for banker support was rather high.

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page as submitted to Committee of Bankers.




H9




120

AN ADVENTURE IN CONSTRUCTIVE FINANCE

N aturally, exasperation was great at the W exler
letter, and I lost no time in letting this be known,
writing him under date of Ju ly 3d.
“ I do not imagine you will be surprised to
have me express astonishment at the contents of
your letter. Each and every one of the modifica­
tions suggested b y your committee in my room
at the Raleigh Hotel was drafted by me and sub­
mitted to you; and, as I distinctly understood,
was approved. It was upon the assurances of
yourself and M r. Reynolds that, with these al­
terations, you would get behind the bill, that I
prevailed with my colleagues to agree. In view
of these facts I was amazed to receive your letter
saying you would not support the bill after hav­
ing agreed to do so. I f we are to have your
hostility in addition to that of the radical ele­
ment, we will bring out a bill not half as good as
this one, and you gentlemen will be responsible.’
M r. Wexler insisted that I had not understood
the suggestions they made or his recent letter and
berated the administration for not wanting to
“ do anything that is economically sound.” He
said further: “ Neither M r. Reynolds nor I
have stated we will oppose the bill, notwithstand­
ing it has not been rewritten according to the
suggestions we made. We certainly shall use
every effort to have the bill amended along

THE BANKERS EXCLUDED

121

sound banking lines, as we cannot conceive any
reason for the extreme obstinacy of the framers of
the bill.”
These gentlemen were again reminded that the
changes which they had proposed had not only
been embodied; but the very form had received
their positive sanction. However, they per­
sisted in their own obstinate purpose to have the
bill further amended. The result was that the
concession which had been made to them on the
reserve provision was promptly expunged and
they got nothing. They fought for the restora­
tion of this expurgated clause to the very last,
as evidenced b y a telegram to me from Mr.
Reynolds dated December 20th, three days
before the bill became law, saying it was “ im­
perative to the success of the new system that the
currency bill be so modified as to allow at least
°ne fourth of the reserve of country banks and
ordinary reserve city banks to consist perma­
nently o f balances due from correspondents in
reserve and central reserve cities.” I had offered
them a concession whereby they might, possibly,
have gotten more than one fourth, and they had
accepted it with a promise of support. They
n° t only renounced the arrangement, but
severely arraigned the proponents of the bill,
r hey ended up their threatened fight by appeallng for one fourth and lost a ll!







122

AN ADVENTURE IN CONSTRUCTIVE FINANCE

On this point Dr. H. Parker Willis, in his work
on The Federal Reserve System, has this to say,
which exactly reflects my state of mind as ex­
pressed to the committee expert at the time:
“ M r. Glass was firmly of the belief that the
transfer of reserves would prove itself to be not
only entirely free of any injurious effect upon the
banking community but, on the contrary, highly
beneficial, while he was unable to conceive of any
Federal Reserve Board which would be so lack­
ing in the knowledge of general principles of
banking as to throw aside what was unquestion­
ably likely to prove the most valuable and im­
portant change in banking organization that had
been introduced since the Civil War. He there­
fore gave the bankers a tentatively favourable
reply and proceeded to take the matter up with
President Wilson. He found the latter, however,
unexpectedly opposed to it. Nevertheless, the
President was indisposed to deny what M r. Glass
had partially agreed to and he therefore gave a
somewhat unwilling assent to the proposal.
The only other feature of the currency bill
around which a conflict raged at this time was
the note-issue provision. Long before I knew it,
the President was desperately worried over it.
His economic good sense told him the notes
should be issued by the banks and not by the
government; but some of his advisers told him

Bryan could not be induced to give his sup­
port to any bill that did not provide for a
“ government note.,, There was in the Senate
and House a large Bryan following which, united
with a naturally adversary party vote, could
prevent legislation. Certain overconfident gen­
tlemen proffered their services in the task of
“ managing B ryan.” T hey did not budge him.
His public life had been spent in advocacy of a
government issue, and he was willing to stake his
political existence on this point. The chairman
of the House committee was not disturbed, be­
cause he did not dream President Wilson would
permit such an unscientific blur on the bill.
On M ay 15th, M r. Wilson was told by me in a
note:
“ Mr. Bryan has twice indicated his desire to
discuss currency matters with me; but, if I may
venture to say so, I think his talk should first
be with you. I find he is opposed to bank issues
and disposed to government issues. It is my
notion that this would get us into all sorts of
trouble.”
There is reason to think that President Wilson
abstained from talking personally with M r.
Bryan on the subject. He was a schoolmaster
and had not overmuch patience with whims.
Of course, he would not by harshness wound the







124

AN ADVENTURE IN CONSTRUCTIVE FINANCE

sensibilities of his Secretary o f State; therefore
he relied on others to win over M r. Bryan.
T hey could not do it, particularly as the chair­
man o f the Senate committee agreed with the
Nebraskan. When a decision could no longer
be postponed the President summoned me to
the White House to say he wanted federal re­
serve notes to “ be obligations o f the United
States.” I was for an instant speechless! With
all the earnestness of my being I remonstrated,
pointing out the unscientific nature of such a
thing, as well as the evident inconsistency of it.
The President was reminded of what was behind
the federal reserve note: the liability of the in­
dividual member bank, with the double liability
o f its stockholders; the considerable gold cover
with the ioo per cent, commercial secondary re­
serve; the liability of the regional banks, in­
dividually and jointly, as well as the double
liability of the member banks; the banking in­
stinct behind every discount and every redis­
count transaction; the right of the regional bank
to reject business and, finally, the power of the
Federal Reserve Board to withhold notes.
“ There is not, in truth, any government obli­
gation here, M r. President,” I exclaimed. “ It
would be a pretense on its face. Was there ever
a government note based primarily on the
property o f banking institutions? Was there

THE BANKERS EXCLUDED

125

ever a government issue not one dollar of which
could be put out except by demand of a bank?
The suggested government obligation is so re­
mote it could never be discerned,” I concluded,
out of breath.
“ E xactly so, Glass,” earnestly said the Presi­
dent. “ E very word you say is true; the govern­
ment liability is a mere thought. And so, if
we can hold to the substance of the thing and
give the other fellow the shadow, why not do it,
if thereby we m ay save our bill?”
And this was the man they called a dreamer!
This the man they insisted had no political sense!
He had said more to the point in a sentence than
I had in a speech; and again I learned that Mr.
Wilson knew vastly more about the business than
I did. Hence, a little while after, in the memo­
rable debate with Vanderlip before eleven hun­
dred bankers and business men under the aus­
pices of the New Y ork Economic Society, the
chairman of the House committee, in defense of
the currency bill, was forced to this turn:
“ To those who advocate government issue, it
may be said we have it here in terms, with dis­
cretion in the Reserve Board to issue currency on
application or to withhold. To those who con­
tend for bank issues, as I do, we m ay say that,
in the practical operation of the system, you







126

AN ADVENTURE IN CONSTRUCTIVE FINANCE

have it here; because only upon application of a
bank can the government issue. To those who
affect solicitude for the government’s credit, it
may be pointed out, as a practical fact, that the
security behind the notes is many times more
than sufficient to protect the government before
the note-holder could reach the Treasury coun­
ter. Thus we have yielded to the sentiment for
a government issue, but retained the substance
of a bank issue. The section constitutes a com­
promise; it provides a composite note. But no
man here can put his finger on a solitary element
o f unsoundness in it.”
The determination of this dispute, threatening
to wreck legislation, was but another of many
instances in which the patience and purpose and
firmness of President Wilson prevailed. The
bill was now ready to be presented as an “ ad­
ministration measure.” It represented months
o f thoughtful consideration and suggestion by
M r. Wilson on one hand and an inestimable
amount of labour by the chairman and com­
mittee expert on the other. Dr. Willis had
become something more than a currency techni­
cian to the House committee. He was the de­
voted friend and adviser of the chairman. His
equipment for the difficult business was unsur­
passed, beginning with his invaluable experience

THE BANKERS EXCLUDED

12 7

with the Indianapolis currency conference and
extending over the years in which he taught
economics as a professor at several important
universities. As expert to the House W ays and
Means Committee and in other such work he
had become acquainted with legislative proc­
esses and was an accomplished draughtsman.
While subject entirely to the direction of the
committee chairman, his initiative was simply
indispensable. He has received too little credit
for his exceedingly important part in the work.
As already indicated, a point of great anxiety
was the very natural indisposition of the new
members of the Committee on Banking and Cur­
rency to accept a bill with the construction of
which they had nothing to do. The situation
required the intimate touch of a tactician, which
the chairman o f the committee was not. The
President supplied a large part of the essential
quality; and in this respect McAdoo helped
amazingly. There was one member of the
committee with an exceptionally clear intellect,
who had the misfortune to be born with a ham­
mer in his hand and a gibe on his tongue. He
rarely ever agreed with anybody. Besides, he
had a notion that a new man in Congress could
attract little attention by going with the crowd;
to be noticed he must raise a row. At my urgent
request, the President one day sent for him to see







128

AN ADVENTURE IN CONSTRUCTIVE FINANCE

if he might be quelled. It did not take M r.
Wilson many minutes to find that this com­
mitteeman had a lot of sense.
Quite as
readily he discovered that his excess of personal
vanity was as visible as the hair on his head.
The President’s skill in treating the case was so
effective that the member left the White House
actually imagining or affecting to think that
the chairman of the banking committee was
to be deposed and the currency bill given over to
his charge. So sure was he of this that he had it
wired as a front-page story to his home paper.
There were one or two other impossible members;
but as soon as the better balanced members
came to realize that currency reform was not a
personal matter and should not be obstructed
on that account, friction disappeared and there
was fine team work, with men like Bulkley, of
Ohio, Phelan of Massachusetts, K orbly of In­
diana, Patten of New York, Seldomridge, Weaver,
and others equally zealous, standing with the
chairman always against the dissidents. At the
very outset, on June 19th, the chairman sent to
each member a letter saying:
“ I have this evening received from the
public printer a limited number of printed copies
of the tentative draft of a currency bill made at
the suggestion of colleagues who served with me

THE BANKERS EXCLUDED

129

on the subcommittee of Banking and Currency
which held exhaustive hearings last winter on
the subject o f currency reform. I am sending
members of the Banking and Currency Commit­
tee the copy of this tentative draft for such con­
sideration as they m ay care to give it.
“ There is, of course, no obligation whatsoever
upon any member of the committee to agree to
any provision o f this bill. In its present form it
simply represents the result of many months of
hard work, based upon the hearings referred to
and upon repeated conferences invited by the
President and the Secretary o f the Treasury
upon the assumption that, as ranking member,
I was to be made chairman o f the Banking and
Currency Committee. T h is tentative draft was
only completed last night and I am putting it
in the hands of m y colleagues at the earliest
practicable moment. Needless to say, it is any
member’s privilege to propose alterations to any
part of it or to reject it entirely, as his judg­
ment may suggest. Feeling assured that I shall
have your cordial cooperation in the effort to
secure a satisfactory measure that will solve this
long-standing problem in the interest of the
country, I am,” etc.
This overture of the chairman was supple­
mented by an authorized invitation of the Presi-







I3O

AN ADVENTURE 'IN CONSTRUCTIVE FINANCE

dent to each member to a conference on the
evening of June 20th at the W hite House. All
the members accepted; but the bitterness of the
dissidents appeared to be reflected in the note of
one of them, who protested that he did not “ con­
ceive any service that I or any other member of
the committee can render, as the President al­
ready has committed himself on the principles
and policies of the bill you, Owen, and McAdoo
are said to have drafted.” However, there was
a full attendance at the White House conference,
and the President handled the matter impres­
sively. A good spirit prevailed,only one member
exhibiting the least sign of ill temper. He was
so entirely rude that the President at one stage
was sorely tempted to invite him to leave the
room. It was sheer insensibility; for the same
man was so unaware of having been offensive and
so sure of the President’s favour that, at the
next ensuing election, he sought a letter from Mr.
Wilson advocating his return to Congress.
From this time, the fight for the currency bill
was transferred to the fourteen m ajority mem­
bers of the Banking and Currency Committee
o f the House. There it encountered little op­
position except from a very small group of
agrarians, the sum total of whose antagonism
found expression in obstruction. After the
strong men among the members got their bear-

THE BANKERS EXCLUDED

131

ing, they took and consistently maintained a
position of intelligent and aggressive advocacy
of the measure. There were minor alterations
and readjustment o f details; but examination of
the minutes now before me, showing every mo­
tion made and the vote thereon, discloses no
single amendment of the essential provisions.
Even obstruction and delay were almost entirely
due to the fact that the few dissidents had put
themselves in contact with Representative
Henry, chairman of the House Committee on
Rules, who, thinking he was backed by M r.
Bryan, was desperately opposed to the bill as
framed and sought by every conceivable expedi­
ent to prevent its passage. As fast as we would
proceed in the committee room below, this adver­
sary in his committee room above us would devise
new schemes for presentation by his sympathizers
on the banking committee. As occasion would
seem to require, the Secretary of the Treasury,
who was an adept in persuading men, would do
effective missionary work, as would Speaker
Clark and Oscar Underwood, when apprised of
infrequent dissensions in the committee. Three
times the President ventured to intervene to
Pacify the eruptive element. The first and only
time the writer ever heard Mr. Wilson swear
Was when the chairman of the committee, exas­
perated beyond endurance at a particularly







132

AN ADVENTURE IN CONSTRUCTIVE FINANCE

senseless and flagrant outbreak, threatened to
resign. “ Damn it, don't resign, old fellow; out­
vote them!” the President exclaimed. And the
advice was accepted; the obstructionists were
overcome every time.

*

C H A P T E R V III
A

M EM ORABLE C U R R EN C Y CAUCUS

The Wreckers Marshal Their Forces—Bitter Assaults on
Federal Reserve B ill—Bryan Sides with the President—
Enemies of the Measure Routed

I

T NOW remained to fight the measure through
the party caucus. The newspapers were full
of stories of revolt. The Bryan element, it was
insisted, headed b y Congressman Henry, of
Texas, was going to tear the currency bill to
tatters. The Secretary of State, the reporters
had been assured, was behind the insurrection
and would “ measure strength with the Wilson
element.” Thus no little excitement was created
and a lively time was expected. As to this,
nobody was disappointed. There was a lively
time. Indeed, it was a memorable party caucus.
No such scenes were ever witnessed before, nor
have they been enacted since. Henry and his
group persistently asserted they would control;
and they did number quite a formidable bloc of
votes. The Texan was an engaging talker and
an exceedingly likable fellow; but he knew as







134

AN a d v e n t u r e i n c o n s t r u c t i v e f i n a n c e

much about banking and currency questions as
a child about astronomy. He was not a vicious
demagogue; but a very insinuating one. He con­
fidently relied on rallying the members from the
back-country districts and intended to conjure
with the still-magic name of M r. Bryan. He
presented his proposals with great ingenuity of
speech and made a passionate plea for the defeat
of the “ Wall Street” currency bill, meaning the
bill agreed on b y the Democratic member of the
Banking and Currency Committee. He was
supported by the one or two members of the
committee who were always incorrigible.
The currency scheme evolved by this pas­
sionate band of economic guerillas was “ fearfully
and wonderfully made.” Among its various
memorable provisions was one permitting labour
unions to designate one member of the Federal
Reserve Board who should be a bona-fide labourer,
and the farm unions one member who should
be a bona-fide farmer, and certain bankers one
member to be experienced in banking. All
ex-Presidents of the United States were to be
pensioned on the system and paid salaries out of
its funds by being constituted ex-officio members
of the Federal Reserve Board, to assume full
life-time membership as vacancies should occur,
except that not even ex-Presidents of the
United States were eligible to succeed the bona-

A MEMORABLE CURRENCY CAUCUS

13 5

fide labourer or farmer or banker. These posi­
tions were made perpetually sacrosanct.
The bill called for the issuance of three kinds
of legal tender currency in addition to the kinds
already outstanding, to be classified as “ Agricul­
tural Currency,” the $200,000,000 of which was
to be available to corn, cotton, and wheat grow­
ers; “ Commercial Currency,” the $300,000,000
of which was to be available to general com­
merce; “ Industrial Currency,” the $200,000,000
available for public works in the states and their
sub-divisions. The Commercial Currency was
to be handled by the reserve banks under general
direction of the central board. The Industrial
Currency was to be parcelled out to states and
territories according to population and wealth
for internal improvements, with state, munici­
pal, and county bonds as security to the United
States Government, which was obliged to redeem
the notes on demand in gold. The Agricultural
Currency was to be loaned by the reserve banks
direct to corn, cotton, and wheat growers under
guarantee of a minimum price of 60 cents a
bushel for corn and $ 1 per bushel for wheat and
*5 cents per pound for cotton. The loans to
commerce were to be purely permissible; the
loans for public works were apparently to be
automatic and to extend for twenty years each;
loans to corn, cotton, and wheat growers were







136

AN ADVENTURE IN CONSTRUCTIVE FINANCE

to be positively compulsory, no discretion being
lodged with the banks.
The reserve banks were to deal directly with
the growers. A ny producer o f one bale of cotton
or as much as twenty bushels of grain who should
present a warehouse certificate was to get his
loan, which was not to mature until the product
should reach the minimum price prescribed by
law! The existence o f stock-raisers, orchardists, poultrymen, dairymen, tobacco planters,
producers of commodities far exceeding in mar­
ket value any o f the favoured farm products,
was not recognized in the text of the bill when it
came to issuing these various stripes o f currency.
It is not necessary here to dissect the grotesque
measure. M erely to state some o f its contents
is to expose its incredible absurdities. The
thing vividly revived that period of French his­
tory when long imprisonment, and later the
guillotine, was the penalty vainly denounced
against those who refused to exchange their
wares for the depreciated currency of the realm;
and I ventured to ask if it was proposed to
dangle the hangman’s noose before the trades­
men of America when they should turn from
Henry’s currency as they would from the drip­
pings of a pest-house! Little time was wasted
in the party caucus on this foolish bill beyond
the specious talk of its proponents. The dis-

A MEMORABLE CURRENCY CAUCUS

cussion raged around the real Federal Reserve
bill.
N aturally, it fell to the chairman of the Bank­
ing and Currency Committee to explain and
defend the provisions of the committee bill.
This was done in measured terms and a repressed
tone. But when it came to dealing with Mr.
Henry’s strictures on the committee and his
acrid criticisms of the President, together with
his little less than ludicrous plea for his “ corntassel” currency, the retort assumed a rather
more animated tenor. Quoting from a speech
by Mr. Bryan in the House years before against
“ executive aggression,” and twisting Andrew
Jackson’s federal bank fight into an imaginary
analogy to his side of the immediate controversy,
Henry fiercely assailed President Wilson for
urging the passage of the pending measure.
Rejoining on this point, the chairman of the
committee reminded the caucus that “ the bit­
terest complaint of Jackson’s veto message of
the United States bank bill was the failure of the
proponents of that measure to advise with him
upon the provisions it contained. And yet, be­
cause Woodrow Wilson, in the exercise of his con­
stitutional privilege, pleased to confer with mem­
bers of the Banking and Currency Committee
concerning provisions of this bill, he is arraigned
ln a Democratic caucus as a political martinet.







13 8

AN ADVENTURE IN CONSTRUCTIVE FINANCE

I take leave, as a Democrat associated with this
administration in a great work for the country, to
express the belief that no man ever lived whose
course of conduct in public affairs was prompted
by a higher degree of patriotism than the
conduct of President Wilson in his effort to
reform the banking and currency system of the
nation.”
The caucus was prepared for Henry’s attack
on the President, because it was definitely known
that Mr. Wilson had flatly told the Texan that
his persistent antagonism to the currency bill
constituted a challenge of the President’s leader­
ship of the party. But it was not known by
many that Bryan was out of tune with Mr.
Henry. Hence the announcement came like a
thunder-clap when I read from a letter of the
Nebraskan, just handed me, this paragraph:
D epartm ent of S tate
Washington, D. C.
August 2 2/13.
M y dear M r . G l a s s :
. . . The papers have reported members of
Congress as presenting views which were alleged
to be mine. I do not know to what extent these
reports may exaggerate what has been said and
done; but you are authorized to speak for me and

A MEMORABLE CURRENCY CAUCUS

13 9

say that I appreciate so profoundly the service
rendered by the President to the people in the
stand he has taken on the fundamental principles
involved in currency reform, that I am with him
in all the details. I f my opinion has influence
with any one called upon to act on this measure,
I am willing to assume full responsibility for what
I do when I advise him to stand by the President
and assist in securing the passage of the bill at the
earliest possible moment. . . .
V ery truly yours,
W. J . B r y a n .
It is scarcely possible to depict the scene that
ensued. The pleasure manifested by the friends
of the currency measure was not exceeded by the
exhibition of rage by the antagonistic group, if
it were accurate longer to think of them as a
group. Henry was white with anger as the
caucus roared with cheers of derision, repeated
over and over again. A Texas colleague, mem­
ber of the Currency Committee, sought to make
a diversion by a wrathful attack on Bryan, call­
ing out above the din that to his personal knowl­
edge “ Bryan does not know a damn thing about
the provisions o f this currency bill.” This was
too late a discovery, suggested the defenders of
the measure. “ How prodigal would have been
the praise of the wisdom and patriotism of Mr.







140

AN ADVENTURE IN CONSTRUCTIVE FINANCE

Bryan had he taken part with those who con­
demn, rather than with those who applaud, the
effort of the administration to rescue the country
from the continuing peril of a dangerous banking
and currency system !” exclaimed the chairman
of the committee, as he proceeded to examine in
detail and flay the preposterous nature of H enry’s
proposals.
Representatives Bulkley, of Ohio, and Korbly,
of Indiana, defended certain sections o f the bill
with notable spirit and ability, while Michael
Phelan, of Massachusetts, contributed his cogent
and incisive qualities to the discussion— and his
Irish wit. Henry invoked Samuel Untermeyer
in behalf of a proposed “ interlocking-directo­
rates” amendment to correct a gross evil dis­
closed by the Money Trust investigation; but
Bulkley quickly quoted Untermeyer as disap­
proving the attempt to confuse currency reform
with the directorate question, and as saying:
“ Nobody but a vicious marplot would deliber­
ately seek to delay or complicate legislation
under the existing tense and delicate conditions,
which demand immediate relief.” Oscar Under­
wood aided effectively on this point; and M r.
Henry was literally stripped of his following
when the discussion was ended.
The few wrho remained obdurate to the end
were simply indurated against every approach

A MEMORABLE CURRENCY CAUCUS

141

of understanding and were, therefore, impervious
to argument. This seemed strictly true except
in one or two cases, where infuriation usurped
the seat of reason. When this occurred the
caucus witnessed characteristic explosions by
those unhappy souls whose chief contribution to
any discussion is always personal vituperation
arrantly applied in circumstances which make it
perfectly safe to use epithets. With the tumult
subsided and rational debate exhausted, we at
last had the roll-call ordered for a record vote.
On the proposition to approve the currency bill
and make it “ an administration measure,” as
the President desired, the vote in caucus stood
168 for to 9 against! President Wilson there­
upon gave out a statement at the White House
in which he said:
“ I am proud, as every Democrat must be, of
the w ay in which the committee and the caucus
have accomplished a consistent piece o f con­
structive work. With the frankest discussion
and under the ablest leadership the Democrats
have shown their capacity as a party to serve
the country by an admirable piece of business
legislation. It must stimulate the country to
see such evidences of harmony along with con­
structive purpose in a work of no small complex­
ity and difficulty.”







142

AN ADVENTURE IN CONSTRUCTIVE FINANCE

M r. Bryan, who grew by degrees into the
harmless habit o f issuing companion-pieces to
the public proclamations of the President, also
gave out a statement to the press which, besides
being pertinent, very likely helped to confirm
several of his zealous disciples on the Senate side
of the Capitol in their purpose to support the
currency bill. Among other things of point he
said:
“ I am glad to endorse earnestly and unreservedly the currency bill as a much better
measure than I supposed it possible to secure
at this time. I had doubted the wisdom of at­
tempting currency legislation at this session for
fear the difficulties in the w ay would prevent
agreement. Conflicting opinions have been rec­
onciled with a success hardly to have been
expected.
“ The great point of advantage to the banks—
an advantage that ought to make them willing
to accept the bill without question is that it
furnishes a currency which they can secure in
time of need without having to put up bonds as
security. The bond requirement largely neu­
tralizes the advantage of the money issued on
them as security, because the banks cannot draw
back more from the government than they have
already invested in the bonds. But under this

A MEMORABLE CURRENCY CAUCUS

143

bill where a bank can put up its good assets it is
able at all times, without sacrifice, to secure
any additional circulation that the community
may need; and the governing board can be
trusted to issue its treasury notes to the regional
reserve banks on terms that will be fair and just.
“ The business interests will, I think, welcome
this bill as an unalloyed blessing. It gives
them, through their banks, a promise of relief in
any time of stringency, and it gives this promise
without putting in the hands of the banks a
power that might be used against the public.,,
Champ Clark had no great familiarity with the
details of the currency measure, nor had he any
special knowledge of banking technique; but he
took the intensest interest in the polemics of the
occasion, not only in the caucus, but in the House
also. He seemed as an old war horse sniffing the
battle and enjoying every moment of it. And
there was a battle to enjoy! Always excitement
was at a high pitch and frequently the hall re­
sounded with cheers. Once or twice the en­
thusiasm became a riot, men standing in their
chairs and tossing hats to the skylights. When
the fight had ended, the Speaker of the House
was good enough personally to congratulate the
chairman of the Banking* Committee on his
Management of the bill; and, three days later,







144

AN a d v e n t u r e in c o n s t r u c t i v e f i n a n c e

M r. Clark showed he had not yet recovered his
equilibrium b y sending to the committee room a
written note of praise so extravagant in its terms
that to include it in the text of this chronicle
might be construed as an attempt to outrank
Professor Seymour’s “ unseen guardian angel.
This would never do; for while Colonel House,
when the fate of the measure was at stake, ap­
peared nowhere in evidence as a substantive
factor in the struggle, there can be no doubt of
D r. Seymour’s ability to place him exactly
where an invisible spirit properly belonged m
such a tumult. “ Historicity,” given a chance,
is equal to any task. And, since Colonel House
confesses that three banker friends on another
occasion acclaimed him their financial “ Moses,
what is to hinder D r. Seymour from transfigur­
ing him into another Old Testament hero and
have him pose as “ Elisha at the Caucus, with
his mystic troops of horse and chariots of flaming
fire hidden in the clouds, eager to subdue the
hosts of the wicked ?
A tremendous furore was raised in certain
quarters about an alteration in the redemption
feature of the bill, the purpose being to have it
appear that M r. Bryan had suggested the change
as a “ blow at the gold standard.” It was rank
nonsense. M r. Bryan had no knowledge of the
alteration; and when it was pointed out that the

A MEMORABLE CURRENCY CAUCUS

I45

language as readjusted was a literal repetition
of the text of the National Bank Act and o f the
famous Aldrich bill, which the bankers had ap­
proved without a word of questioning, the critics
should have felt ashamed of their false alarm.
But they were not. T hey imagined they could
tally enough antagonism around this perfectly
spurious objection to be effective against the bill
itself. Newspaper criticism became vicious, and
concerted protests by suspicious bankers poured
In. The Secretary of the Treasury sent them
to me, and all of the bunch were answered in a
single brief statement to a banker at New A l­
bany, Indiana, which was given to the press.
It read:
“ Your letter to Secretary McAdoo has been
referred to me with the request that I make
answer to your inquiry concerning the gold
redemption feature of H. R. 7837. There is no
mystery whatsoever connected with the matter
and the response to your inquiry is quite simple.
“ In the original draft of the bill it was pro­
vided that the redemption of notes at the
treasury Department at Washington should be in
gold,’ while redemption at the counters of the
banks might be in ‘ gold or lawful money/ When
the matter came up for consideration in the comrmttee, a member of the committee, bitterly







146

AN ADVENTURE IN CONSTRUCTIVE FINANCE

prejudiced against the banks, made the point
that we were exacting gold redemption from the
government while permitting the banks to re­
deem in ‘ gold or lawful money.’ He, therefore,
moved to strike out the words ‘ or lawful money,
which was done. So that for a few days it ap­
peared that all redemption should be in gold.
Subsequently, the same member of the com­
mittee, feeling that the action taken was inex­
pedient, moved to restore the words ‘ or lawful
money/ which was done: and this is all there is to
it, except that it may be added that members of
the committee, having in mind the Act of March
14, 1900, considered ‘ gold’ and ‘ lawful money
practically interchangeable terms and were not
greatly concerned as to which of the two phraser
should be employed. The itstoration of the
words ‘ or lawful money’ as an alternative method
of redeeming notes at the regional banks^ is no
departure from the gold standard, and it is per­
fectly silly for anybody to contend otherwise.
T hat M r. Bryan had not the remotest desire
to revive the silver issue at this time was con­
clusively shown by his action with respect to
another proposed amendment to the currenc\
bill. In the caucus, a member of the Banking
Committee who was opposed to the measure
thought, at the last moment, to rally the ship-

A MEMORABLE CURRENCY CAUCUS

H

7

wreckers by offering an amendment to sub­
stitute “ coin” for “ gold” as the final medium of
redemption for the federal reserve notes. This
would have taken us off the gold standard.
The proposition was referred to the committee,
which was called in the recess. Meanwhile,
the chairman beat the proponent o f the amend­
ment to the ’phone and got M r. Bryan on the
line. The meaning and evident purpose of the
thing were quickly explained to him and readily
comprehended, so when the proposer of the
motion a few minutes later talked with Mr.
Bryan, he got a cold reception. M r. Bryan made
lt quite plain that “ doing something for silver”
was not pertinent to consideration of a currency
hill and the proposal was promptly sidetracked.
-It is not to be believed that its proponent hoped
to embody the suggestion in the bill. He had a
good mind and knew better. But he also had a
fevere and turbulent disposition; hence, it was
mferred that the motion was a mere subt'erfuge
to create trouble.
When the caucus ended, the clerk o f the House
cpmmittee was directed to summarize the alteratlpns made in the bill as reported. This he did
Wlth this conclusion, borne out by an examinaIOn ° f the minutes of the caucus now before me
as ^ write: “ Except by initiation of the Banking
and Currency Committee itself, there has not







148

AN ADVENTURE IN CONSTRUCTIVE FINANCE

been written in the bill, from one end to the
other, a single sentence which has altered in the
remotest degree the essential provisions of the
measure as originally reported by the committee
to the caucus. There were inserted in the bill
exactly nine minor amendments not offered by
the committee, affecting only the bill’s phrase­
ology; but all of them added together would not
aggregate as many words as are contained in one
half of any one of the fifty-one pages.”

CH APTER IX
SHARP FIG H T IN TH E HOUSE

Powers of Federal Reserve Board Assailed—False Issue
Raised Over the Gold Standard—B ill Passes House
Overwhelmingly—Flood of Congratulations

T

HUS the measure, with the party caucus
label, went back for formal consideration
by the House Banking and Currency Committee,
the Republican members o f which were now
called in consultation for the first time. Various
minor amendments were proposed by the minorrty members, several o f which were accepted.
Mr. Hayes, of California, ranking Republican
member, and a very fine man in every way,
tendered a provision for a savings department
f°r national banks and told the committee chair­
man that this amendment would, in his opinion,
msure a unanimous committee report. He was
much mistaken in this supposition; nevertheless,
his provision was attached to the bill, only to be
bitterly assailed by some o f his party associates
m the House, and was stricken out in the Senate.
As reported by the committee to the House of
Representatives the currency measure was, in




149




I5 0

AN ADVENTURE IN CONSTRUCTIVE FINANCE

advance of further discussion, assured enough
votes to pass it. The party caucus had fixed
that. Forty-eight Republicans voted for it not­
withstanding the savage attacks by their leaders.
A great clatter was raised by these gentlemen
about “ King Caucus” and about “ gag law ,”
but this was effectively silenced by bringing in
sharp contrast the action of the Republicans, the
most arbitrary ever taken in Congress, in passing
the Vreeland-Aldrich emergency currency bill.
On that occasion, by caucus action, the com­
mittee was discharged before the bill could be
printed and put in its possession; and the bill,
not yet dry from the printing press, did not
reach the House until debate had proceeded for
an hour. It was passed in five hours under a
rule which prohibited the offering o f a single
amendment. Not ten members actually knew
what it contained. The federal reserve measure,
on the other hand, had been considered for
months in committee, discussed ten days in
party caucus, debated in general for five days in
the House itself, amendments without number
offered to its provisions, and the freest contro­
versy allowed to persist in the House for three
weeks.
Aside from inevitable partizan antagonism,
frequently devoid of knowledge and reason, the
main objections to the bill, urged with vehe-

SHARP FIGHT IN THE HOUSE

15 1

mence,were as to the powers of the central board,
the compulsion of national bank membership,
and the transfer of bank reserves from the money
centres to the proposed regional banks. Great
stress was laid on the “ confiscatory” nature of
the provision which authorized or compelled
one federal reserve bank to rediscount the dis­
counted paper of another federal reserve bank.
And yet it was this very operation in the post-war
period that transferred $250,000,000 from
stronger to weaker regions and saved at least
one federal reserve bank from being wrecked.
Moreover, it cured at the time many bad situa­
tions in credit extensions and averted a vast
number of commercial crashes. The critics of
the bill got nowhere with their attacks on the
powers of the central board.
A t one stage o f the discussion, considerable
confusion ensued on the D em ocratic side ow ing
to a m isin terp retation o f the rediscount privileges
o f the bill. T h e argum ent revo lved around the
definition o f “ in vestm en t b ills” in section 13
and the e lig ib ility for rediscount o f w arehouse
certificates for stored agricu ltu ral products.
T h e com plication caused a disturbance w hich,
behind the cu rtain , lasted several d ays, the
chairm an o f the com m ittee insisting there w as
no discrim ination again st farm products, while
some o f his colleagues urged to the co n trary.







152

AN ADVENTURE IN CONSTRUCTIVE FINANCE

The difference of view would have assumed no
threatening aspect but for the fact that there
was a group always eager to seize on any excuse
to create trouble; and while members like Asbury
Lever and Byrnes of South Carolina, Pat Harri­
son o f Mississippi, and Oscar Underwood were
deadly in earnest in presenting this objection,
there were others not above playing their accus­
tomed game o f evil politics. The language of
the section was altered so as to clarify its original
meaning, which was to favour, rather than dis­
criminate against, farm products.
So anxious
to be identified with this apparent “ concession
to agriculture” were some of the demagogues who
were routed in the caucus that they authorized
M r. Underwood, the Democratic floor leader, to
say to the chairman of the Banking Committee
that, if the latter would permit their group
leader to offer the changed provision on the
floor, they would abandon further attempts to
amend the bill and catch the party step. Having
whipped them in caucus and rendered their op­
position futile, their proposal was flatly rejected
and the change was made as a committee amend­
ment to the bill. This rebuke did not prevent
these same demagogues from going back to
their districts and claiming credit for a conces­
sion due to the reasonable insistence of sane and
loyal members of the type indicated.

SHARP FIGHT IN THE HOUSE

1 53

Toward the close of the discussion in the
House, there was another feverish outbreak
about an imaginary “ assault on the gold stand­
ard /’ which for a time delayed the passage of the
bill. A group of Republican members, profess­
ing a desire to consider the measure in a nonpartizan spirit, yet hesitating to go against their
party leaders, projected the criticism against the
bill that it rescinded the act of March 14, 1900,
“ fixing the standard and providing for the parity
of all forms of money.” This objection, they
seemed to think, would supply a tangible excuse
to vote against this “ caucus-made measure.”
Challenged over and over again to point out the
provision of the bill which could be so construed,
they talked a lot o f fudge about the “ lawful
money” redemption feature, as if lawful money
were not synonymous with gold under existing
law. It was so entirely clear that there was not
a thing in the bill that adversely affected the gold
standard, that the managers of the measure were
n°t a little perplexed to know the covert meaning
° f this tail-end clatter. We were forced to believe that it was invented as an excuse to vote
against the bill; and, so suspecting, all but one
member of the Banking Committee urged the
chairman to accept an amendment offered by
Mt- Fess (Rep.), of Ohio, explicitly declaring
that nothing in the bill should be construed to







154

an

a d v en tu re

in

c o n s t r u c t iv e

f in a n c e

repeal the act o f M arch , 1900, p rovid in g a gold
p a rity for all form s o f m oney.
T h e D em o cratic caucus had not acted on this
specific proposition, so a group on the D em o­
cratic side, not y e t recovered from the free silver
delirium , felt at lib e rty to m ake a counter dem ­
o n stration again st the F ess am endm ent,
ih e ir
outspoken o b jection w as calcu lated to app eal to
the sp irit o f p a rty . T h e y pronounced the pro­
posal “ a useless R ep u b lican rider on a D em o­
cratic cu rren cy m easu re.”
I t w as certain ly
useless, and it h ad R ep u b lican o rig in ; bu t the
question w as how it m igh t m ost ta c tfu lly be dis­
posed o f
T h e P resid en t, co n stan tly in con tact
w ith the situ ation , and M r . B r y a n , know n to be
averse to a re v iv a l o f th e “ free silver issue,
urged th a t w e cu t th is excuse from under the
F e ss group b y agreein g to his m otion ; so, h avin g
d raw n from M r. F e ss a pledge to vo te fo r the
bill should his am endm ent be accep ted , and also
h a v in g slig h tly altered the te x t, it w as so ordered.
A t the last m om ent, a separate vo te on t e
am endm ent w as dem anded, w hich resu lted in its
overw helm in g adoption. T h e cu rren cy bill w as
then passed in the H ouse b y 287 fo r to 85 again st,
a clear m a jo rity o f 202 fo r the m easure.
But
3 D em o crats vo te d again st the b ill, w hile 4
R ep u b lican s v o te d for it and 82 again st it.

SHARP FIGHT IN THE HOUSE

15 5

This overwhelming victory for the bill in the
House, after a hard and grinding fight, was heart­
ening to the friends of currency reform through­
out the country. Certain proof of this was af­
forded in the flood of telegrams and letters
received by the chairman of the Banking and
Currency Committee. Their number was great
enough to fill a score of pages in this chronicle;
but it is, perhaps, inadvisable to present here
more than two or three, which have a peculiar
significance. First of this kind was a letter
from the Secretary of the Treasury, whose in­
timate association with the work in all its stages
gave a tone of authority to what he was gracious
enough to write, a facsimile copy of which ap­
pears on the page following.
Among the public men in Washington, not one
had a riper experience or better discernment of
hanking and currency questions than the late
Senator John W. Weeks of Massachusetts,
afterward Secretary of War in the Cabinets of
Presidents Harding and Coolidge. He was for
some years my colleague on the House Committee on Banking and Currency and also was a
member of the National M onetary Commission
which reported the Aldrich bill. He was one
° f three Republican Senators who voted for







THE S E C R E T A R Y OF THE T R E A S U R Y
W A SH IN G T O N

September 20, 1913,

M y dear Glass:1 want to congratulate you sincerely
upon your really great achievement in the passage
by the House of Representatives of the Olass
Bill to reform the currency system of the country.
It is a measure upon which you have done so much
tedious, intelligent, and effective work that I
can well understand your gratification now that
the worst of your labors is over.
Y o u are, more than any other single
man, entitled to the credit for this real victory
in the cause of the people of this country, and
your name will always be linked with the first
constructive financial measure passed by Congress
since the enactment of the Rational Banking Act.
You have led the fight with singular ability and
with a high order of statesmanship.
I am only
too glad to have the opportunity of paying this
Just tribute and of telling you, as well, of the
great pleasure and satisfaction it has given me
to be your earnest, although not always sffeetive,
colaborer and coadjutor in this needed measure of
vital reform.
Always, with warm regards, I am,

Hon. Carter Glass,
Lynchburg, Va.

SHARP FIGHT IN THE HOUSE

the federal reserve bill.
man follows:

157

His letter to the chair­

September 29, 19 13 .
H on. C a r t e r G la ss ,
House of Representatives,
Washington, D. C.
M y d ear G l a s s :
I have failed in m y duty and pleasure in not
more promptly congratulating you on your suc­
cess in passing the currency bill, an Herculean
task which must have tried your capacity,
nerves, and patience to the limit. And while
there is very much in the bill with which I am in
entire approval, from some parts of it I dissent;
but that need make no difference in my apprecia­
tion of the value and importance of your service.
Sincerely yours,
J ohn W. W e e k s .
In a note to the Secretary of the Treasury
early in June, I incidentally described Festus J .
Wade, of the Mercantile Trust Company, St.
Louis, as “ the fiercest, but frankest of the ad­
verse banking group.” He was a belligerent
without guile; and, as a member of the Currency
Commission of the American Bankers’ Association, he was in constant contact with currency







I 58

AN ADVENTURE IN CONSTRUCTIVE FINANCE

legislation. When the federal reserve bill passed
the House, this message came from Wade:
St. Louis, September 23, 1913.
H on . C a r t e r G la ss ,
Washington, D. C.
H earty congratulations on passing your bill,
even though I do not approve all its provisions.
I want to thank you cordially for your devotion
to the cause of banking and currency reform.
One becomes a better citizen by coming in con­
tact with men entrusted with regulating the af­
fairs o f the nation and there finding such untiring
energy, unfaltering integrity and indomitable
spirit.
F estus J . W a d e .
Of course, the committee expert, Dr. Willis,
who for months had been the chairman’s right
hand, was quick to send felicitations from New
Y ork, saying: “ At the first opportunity, I con­
gratulate you on the brilliant success in passing
the banking bill. The w ay in which it went
through makes action by the Senate almost un­
avoidable.”
As already indicated, the opinions and advice
of various trained economists had been sought

SHARP FIGHT IN THE HOUSE

1 59

at the very inception of our work. Few, if
another one, of these exhibited a more sustained
interest in currency legislation than Professor J .
Laurence Laughlin, of the University of Chicago.
He was associated, as I recall, with the persistent
activities of the National Citizens' League, which
appeared to be earnest, if not always wise. Dr.
Laughlin himself greatly desired to be helpful.
He seemed genuinely pleased when we had
“ weathered the stormiest period,” and sent
this cheering message from East Jaffrey, New
Hampshire:
“ I have been watching the course of events
very closely, as they indicate the final success of
the currency bill. I wish to congratulate you
on the skill, courage, and political judgment you
have shown in handling the committee and cau­
cus. When one considers the bigness, intricacy,
and insanity connected with an important cur­
rency measure, your achievement becomes one of
the epoch-making events of our monetary hist°ry. I think the country will force the Senate
t0 act now, without postponement, after you
have done so admirably in the House.”
The well-nigh universal interest in currency
reform found expression in scores of messages
from prominent bankers, business men, and col­







l6o

AN ADVENTURE IN CONSTRUCTIVE FINANCE

lege professors, publication of which now, after
thirteen years have intervened, could only revive
my personal sense of gratitude, without impart­
ing interest to this narrative. The few felicita­
tions presented are given solely because of their
special significance.
As has been several times said, no chairman of
a congressional committee was ever happier in
his associates than the present writer had cause
to be with the greater number of the members of
the House Banking and Currency Committee of
the Sixty-third Congress. The staunchness of
so many accentuated the surliness of one or two.
Besides having spirit and capacity, the com­
mittee members were steadfast in their friend­
ship. T hey were of immense help in the cur­
rency fight, especially after the bill got in the
caucus and on the floor of the House, and even
after it went to conference. It would be but a
repetition to say that the vital leadership re­
mained always with the President and was of an
inspiring description. There was, however, an­
other factor in the struggle, and it would be an
offense against the whole truth to omit the state­
ment that Mr. Bryan, with every opportunity to
do infinite mischief by yielding to insistent ap­
peals to revive certain rejected theories of fi­
nance, stood loyally with President Wilson and,
in at least one exigent period, was of incalculable

SHARP FIGHT IN THE HOUSE

l6 l

help. It was in full recognition of this that the
chairman o f the committee sent him this note
after the passage of the bill by the House:
Washington, D. C.,
Septem ber 25, 1 9 1 3 .
r . B ryan:
Looking back over the remarkable campaign
for currency reform just ended in the House, one
thing stands out, conspicuous in the retrospect,
and that is that we are immensely indebted to
you for effective aid in critical periods of the
contest in committee and in caucus. I desire to
thank you for your great assistance to me and to
the cause, and also to express my personal grati­
fication at the manner in which you have dis­
appointed your enemies and pleased your friends
by standing firmly with the President for sound
legislation in behalf of the American people.
The country and your party are greatly obliged
to you for the skill and discernment with which
you have helped along the fight, and I am par­
ticularly grateful.
Sincerely yours,
C a r t e r G l a ss .
H on. W m . J . B rya n ,
Secretary of State,
Washington, D. C.

M y d ear M







t

CH APTER X
TH E

STRUGGLE B E F O R E TH E COUNTRY

Desperate Fight to Postpone Action— Concerted Attack by
Bankers— The Vanderlip Central Bank Scheme—A
Notable Debate

P

A SS A G E of the currency bill by such an
impressive m ajority in the House, with a
surprisingly large contingent of Republicans
joining with their Democratic associates in the
effort to set up a safeguard against future
financial disturbances, did not avert a further
hostile demonstration. It seemed to whet the
appetite of certain groups for a drive against the
regional bank system and in favour of a more
consolidated scheme, readily controlled by a
few great interests. It had never once oc­
curred to the more powerful banking elements
that they could be thwarted in their wellorganized effort to put through Congress their
Aldrich plan for a central bank or some scheme
o f a like nature. Halted now in their expecta­
tions, they still imagined they could defer action
until their lines could be reformed.
Soon
after serious consideration of the bill was begun,
162

THE STRUGGLE BEFORE THE COUNTRY

163

President Philip Stockton, of the Old Colony
Trust Company of Boston, had said to the New
York Tim es that he “ had it on good authority
that the Senate will not take up the currency
bill at this session” ; and now it was announced
in the Washington dispatches of this and other
newspapers that “ definite information was ob­
tained to-day that a resolution has been pre­
pared by a member of the Senate Banking Com­
mittee to defer Senate action on the currency
bill till December.” The assault on the House
bill was projected from two angles, one involving
strategy and the other bombardment. The
strategy of the case was to postpone action by
adjourning Congress. Both importunate and
threatening representations were made to the
President. The Senate, he was told, was in no
mood to deal effectively with so complex a prob­
lem; the extra session had already been pro­
longed beyond reason, and Senators were thor­
oughly worn out. An adjournment would offer
a little respite from the intolerable ordeal of a
continuous session and enable the Senate to re­
turn in the early winter vastly better prepared
to wrestle with the question. M any Senators,
entirely sincere in their desire for currency re­
form, urged these considerations at the Executive
offices, and not a few were exasperated by the
obduracy” of M r. Wilson in refusing to accept







AN ADVENTURE IN CONSTRUCTIVE FINANCE

this view. The President was not even fright­
ened by the threat of several Democratic Sena­
tors to join the Republican opposition and
favour a central bank bill, but kept the Senate
plugging away until two days before Christmas.
A t the same time the American Bankers’ As­
sociation, through its executive agencies, started
a fusillade against various vital provisions of
the administration bill. At one point of the
compass an eminent banker would reveal “ its
alarming inflationary features” and, at the same
moment, in another financial centre, the business
community would be warned that the shift of
reserve funds would “ precipitate a disastrous
constriction of commercial credits amounting
to $1,800,000,000!” It made no difference to
these adversaries that both things could not
happen at the same time. T hey kept repeating
their nonsense. The old “ compulsion” argu­
ment and the “ confiscation” talk were accen­
tuated and the “ political control” bugbear was
worked overtime. The great banks were mor­
tally afraid to be bereft of country bank “ call
money” and country banks resented the idea of
having their established relations with big banks
molested by legislation. T hey were frankly
afraid of the big banks. The whole line of ad­
verse discussion seemed sordid. The future
security o f the country appeared to engage the

THE STRUGGLE BEFORE THE COUNTRY

165

thought of few of those who were concerting
these organized attacks on the currency measure.
There were, of course, notable exceptions among
the better informed bankers who were students
of credits and deplored our archaic banking
methods; but even these opposed decentraliza­
tion and favoured a central bank of banks.
A favourite point against the House bill for
awhile was the assertion that no hearings were
had and that bankers had no opportunity to
present their views. This talk persisted even as
Senate hearings were proceeding, until both the
falsity and absurdity of it were exposed by
presenting a contrast between the wide nature
of the testimony, oral and written, taken by the
House committee as a basis for the bill with the
contracted nature o f the Senate hearings. The
House hearings had covered a great range, em­
bracing the views of every national group,
whether bankers, merchants, manufacturers,
credit men, farmers, labourers, currency experts,
or college professors— a volume the extent and
variety of which were beyond human assimila­
tion. The Senate hearings* voluminous enough,
were confined largely to the very bankers who
had urged the identical objections before the
House committee which they repeated on the
Senate side. For weeks they hammered over
°ld brass. The fight outside o f Washington was







166

AN ADVENTURE IN CONSTRUCTIVE FINANCE

hotter and quite as persistent as at the Capitol.
The aroused money power unmasked every avail­
able battery. Not only did the American Bank­
ers’ Association at Boston condemn the currency
bill, but it prevailed with the United States
Chamber of Commerce and hundreds of its sub­
sidiaries to do likewise. It also had the ardent
aid of most of the metropolitan press and the
larger clearing-house associations.
The culminating attack was when the Big
Bertha of the Eastern banking community was
pointed at the White House. T hat is to say,
Frank A. Vanderlip, of the National C ity Bank
o f New Y ork, rushed to Washington with a
carefully prepared central bank plan which
contained all the “ compulsion” and the “ con­
fiscation” and “ political control” that he and
others had charged against the federal reserve
bill, and a good deal more besides. It was in
contradiction of everything M r. Vanderlip had
ever said on the subject and in direct contra­
vention of everything the central bank advocates
had urged against “ putting the government in
the banking business.” M r. Vanderlip vainly
sought access to the President. M r. Wilson de­
clined to accord him a personal interview. The
President remembered the other attempt, back
in June, to sidetrack the federal reserve bill for a
strange device; and was resolutely set against

THE STRUGGLE BEFORE THE COUNTRY

167

any more red-herring schemes to ditch the pend­
ing measure.
Mr. Vanderlip was not easily discouraged.
He was not built that way. He promptly pre­
sented his central bank scheme to the Senate
Banking and Currency Committee and enlisted
in its behalf some very powerful and distin­
guished Senators. For days the newspapers
featured the thing as quite certain to supersede
the House currency bill. This and that and
another Democratic Senator, it was insisted,
had deserted the administration and embraced
the Vanderlip bill. The President himself was
represented to be slipping. This sort o f gossip
got to be exasperating; and finally M r. Wilson
Put an end to it, as far as the White House was
concerned, by issuing this statement:
The President has warmly endorsed all the
main features of the Glass-Owen bill. He re­
gards the plan provided for in that bill as excel­
lently suited to the existing conditions of the
business of the country and in every essential
Particular sound and calculated to render the
business men o f the country a great and im­
mediate service. He believes the early enact­
ment of the bill into law is expected and
demanded by the most thoughtful business in­
terests. The evidences which have reached







168

AN ADVENTURE IN CONSTRUCTIVE FINANCE

him of the support o f the country are unmistak­
able and overwhelming.”
This clarified things a great deal at Washing­
ton. But M r. Vanderlip and the bankers ap­
pealed to the country. Propaganda was becom­
ing savage. E very resource of persuasion and
every expedient of coercion that could safely be
employed were set in motion for the central
bank scheme. A t the personal request of the
President the chairman of the House committee
accepted invitations to defend the House bill at
various large centres, notably before the Chicago
Association of Commerce and the Economic Club
of New Y ork City. The latter engagement in­
volved a joint discussion with M r. Vanderlip.
The stage was set for the occasion. It was to be
a “ Roman holiday” for the central bank pro­
ponents. The ballroom of the Hotel Astor was
decorated as never before. The boxes of the
mezzanine were gay with fashion and beauty.
Below were seated eleven hundred bankers and
business men in evening dress. Sol W exler, the
brilliant New Orleans banker, was scheduled to
share honours with M r. Vanderlip in demolishing
the federal reserve bill and in acclaiming the
central bank project. M r. Wexler could not get
there and Professor Joseph French Johnson spoke
in his stead. Owen, of the Senate Banking Com-

THE STRUGGLE BEFORE THE COUNTRY

169

mittee, and the country-editor chairman o f the
House committee were listed for the sacrificial
offering. Vanderlip was given a royal reception
and made a remarkable speech, in which he did
not fail to express resentment at the refusal of
the President to discuss the currency issue with
him. Repeatedly the air was white with waving
napkins as the welkin rang with applause. As
the great banker concluded his impressive ad­
dress, floor and galleries witnessed a scene o f un­
imaginable enthusiasm.
Having said this much, it better comports
with good taste, perhaps, to let impartial ob­
servers say the rest. A t one of the guest tables
was Dr. Abbott, of the Outlook , in which periodi­
cal appeared this brief account of the debate:
"‘ Those who think that discussions o f the cur­
rency bill are always dry and technical should
have been at the dinner o f the Economic Club of
New Y ork C ity held at the Hotel Astor. It was
the occasion of a remarkable debate upon the
[Merits of the bill now before Congress— a debate
ln which Professor Joseph French Johnson, of
the chair of Political Economy o f New Y ork
University, and M r. Frank A. Vanderlip, Presi­
dent of the National C ity Bank of New Y ork
Uity, opposed the bill, while Senator Owen of
Oklahoma and Representative Carter Glass of







170

AN ADVENTURE IN CONSTRUCTIVE FINANCE

Virginia defended it. The appearance of Sena­
tor Owen and Representative Glass in this de­
bate was of special interest because they have
been active in framing the currency bill, they
stand sponsors for it, it bears their names, and
is popularly known as the Glass-Owen bill.
“ Aside from the value of this debate as a con­
tribution to public knowledge regarding the
creation and construction and provisions of the
bill, it was a notable illustration of the power of
the orator to influence his audience by sheer force
of character and intelligence. We suppose M r.
Glass would be the last man to regard himself
as an orator— indeed, he apologized for what he
feared was the ineffectiveness of his address on
the ground that as a journalist he was a better
writer than speaker. But his apology was un­
necessary. He was the last speaker of the eve­
ning and began at a late hour; the financial senti­
ment of New Y ork C ity is opposed to the bill,
and therefore his audience of twelve hundred
bankers and leading men of affairs was an unsym­
pathetic one. Professor Johnson and M r. Vanderlip had preceded him and had spoken with
authority and effectiveness— one with the
authority of the scientific economist and the
other with the authority of the accomplished
financier. But before M r. Glass had finished
he had his audience with him, eliciting laughter

THE STRUGGLE BEFORE THE COUNTRY

IJl

for his incisive and w itty comments and loud
applause for his clear reasoning and for his mani­
festly accurate knowledge, not only of the bill,
but of the history and the operations of Ameri­
can finance. Twice when he essayed to stop he
was greeted with loud cries of ‘ Go on’ from all
parts of the room, and his speech, one hour long,
was listened to with appreciative attention from
beginning to end.
“ Mr. Glass accomplished perhaps more than
he himself realized in removing misconceptions,
misunderstandings, and prejudices regarding
the bill, which unfortunately have prevailed to
too large an extent in the financial metropolis
of the country.
“ The entire country knows that the almost
unanimous objection of the bankers to the bill
has been based upon the feature of government
control, so it was pointed out that the sole ques­
tion here was whether the people would fare
better under government control than under
exclusive banker control of the country’s reserve
funds. The bankers protest that under the
Glass bill the National Banks are ‘ compelled’
to come into the system b y law, whereas the
Aldrich bill made their coming in a ‘ voluntary’
matter. M r. Glass demolished this objection
hy pointing out, amid the laughter and ap­
proval of his hearers, that the Glass bill ‘compels







172

AN ADVENTURE IN CONSTRUCTIVE FINANCE

the bankers to come in, while the Aldrich bill
made it impossible for them to stay out/ and
pertinently asked what practical difference a
banker could find in the two provisions.
“ M r. Vanderlip claimed that the Glass bill
permits the government to issue ‘ fiat money.’
M r. Glass exposed the weakness of this objec­
tion by pointing out that 33.3 per cent, of gold
and 100 per cent, o f carefully scrutinized assets,
representing material commodities, will underlie
every dollar of the new notes.
“ The most singular fact which was brought
out at this dinner was the absolute right-aboutface which the bankers of the country have
made on the question of government control.
Six months ago, having protested that the Glass
bill provided too much government control, the
bankers now protest, if M r. Vanderlip m ay be
accepted as expressing the best sentiment of
American bankers, that the bill does not insure
sufficient government control and power!
“ M r. Vanderlip, at the Economic Club dinner,
presented the outlines o f a bill which he has rec­
ommended to Congress. It provides for the es­
tablishment of a United States Central Bank,
with branches throughout the country, the stock
to be allotted to the people by popular subscrip­
tion, the smallest subscribers receiving the first
allotments, and the Governing Board to be

THE STRUGGLE BEFORE THE COUNTRY

I7 3

wholly appointed by the President, each gover­
nor serving for a term o f fourteen years.
“ To understand what a radical change this
means in the attitude of the bankers one has but
to read the resolutions of the American Bankers’
Association, passed only a few weeks ago, de­
nouncing presidential appointments to the Fed­
eral Reserve Board as a dangerous injection of
politics into American finance.
“ Both Senator Owen and M r. Glass answered
the argument for a single central bank by show­
ing that, while such a bank operates well in
France or Germany— both o f which countries
are so small in area compared with the United
States that either o f them could be placed within
the State of Texas— a country like the United
States, measuring fifteen hundred miles north
and south by three thousand miles east and west,
cannot be properly served by a single bank, but
needs six or eight or ten independent but af­
filiated banks under the supervision o f the
government. This need the regional banks are
created to supply. In other words, the Glass
bill is modelled upon our federal political system.
It establishes a group of independent but af­
filiated and sympathetic sovereignties, working
°n their own responsibility in local affairs, but
united in national affairs b y a superior body
which is conducted from the national point of







174

an

ad ven ture

in

c o n s t r u c t iv e

f in a n c e

view. The regional banks are the states and the
Federal Reserve Board is the Congress.”
Beyond all question, M r. Vanderlip made an
exceedingly engaging address. It was deliber­
ately arranged for effect throughout the country,
particularly to impress wavering United States
Senators at Washington and to strengthen the
conviction of those who had accepted his central
bank plan. Momentarily, he captivated his
audience; but the address could not stand critical
analysis nor endure the ordeal of a pounding
debate. N ot even his fine personality or his long
and varied experience as a financier, with the
inevitable partiality of his picked audience,
could insure him against the fatal consequences
of his amazing change of front, reflecting a de­
gree of inconsistency that easily might be mis­
taken for insincerity. How astounding to him
it was to sit there and see the napkins which had
wildly applauded his address now beating the
air in approval of his adversaries! More signifi­
cant than the reaction of Dr. Abbott, as printed
in the Outlook , was that of other guests at the
dinner and members of the Economic Club.
M r. Jam es Speyer, president of the club, wrote
me next d ay: “ I am sure you will be pleased to
know that many of the men who heard you last
night thought you got the better of your op-

THE STRUGGLE BEFORE THE COUNTRY

175

ponents of the currency bill. Your mastery of
the subject and fairness of views impressed every­
body favourably, and I believe your "visit has
done a vast deal of good.”
In a like vein wrote A. Barton Hepburn, o f the
Chase National Bank, and scores o f others who
heard the debate. A particularly pleasing note
came from Hon. Jam es T . M cCleary, formerly an
outstanding Republican Member o f Congress
from Minnesota, now an official o f the American
Iron and Steel Institute, who thought “ the cur­
rency bill gained materially as a result o f the
debate last night.” Decidedly the most surprislfig, as it was among the most gratifying, o f the
expressions received was from Professor Joseph
French Johnson, who was M r. Vanderlip’s as­
sociate in the discussion. He wrote: “ I want to
et you know I enjoyed tremendously your elo­
quent and persuasive speech M onday night,
r our bill is a masterpiece—that is assuming you
are debarred from erecting a central bank. I f I
Were convinced a central bank were not attainI suspect I should be found fighting on your
Sl<Ie. I congratulate you on the excellent im­
pression you made on that New Y ork audience.
you ever get tired o f the Southern climate, I
auvise you to come to New Y ork, which would
you stayed in Congress if you wanted







I7 6

AN ADVENTURE IN CONSTRUCTIVE FINANCE

The presentation of these three or four com­
ments on the Economic Club episode, conveying
the tenor of many others, should not be taken to
reflect too pronounced a feeling of personal satis­
faction in the outcome of the discussion. They
are a part of a memorable event; and the fact
that they have been held in strict privacy all
these years should serve as an effective foil
against any suspicion that they are reproduced
here out o f an itch for publicity. The campaign
against federal reserve legislation before the
country is as pertinent to this chronicle as the
fight in Congress. The Economic Club dinner
was part o f it; and the incident is given to show
that it was not the “ Roman holiday” it was ex­
pected to be. The two congressional chairmen
were not completely crushed, nor did the address
of M r. Vanderlip, clever as it was, have any ef­
fective repercussion at Washington among Sena­
tors or elsewhere. It m ay rationally be doubted
if it strengthened opposition to the currency bill
in New Y ork City.
There were other discussions before business
bodies and associations devoted to scientific
problems. N otably among these was the de­
bate in New Y ork C ity before the Academy of
Political Science in which the currency bill was
upheld by Senator Owen and Representative
Bulkley in addresses delivered and by the chair-

THE STRUGGLE BEFORE THE COUNTRY

17 7

man of the House committee in a prepared
address which was read to the audience be­
cause the chairman was too ill to appear in
person. According to the newspapers o f the
day, Bob Bulkley had on his fighting clothes
and did not mince words. Clear-headed, selfconfident, with a complete understanding of his
topic, he was exceptionally aggressive.
Very
likely he took warning from the “ heckling”
to which the press said Senator Owen was
subjected by the bankers; for. as one news
report had it:
“ Mr. Bulkley was not so restrained as Senator
Owen in dealing with the opponents of the bill—
especially when he answered objections of the
American Bankers’ Association. He caused some
stir when he charged that the report of the
American Bankers’ Association currency com­
mission had been ‘ written in bad temper,’ and
was ‘ not consistent with the dignity and fairness
which such a body ought to possess.’ He added:
“ ‘ Possibly the American Bankers’ Association
does not care much about constitutional questions; but when they pass resolutions which
charge that a bill publicly endorsed by the Presi­
dent of the United States and passed by the
House of Representatives is an unconstitutional
measure, seeking to confiscate their property,

»




t C*




17 8

AN ADVENTURE IN CONSTRUCTIVE FINANCE

they ought to care whether what they say has
any foundation or not.’
“ The keynote of M r. Bulkley’s address was a
strong insistence upon government control of
banking and currency. He said that the rail­
roads and the other public utilities and the
beef packers were not allowed to do what they
cared to with their property without hindrance,
and that the bankers should be subject to similar
legal restrictions.
“ ‘ There must be government control,’ he
said, ‘ and I ask you all, and even those of you
who are in Wall Street, to recognize this.’ ”
M r. Arthur Reynolds, of the Des Moines N a­
tional Bank, spoke strongly for a central bank,
while M r. Hepburn, of the Chase National, who
had seemed reconciled to the bill passed by the
House, now made some sharp criticisms of its
principal provisions. Evidently he wras inspired
to do so by the eclat with which the Vanderlip
central bank plan had been received by the
banking community and by reports from Wash­
ington concerning the favourable reception of
the scheme by certain United States Senators.
However, this was three weeks before the
Economic Club debacle and before President
Wilson’s emphatic rejection of the Vanderlip
proposal. M r. Hepburn, as a member of the

THE STRUGGLE BEFORE THE COUNTRY

179

Currency Commission of the bankers, felt
obliged by the ethics of the case to stand with his
craft; but he was quick to perceive from the pro­
nounced attitude of the President and the out­
spoken resentment of House leaders that the
central bank plan, whether that of Aldrich or of
Vanderlip, was doomed, and he was wise enough
to exert his utmost influence for an abatement of
the bitterness with which prominent bank
spokesmen were persistently assailing the re­
gional bank bill.
For a time the fight was furious. Nothing in
Jackson’s battle against the United States Bank
charter exceeded the intensity of it. Personal
asperities abounded. As directed against the
President, these were a little guarded; but, ap­
plied to the patrons and managers of currency
legislation, the criticisms were harsh and af­
flicting. Even so just a man as Jam es B. Forgan, of the First National Bank of Chicago, in a
fom en t of unrestrained exasperation, according
t0 press reports, raged at the House committee
before a conference of bankers in Chicago, in­
sisting that bankers should be permitted to write
the currency bill and ignorant politicians shunted
aside. M r. Forgan was alleged to have repeated
Part of a strictly personal conversation with the
committee chairman, had in the privacy of the
latter’s rooms. This provoked a bitter retort







l 80

AN ADVENTURE IN CONSTRUCTIVE FINANCE

from me; but the incident, cleared away, ce­
mented a relationship of mutual respect and trust
which subsisted as long as M r. Forgan lived.
It takes character to confess and right a wrong;
and, as indicative o f the sturdy mould of M r.
Forgan, it m ay not be inappropriate to this nar­
rative to append his letter:

H on. C arter G lass,
Washington, D. C.

D ear M r . G la ss :
I have to sincerely apologize for the w ay in
which I referred to you in m y speech before the
bankers’ Tonference here last Friday.
The incident fully justified the rebuke you
gave me in your reply through the press. I have
nothing to offer in extenuation of my offense,
except to assure you that it was wholly unpre­
meditated and occurred on the impulse of the
moment during a somewhat heated discussion,
with no other intention in m y mind except to
indicate that you would be glad to have the as­
sistance of the bankers. As I cannot recall my
exact words, I will not even question my having
been correctly quoted. I will say, however, that
the quotation separate from the context o f the
speech creates an entirely wrong impression of
my meaning.
It was far from my deliberate intention to

THE STRUGGLE BEFORE THE COUNTRY

l8 l

reflect on you in any way, and the words as
quoted are very far from giving expression of my
good opinion of your ability or of my estimate of
the integrity and uprightness of your character
as these have been formed on my personal im­
pressions through meeting you or through the
high opinions o f you which I have heard ex­
pressed by others who know you better.

I can only ask you to accept my humble
aP°logy, to forgive me and forget the incident,
which I trust will do you no lasting injury.
V ery sincerely yours,
J as . B. F organ.
Instantly an acknowledgment o f this fine
letter went forward from the committee chair­
man, saying:

My

dear

M r . F organ:

I beg to assure you it gave me much pain to
make the comment I did on the press report of
your speech before the bankers’ conference at
Chicago. . . . Your m anly and gracious
ktter extinguishes every particle of resentment
that I m ay have entertained on account o f the
mcident and increases m y regard for you. I
shall dismiss the matter entirely and, always with
best wishes, subscribe myself,
Sincerely yours,




C arter G lass .




1 82

AN ADVENTURE IN CONSTRUCTIVE FINANCE

The public had no real conception of the
acrimony that underlay the struggle for currency
reform. Its outcroppings were not confined to
the acerbities of congressional interchanges.
Not a few were the biting episodes of which the
foregoing is but a type, except that there were
enmities incurred which were never cured. The
fight for better banking methods and for an ef­
fective currency system was no holiday fray; it
was actually a savage contest, in which en­
trenched power and privilege resisted at every
point of attack. Nor was the fight won by the
Seymour-House brand of sorcery. Invisible
spirits had no part in it. The dinners that a few
deluded bankers gave Colonel House or that the
latter gave to this beguiled group wrote no
line nor altered any provision of the measure
around which the conflict centred. Neither
Dr. Seymour’s “ guardian angel” nor any other
supernatural thing directed or averted a single
blow struck or countered in the desperate con­
tention.; Under the almost imperious leadership
o f Woodrow Wilson, men of faith and will and
purpose carried on the task, which was “ deeper
than the agitation o f the troubled and frothy
surface.”

CH APTER X I
A 'd i v e r t i n g

party

break

“ Hammering Over Old Brass” —Purely Dilatory Tactics—
Defection of Senate Democrats— Caucus Action Invoked
—Reed Spoils Some Plumage

W A SH IN G TO N the currency control versy before the Senate committee was
becoming animated. The bankers who had been
unsuccessful in their effort to impress the House
committee with the desirability of establishing a
central bank seemed to take courage. T hey
swept down on the Capitol in troops and pro­
duced the same arguments to a more sympathetic
audience on the Senate side. From day to day
tbe press reports represented the central bank
!dea as almost sure to prevail. All the Republi­
can members of the Senate committee were said
t0 be ardently for it, which was probably true,
aud three Democratic members were named as
converts to the proposition; for a time this
seemed true also.
An element o f sectional antagonism was in­
troduced from the West by both bankers and al-

A

T




183




184

AN ADVENTURE IN CONSTRUCTIVE FINANCE

leged experts, who resorted to the paltry artifice
o f pretending to believe that the bill reflected only
Eastern banking methods. Testimony on this
line before the Senate committee was promptly
dissected and its utter foolishness exposed
through the medium of influential Western
newspapers before it could get a lodgment. It
was gravely urged before the Senate committee
by a reputed “ currency expert” from Minnesota
that the administration bill “ could not be uti­
lized in the Middle West for the reason that
the banks in that section hold no paper maturing
in ninety days; all their notes are made to cover
a period of six months.” This expert had the
childish notion that the “ execution” and the
“ m aturity” of bank paper were synonymous
terms; he had not sense enough to know that,
whether bank paper is drawn for six months or
twelve months or any longer period, it must at
some time reach a m aturity of ninety days or
less! Supporting this specious attempt to array
the country banks of the West against the bill,
Western bankers who should have known better
raised the same issue; and next day were con­
fronted by a statement from the Comptroller of
the Currency to the House chairman showing
that the banks of two large Western cities alone
had paper eligible for rediscount under the ad­
ministration bill amounting to $236,000,000 on

the very day these bankers asserted the Western
banks had none! It was this kind of misleading
and worthless testimony that was delaying and
desperately endeavouring to defeat the currency
bill! And not the least exasperating feature of
the performance was the fact that the very
bankers who were urging this false premise upon
the Senate committee were men who had, with­
out a grimace, swallowed the Aldrich bill with
its twenty-eight-day limit as against a ninetyday paper limit in the bill they were now trying
to kill! They were anxious to accept a bill
under which their eligible paper was at zero,
because it bore the name of Aldrich, and were
trying to beat a measure under which their eligi­
ble paper ran into hundreds of millions because
it didn’t bear the name o f Aldrich.
Another significant bit of testimony was given
before the Senate committee which developed
something of a sensation, because the incident
revealed a concerted and carefully organized
plan to discredit and then defeat the adminis­
tration currency measure. There had been not
a little comment on the fact that nearly all the
adverse criticisms of the House measure before the
Senate committee had emanated from bankers
and professional men. So now, in the hearings,
there appeared as a sharp critic of the adminis­
tration bill a great merchant of New Y ork City.

j

I







18 6

AN ADVENTURE IN CONSTRUCTIVE FINANCE

Nothing he said could possibly have been ac­
cepted as convincing by anybody who should
trouble himself to apply the test of reason to it.
The real point of his appearance was that he
could truthfully be presented to the committee
and the country as “ a business man of great
importance.” He seemed not to know much
about the currency problem, but he ventured to
dwell with emphasis on the alleged constriction
of commercial credits which would surely follow
the passage of the proposed federal reserve bank
scheme. It would immensely curtail business
activities; hence, he favoured setting up a cen­
tral banking association. His ideas were rather
vague, but seemed to squint at something like
the Aldrich plan. Obviously, he was nervous
in giving his statement and was apparently glad
when his ordeal ended. Next day, in New York,
on being questioned directly about his statements
before the committee by a person who had read
in the papers what he was reported to have said,
and asked to explain exactly how the contrac­
tion of credits predicted by him would occur, he
frankly avowed that he knew nothing about the
administration currency bill, saying he had been
asked by certain influential friends in financial
circles to help beat it and had been “ coached”
as to what he should say. This remarkable
admission in some w ay got in the newspapers

A DIVERTING PARTY BREAK

18 7

and created quite a stir, although the hearings
were not interrupted by the episode.
A procedure that was certainly unusual, if not
unprecedented, was the summoning as a witness
before the Senate committee of the expert ad­
viser to the House committee to tell how the
House bill was drafted. Current newspaper
publications had it that the artful purpose of
this was to demonstrate that the administration
bill was drawn “ by a Wall Street scribbler,
under strict Wall Street auspices.” No better
response to such wretched nonsense was re­
quired than the stark fact that “ Wall Street”
was a little less than savage in its hostility to the
administration bill. Y et the very gentlemen
who were alleged to have been captivated by
Vanderlip’s “ Wall Street” scheme were rep­
resented to be simultaneously anxious to dis­
credit the administration measure by identifying
it with exactly the same influences! Dr. Willis,
the House expert, who resided in New Y ork
City, was excessively sensitive over the incident.
He regarded his relation to the House com­
mittee as confidential and properly resented the
idea of being catechized about his work there.
M y files disclose that he three times requested
me to have him excused, which I declined to do.
Senator Owen, chairman of the Senate commit­
tee, finally sent Dr. Willis word that he “ should







18 8

AN ADVENTURE IN CONSTRUCTIVE FINANCE

feci at liberty either to accept or reject the in­
vitation to testify, as no one was compelled to
be heard.” I promptly absolved the House
committee expert from all confidential obliga­
tion and advised him to go before the Senate
committee, which he did.
The printed hearings disclose that, if any Sena­
tor really imagined that the House bill had the
“ taint of Wall Street on it,” the attempt so to
identify it did not get far; for Dr. Willis point­
edly told the Senate committee that all his
work on the administration measure had been
done by direction of the chairman of the House
committee. As to this, the text of his statement
appearing in the Senate hearings of October 24,
19 13 , was:

“ M r . W il l is : The bill presented by the com­
mittee was prepared under the direction of the
chairman, M r. Glass, and such work as I have
done has been that of an adviser and investigator,
cooperating at each stage and carrying out the
directions that were conveyed to me by the
chairman. Whatever authentic drafts there are
of the different stages through which the bill
passed, are in the possession, so far as I know, of
M r. Glass.
“ S enator H itchcock: Some of the members

A DIVERTING PARTY BREAK

of this committee want to get an idea of how this
bill has developed.
“ M r . Wil l is : The bill has been developed,
as I have said, Senator, with the cooperation of
the Committee on Banking and Currency, by
a gradual process of study extending over about
eighteen months; and as far as m y relation to
it is concerned it has been, as I have said, that
of an adviser and investigator. I have done
what I could to advance the work, doing what
ordinarily falls to one acting in that capacity,
carrying out the instructions of the chairman at
each stage of the process, consulting with him
and doing what I was instructed to do.”
Beyond this testimony, Dr. Willis temperately
criticized some important features of the House
bill from which he totally dissented. He had
never wanted state bank membership of the
federal reserve system, whereas I had insisted
upon it; so the first tentative draft of the federal
reserve bill presented a compromise provision
by which state banks were given associate
membership. In the next draft, this was changed
to full stockholding membership. Dr. Willis
thought, in view of this, that national bank
privileges should be better hedged about in com­
petition with state banks, and so told the Senate







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

committee. He also objected to the savings
department for national banks in the House bill,
which the Senate subsequently threw out.
Likewise, he unsparingly opposed making the
notes “ obligations of the government,” which
was an economically sound objection; but this
feature of the House bill wras not altered because
the issue had been thoroughly thrashed out with
the President, who had assented to it. The
committee expert offered certain other criticisms
of a minor nature, which were regarded in some
instances and in others disregarded. Knowing
the problem from A to Z, he experienced not the
least embarrassment under the fire of questions;
but, as any intelligent person may discover by
reading the hearings, the witness vindicated
completely his right to speak by authority on
the question -of banking and currency reform.
He made a valuable contribution to the Senate
committee’s store of knowledge and punctured
the ghost story about the “ Wall Street” origin
of the administration currency bill.
After dreary repetitions by sixty-eight bankers
and eight alleged experts, many of whom had
been heard on the House side, the Senate hear­
ings were terminated and committee considera­
tion of the bill begun. There was not that
unanimity which characterized the proceedings
o f the House committee. One reason of this

A DIVERTING PARTY BREAK

I9I

was that the Senate committee affected a nonpartizan attitude that did not in fact exist.
In short, while the Democratic members divided
on nearly every important question, the Re­
publicans did not. This almost insuperable
difficulty was averted on the House side by hav­
ing the Democrats adjust their differing views
before calling the Republicans into consultation,
precisely as Mr. Aldrich, five years before, had
excluded the Democrats from conference until
the Republicans had agreed on the VreelandAldrich currency bill.
D ay after day, press reports recorded that
one or another change in the bill had been made
in committee by two or three Democratic Sena­
tors uniting with the solid Republican vote.
One day, two Democratic Senators joined five
Republicans and, by 7 to 5, changed the struc­
ture of the bill radically by transforming the
Federal Reserve Board into a central bank at
Washington with $300,000,000 of the total re­
serve funds apportioned to it for central banking
purposes. The regional reserve banks were to
be mere branches of the parent institution.
Chairman Owen, of the Senate committee, was
reported to be “ greatly agitated over the trend
of events, and vigorously protesting.” He re­
garded this change as “ providing the very essence
of a central bank.” Another day the same bi-







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

partizan combination, b y the same vote, re­
duced the number of regional banks to 4; and
then, as if fearful of the folly of this action, by a
vote of 10 to 2 authorized the central board, in
its discretion, to increase the number to 12.
The morning papers announced with seeming
authority that “ the President last night avowed
irrevocable disapproval of this action.”
Still
another day witnessed a combination of three
Democrats with the solid Republican strength
o f the committee for a central bank with 47
branches. And so the show proceeded, much to
the enjoyment of those who wished for no legisla­
tion at all unless it involved the establishment of
a central bank. Meanwhile, not a little irrita­
tion was created among staunch friends of real
currency reform, as they noted the fact that the bipartizan theory seemed to have caught the fancy
of three central bank Democrats, but not that
of a single Republican of the Senate committee.
The Republicans voted pretty much the same
w ay on nearly every division. This invited
bitter condemnation from several of the few
great Democratic newspapers, notably the New
Y ork World, which said:
“ These men are enabling the opposition to
play party politics with the currency bill. They
are themselves playing personal politics with it.

A DIVERTING PARTY BREAK

I93

Pledged with their party against a central bank,
they are holding up this bill to gain the essence
of a central bank, which would spell betrayal
of their party and menace to the financial
stability of the country. But for the obstruc­
tion of these men the bill, with desirable amend­
ments, could long since have been reported to
the Senate.”
This comment reflected what speedily became
the pronounced and bitterly expressed feeling
among well-wishers of currency reform regard­
less of party connections. Nevertheless, Wash­
ington dispatches and the local papers fairly
bristled with stories of dissension. “ Money
Split W ider,” featured one paper. “ Senators
Determined to Ignore Wilson’s Wishes,” was
another headline. “ Central Bank Idea Pre­
dominant,” said another. “ Alarmed at Popu­
larity of Vanderlip Plan,” was the w ay a hostile
New Y ork paper put it. The President was get­
ting mad through and through. So were many
of his party associates in the Senate and in the
House also, the latter having been held nominally
in session while the Senate committee delib­
erated. House leaders issued public statements
serving notice on the central bank adherents that
they need expect not one whit o f cooperation on
that side for the Vanderlip flare-up or any







AN ADVENTURE IN CONSTRUCTIVE FINANCE

kindred scheme. The chairman of the House
committee made public a letter written him
months before by M r. Vanderlip in which the
latter had bitterly assailed the very things he
was now professing to advocate; and demanded
to know “ if these things constituted ‘ unsound
banking’ in Ju ly , why do they not signify ‘ un­
sound banking’ in November?” The White
House more directly accepted the Vanderlip
challenge b y saying it was “ now a question as to
whether a controlling group of bankers or this ad­
ministration shall write a currency bill.”
Events passed in swift review. In a few days,
it was announced in dispatches from Washington
that the Eastern Senator who had cooperated
with the bi-partizan group o f the Senate com­
mittee had definitely broken from the combina­
tion; and a day later it was recorded by the
newspapers that another of the three Democrats
had visited the White House with Secretary
McAdoo and come aw ay convinced that the
only w ay to get legislative action was to abandon
all thought o f a central bank, whether of the
Vanderlip type or some other, and join in a con­
certed party effort for a regional reserve bank
system. The remaining Democratic “ insurgent”
was never convinced or subdued; he continued to
“ insurge.” But even with this repair of the
party traces, the chairman of the Senate com-

|

A DIVERTING PARTY BREAK

I95

mittee was not able to report the bill as agreed
on; he reported it without recommendation to
the Senate. This resulted in further delay and
prolonged confusion, until the President could
be won over to a party caucus proposal. On
this point M r. Wilson would not readily yield.
At first he was disposed to assert vigorously his
established aversion to “ rule b y caucus” and
to put responsibility for failure o f currency re­
form on those who appeared to be conspiring
against it. Had he persisted there might have
been no reform of the currency for years; and
the war which burst eight months later would
have caught the country unprepared for the
frightful financial strain. “ Right of w ay” is of
no value to the autoist who gets killed asserting
it; so the practical politicians finally convinced
the President that there must be a caucus or an
abandonment of all hope for legislation. He
agreed to the caucus, which was euphoniously
termed “ a conference,” and did the cleverest
kind of work among the Senators in healing
differences and imparting a new and militant
spirit to the whole movement.
Ju st a brief space before this, for a bare instant,
we get for the first and only time in this long
eruptive period a glimpse of Colonel House as he
flashes himself on the screen of that remarkable
D iary of things imagined. Professor Seymour’s







I96

AN ADVENTURE IN CONSTRUCTIVE FINANCE

“ unseen guardian angel” of the federal reserve
bill, radiating peace on earth, plumed himself
on trying to cure the contumacy of Senator
Jim R eed ! But his mesmeric wires were quickly
grounded. A fair inference from the D iary it­
self is that the celestial pacificator got his wing
feathers plucked before he could catch his second
breath. President Wilson, of the earth earthy,
had better success. In two frank talks he
seemed to have won over the refractory M is­
sourian, who thereafter went along with his party
associates and was among those who made ef­
fective answer to Senator Root’s alarmist speech
about “ fiat money” and “ the inflationary fa­
cilities” o f the administration currency measure.

CH A PTER X II
VARIOUS EXTRAORDINARY OCCURRENCES
The Senate Discussion— Mr. Root’s Sensational Speech—
“ Straining at Gnats and Swallowing Camels” —An
Extraordinary Paradox—Relentless Consolidationists

H E Senate had on its calendar two currency
bills, one reported by Senator Owen, chair­
man of the Banking and Currency Committee,
without recommendation; and one reported by
Senator Hitchcock, of Nebraska, representing
another wing of the committee composed of
himself and all the Republican members.
A
more or less extended discussion ensued, directed
to the general question of currency reform and
touching the major provisions of the contending
measures on the Senate calendar. The socalled Hitchcock bill, supported by the Republi­
can side, reflected the incongruous consolidationist and government operation view. The bill
of the Owen section of the committee, being the
House bill greatly modified, embodied the other
view o f decentralized bank reserves, with a cen­
tralized supervisory control. M any o f the




197




198

AN ADVENTURE IN CONSTRUCTIVE FINANCE

speeches delivered were carefully prepared, with
no expectation o f affecting the question before
the Senate, but strictly for home consumption.
N ot a few were exceedingly elaborate essays,
embellished by dry-as-dust statistical tables cal­
culated to impress the constituent who habitu­
ally gets his notions of greatness from the
size of a speech rather than from its logical
value.
On the other hand, some o f the debate was
spirited and forceful, while net a little of the dis­
cussion wras given a purely partizan tinge. The
memorable part o f it was Senator Root’s threehour address and the answers to it by Senators
Owen, Reed, and Williams. The New Y ork
Senator, invariably relied on to register the
point o f view peculiar to predominant financial
circles, was characteristically didactic; so much
so, indeed, that John Sharpe Williams’s forensic
satire was given full sweep in the running encoun­
ter. M r. Root’s vehement antagonism to the
administration currency measure grew out of its
alleged “ inflationary” facilities and the “ fiat”
nature o f the notes authorized to be issued. His
spectacular attack was sweeping in its range; but
the astute lawyer directed an excess o f invective
at the “ government note” provision of the bill
as the embodiment of all concentrated wicked­
ness. This note was the citadel o f “ inflation.”

VARIOUS EXTRAORDINARY OCCURRENCES

I9 9

Of course, the federal reserve note authorized
was not, in substance, a “ government” note nor a
legal tender; but a bank note with a uselesslyimposed government obligation that would not
be reached in ten thousand years. However,
the theme was temptingly susceptible to political
exploitation. M r. Bryan, then in the Cabinet,
with his long string o f financial vagaries, could
be identified with this purely textual blemish;
and how easy it was again to excite the East with
“ sound money” for a tocsin! Mr. Root’s
speech bristled with the phrase. “ This bill,”
he cried, “ proposes to put in pawn the credit
of the United States. This is financial heresy,
twice repudiated by the American people.”
Again and again he predicted certain calamity.
We were setting our steps “ in the pathway that
brought the mighty power of Rome to its fall.”
And “ long before we wake up from our dreams of
prosperity through an inflated currency,” our
suPply of gold, which alone could keep us from
catastrophe, would have vanished, “ and no rate
of interest will tempt it” to return.
The country was assured b y the newspaper
accounts of M r. R oot’ s speech that “ his incisive
presentation o f his objections to the adminis­
tration currency bill and his predictions of dis­
aster to ensue from its adoption produced some­
thing very much akin to a sensation in the







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

Senate.” M r. Gallinger, dean of the Senate and
Republican floor leader, issued to the press a
formal endorsement of the “ remarkable ad­
dress, brilliant, interesting, unanswerable,” and
added: “ Unless the Republican party nominates
Senator Root as its candidate for the Presidency
of the United States, it will miss the greatest op­
portunity that has ever presented itself to that
party.”
The sensation was not of a lasting description.
The denouement was o f a vastly different kind
from that expected. Mr. Root was not nomi­
nated for the Presidency, nor did the Senate do
one earthly thing to avert the possibilities of
inflation imputed to the administration bill
beyond a slight increase in the gold reserve, with
a graduated deficiency tax, never applied since
the system was inaugurated. On the contrary,
and without specific protest from Mr. Root, the
Senate tremendously accentuated the alleged
“ inflationary” features of the measure, if it did
not make inevitable the greatest imaginable
amount of inflation. At one stroke, in authoriz­
ing federal reserve notes to be counted by mem­
ber banks as reserve, it made possible inflation
to the incredible amount of six billions of dollars,
as computed by competent actuaries.
By
authorizing bank acceptances on domestic trans­
actions, thus creating contingent liabilities of

VARIOUS EXTRAORDINARY OCCURRENCES

201

great volume with not one dollar of gold cover,
it not only made certain credit expansion be­
yond approximation, but would have introduced
an untried and exceedingly dangerous banking
practice. B y a reduction of reserve require­
ments and by other changes, the Senate made
note-and-credit expansion enormously more
probable than did the administration bill so
bitterly assailed by Mr. Root. Not a word as
to this was uttered in all this drastic talk about
the “ menace o f inflation.” These particular
Senate amendments originated right in the fi­
nancial centres and were ceaselessly pressed by
notable Eastern bankers.
The speech o f the New Y ork Senator did not
go unanswered. It drew pungent comment from
John Sharpe Williams and spirited replies from
Owen and Reed in the Senate. When the con­
ference report was presented in the House, the
retort was as pointed and combative as the
amenities of debate would permit.1 It was de­
plored that a statesman of M r. Root’s interna­
tional reputation should have seized upon a
politician’s catch phrase and denounced as
“ fiat” the soundest note ever issued. There is
not an element of “ fiatism” about a federal re^ee in the appendix to this volume speech delivered by me in the
House of Representatives on December 22, 1913, explaining the confer­
ence report and defendingthe House currency bill against adverse criti­
cism.







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

serve note. A sufficient confutation of the
suggestion m ay be found in the fact that, after
the most crucial test to which any currency was
ever subjected, the considered banking judg­
ment of the nation, as expressed by the Federal
Reserve Board and its Advisory Council of
eminent bankers, prevailed with Congress to
reduce by 33.3 per cent, the very commercial
security that was behind the federal reserve
note at the time M r. Root made his astonishing
characterization of it. None of the disasters
prophesied by this distinguished statesman have
yet broken upon the country as a result of the
enactment of federal reserve legislation.
The
regional banks have the greatest reserve of gold
ever assembled outside the bowels of the earth.
Through their agencies was managed the most
inconceivable flotation of war loans in the his­
tory of the universe; and to-day the prosperity
of the nation seems inseparably associated with
the maintenance and wise administration of the
system.
As heretofore intimated, the debate in the
Senate, if seriously intended to affect the
decisions of the body on the reserve bank bill,
did not appreciably succeed in doing it.
A
rather bitter partizan aspect was given the dis­
cussion by Senator Bristow. Among other sharp
things said by the Kansas Senator was an un­

VARIOUS EXTRAORDINARY OCCURRENCES

203

mistakable accusation that certain other Sena­
tors, in conjunction with Secretary McAdoo,
were “ attempting to relieve Congress of some of
the more important details of currency legisla­
tion by midnight conferences at the Raleigh
Hotel.” He quoted a Washington dispatch to a
New Y ork paper as saying that it had already
been “ decided at these conferences to eliminate
from the bill the proposed guaranty o f bank
deposits.” Senator Owen explicitly denied that
anything of the kind had occurred; and, as a
matter of fact, the Senate, in which this provision
originated, did not eliminate it. It was ex­
punged by the House conferees.
As further denoting the tense party spirit
which the Senate discussion had fomented, it is
pertinent to give a rather astonishing circum­
stance. Senator LaFollette, to all the East
anathema maranatha, presented an amendment
to the currency bill which, if adopted, would have
figuratively sent the federal reserve banks to the
almshouse for their managing directors. It
read:
“ No member o f the Federal Reserve Board
and no director of a Federal Reserve Bank and no
officer or director o f any member bank shall be
an officer, director or stockholder of any other
bank, trust company or insurance company.”







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

The proposed amendment was overwhelmingly
beaten, of course; but to the amazement of the
Senate it received the support of Senators
Root, Penrose, and Gallinger against the oppos­
ing votes of every other member o f the Senate
from the E a s t! It m ay be wondered if, in that
three-hour philippic, the great New Yorker had
not convinced himself, and Senators Penrose
and Gallinger also, that the opposing political
party was so incapable of originating financial
legislation which could merit the respect of sane
people that any alteration, howsoever evil, would
be an improvement. On no other theory, as I
conceive it, could there be any explanation of
their attitude. In the issue of the legislation
one class of directors of federal reserve banks is
supposed to be directly affiliated with other
banks; another class is selected by and may be
stockholders of member banks, and only the
three directors appointed by the Federal Reserve
Board are specifically detached from pecuniary
interest in banks. Even these m ay be stock­
holders of trust and insurance companies. Y et
here was a proposition, supported in this wise,
to commit the great regional banks of the coun­
try to the exclusive direction of persons having no
interest in banks nor presumptively any knowl­
edge of banking processes! It was to prohibit
any officer or director o f any of the ten thousand

VARIOUS EXTRAORDINARY OCCURRENCES

205

member banks of the federal reserve system to
own a share of stock in any other bank or any
trust or insurance company! It was to render
ineligible for service 5,000,000 of the thriftiest
citizens of the republic!
The ablest, as he was the most fearless, spokes­
man o f the bankers o f America had, a few days
before,in the Senate Banking Committee, fiercely
assailed the House currency bill for its failure to
commit the tnanagement of the regional banks
exclusively to bankers. “ The bill,” he ex­
claimed, “ is repulsive in its provisions for con­
trol. It is a force bill the like o f which is not on
the books of any nation. It discourages bankers
by telling them they are a class o f citizens no
longer entitled to representation!” And there
in the Senate, a few days &fter, the greatest
spokesman in America for vested rights, whose
life had been spent in the shadow o f bank struc­
tures, was voting to exclude every stockholder
of a member bank of the federal reserve system,
every stockholder of a trust or insurance company,
from participation in the management of these
regional institutions, every dollar of the capital of
which was supplied by the very banks and persons
thus proscribed! Is there to be found anywhere
in the pages of controversial literature anything
comparable to this paradox? Certainly, it was
a curious episode o f federal reserve legislation.







206

an

a d v en tu r e

in

c o n st r u c tiv e

fin a n c e

While the general debate was proceeding in the
Senate, addressed to the administration or House
bill and the two bills reported respectively by
M r. Owen and M r. Hitchcock as substitutes,
the Democratic party caucus was deliberating
over amendments to the House bill prepared by
a committee composed o f Senators Owen, Shafroth, Pomerene, and Hollis. Meanwhile, at
this particular stage, another outside interfer­
ence was projected. Certain radical proposals
were presented which were saturated with the
same plutological poison as that of the scheme
which came so near wrecking federal reserve
legislation in June. This new plan was presented
to the President and his approval sought. M r.
Wilson promptly referred thfe proposal to me
for examination and submission to such of my
House colleagues as might be convenient for
consultation. We were nev*er enlightened as to
the origin of the scheme, but after a thorough
scrutiny o f it by Bulkley, Phelan, Korbly, and
myself, with the expert aid of Dr. Willis, the
President was told o f its dangerous nature and
o f the total unlikelihood of its acceptance by
the House. President Wilson had instinctively
regarded this proposed departure from our basic
lines as an ill-considered adventurt, and Secre­
tary McAdoo agreed with him; and, although
both o f them urged that the suggested amend­

VARIOUS EXTRAORDINARY OCCURRENCES

207

ments be dismissed, two of them in modified
form were incorporated in the Senate bill, only
to be thrown out in conference.
Whether there were any incidents o f the
Senate party caucus worthy to be recorded, I
am unable to tell. Although Senator Reed ex­
pressed a preference for open sessions because, he
insisted, the papers had falsely put him in a
position of capricious antagonism to the ad­
ministration, the conference was behind closed
doors. I f there were sharp differences of view
or any manifestations of acrimony, such as
were exhibited so repeatedly in the House caucus,
the newspapers gave no account of them. On
the contrary, subsequent proceedings in the
Senate appeared to indicate that the party con­
ference had reconciled all differences among
Democratic Senators, for they resisted effectively
every attempt of the opposition to alter the bill
as agreed on in caucus.
Singularly enough, the fight in the Senate
against the administration measure, as amended
in the party conference, was not led by a R e­
publican, but by Senator Hitchcock o f Nebraska,
a Democrat, who declined to attend the party
conference. Also, stranger still, the opposition
of Mr. Hitchcock was not inspired by the pro­
verbial “ Nebraska idea,” but, conversely, was
prompted by his advocacy of centralization in







208

an

a d v en tu r e

in

c o n st r u c tiv e

fin a n c e

banking and the economic wisdom of bank-note
issues as against government-note issues. Hitch­
cock surely exhibited the courage of his convic­
tions; for he was the solitary Democrat who
voted invariably with the opposite side. Stated
differently, it might be said that the Republicans
voted solidly for every amendment M r. Hitch­
cock offered, while the Democrats, with the single
exception noted, voted solidly against them.
The Nebraska Senator had little toleration for
the House bill. In eleven vital features he
sought to alter its provisions. He opposed its
proposed composition of the Federal Reserve
Board; he was for four as against twelve banks;
he was for insuring with government funds in­
dividual bank deposits; he advocated making
the m aturity o f rediscountable commercial paper
180 days instead of 90 days; he advocated a pro­
gressive rediscount rate; he wanted to raise the
gold cover for notes to 45 per cent.; he was for
increasing the capital stock requirement of the
regional banks; he favoured having the govern­
ment, and not bankers, manage the regional
banks; he would have required the banks to
underwrite the capital stock of the regional
banks and then compelled these banks to offer
the stock to public subscription; he was for an
appreciable change in the reserve requirements
of the House bill; and, finally, he offered the

VARIOUS EXTRAORDINARY OCCURRENCES

209

complete bill which he and six Republican mem­
bers of the banking committee had reported as
a substitute for the House bill, as amended by
the Democratic caucus. As stated, the solid
Republican vote was cast for every one of these
Hitchcock amendments, and the solid Demo­
cratic vote against. E very one was rejected;
but, subsequently, the Senate incorporated a
deposit insurance provision in the bill, which the
House conferees afterward eliminated.
While the Senate conference was deliberating,
and even after it had presented a perfected bill
to the Senate, various influential bankers, who
had taken an exceptional interest in the reserve
bank problem, came to Washington in hope and
expectation of being able to affect the situation
as they might desire. Although the bill had long
ago passed out of the jurisdiction of the House,
some of these bankers insisted on discussing
their proposals with me and several o f m y com­
mittee associates. Mr. Paul M. Warburg, the
accomplished New Y ork banker to whom several
references have been made in this chronicle, was
notably among these. M r. Warburg exhibited
a sort of religious zeal for the ideas he entertained
on the subject of banking and currency reform.
Moreover, he presented them with a force of
reasoning and an ingenuity of expresssion that
were not exceeded by his earnestness. M y rec-







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ollection is confirmed by my letter files when I
say he mailed me every one o f his proposed
amendments to the House bill as he sent them to
the Senate committee, besides keeping me ap­
prised of his talks on the Senate side. Mr. War­
burg succeeded in impressing his views on the
Senate committee and got some of them incor­
porated in the amended bill. He had a provision
inserted authorizing the use of federal reserve
notes in the reserves of member banks; also a
provision for universal domestic acceptances;
he got the reserve requirements changed so as to
increase the loaning capacity of the regional
banks, and vainly sought to embody a “ piping”
scheme, whereby we should have three reserve
centres with a regional bank at each.
While I had, as I still have, a high regard for
M r. Warburg’s genius and like him immensely,
I frankly disagreed with these things, done at
his insistence; and the House conferees had them
expunged from the bill in conference. M r.
Warburg also suggested, and successfully argued
against Sir George Paish, the English economist
whom Senators seemed to be consulting, the
incorporation of the one-year gold-note feature
in the bond-refunding provision of the act.
This was allowed to remain. These conferences
and this correspondence with the able interna­
tional banker afforded a species of mental calis­

VARIOUS EXTRAORDINARY OCCURRENCES

211

thenics which improved our capacity to deal
with the problem and from which all of us de­
rived genuine enjoyment. But for Professor
Seligman and some others to be repeatedly
asserting that M r. Warburg wrote the Federal
Reserve Act is not only to infringe the copyright
o f Professor Seymour and Colonel House, but is
to exhibit an amusing ignorance of the thing
they themselves assume to talk about. I f pro­
fessors of history and other things at great
universities do not quit dreaming dreams in­
stead of searching for the truth, Professor Shotwell will not live to realize his recently expressed
expectation of seeing History abreast of Science
in the final accounting of this wonderful period
of the world’s existence.







CH A PTER X III
THE

BANK B IL L IN C O N FEREN C E

A Unique Situation— Puzzled About “ Two Outwitting Six”
— Senators in a Rage— Mr. Lodge Goes on Record and
Prophesies— The “ Fiat Money” Clatter

T

H E administration cuirency bill, passed
by the House and in many particulars
altered by the Democratic Senate caucus, was
passed by the Senate on December 19, 19 13 , by
54 to 34, and was immediately sent to conference.
But three Republicans, Weeks, Norris, and Ster­
ling, voted for it. No Democrat voted against it.
As important legislative measures in sharp dis­
agreement between the two branches of Congress
are, in conference, frequently reshaped in their
vital features, there was intense interest mani­
fested in the personnel o f the conference com­
mittee. The agrarians and the inflationists of
the House were well pleased with the bill as it
passed the Senate, since it was readily seen that
the possibilities of credit expansion under its
terms were enormous. The saner element, ap­
prehending disaster from these inflationary pro­
visions, were determined to cure them. The
2x2

THE BANK BILL IN CONFERENCE

213

same “ corn-tassel” contingent that erupted so
violently in the party caucus and was badly
routed sought to have the House concur in the
Senate amendments. Briefly, the chairman of
the House Banking Committee pointed out the
folly o f such a suggestion, and Mr. Hayes, rank­
ing Republican member, declared acceptance
of the Senate amendments “ would mean the
authorization of dangerous and destructive in­
flation.” Oscar Underwood also urged that the
bill be sent to conference, which was done by an
overwhelming vote.
Defeated at this point, the expansionists
fought for the appointment of nine House
conferees to correspond with the number named
by the Senate. Thus it was hoped to override
the known conservatism of the three House
members who would be named under customary
procedure. This move also failed, and the
Speaker, plainly impatient at these tactics,
quickly named Messrs. Glass, Korbly, and Hayes
as House conferees, with instructions to accept
the Senate amendment extending the m aturity
of agricultural paper eligible for rediscount to
meet the seasonal requirements of farmers.
The Senate had named nine conferees— an
unusual, if not unprecedented, number.
This
came about by reason o f a singular situation.
As the designation of nine conferees on the







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fin a n c e

House side might have nullified the things for
which the House had voted, curiously enough,
the naming of three Senate conferees only might
have prevented an agreement altogether, since
M r. Hitchcock, the second ranking Democrat
on the Senate Banking Committee, had con­
sistently voted with the Republicans on the
main questions in issue; and, if named as a con­
feree, he and M r. Nelson, the Republican con­
feree, could have controlled the Senate vote in
conference. It was also said (for none of which
I vouch) that, since it seemed certain a legisla­
tive miracle was about to be performed by the
setting up of a scientific banking and currency
system, none of the Senate members of the bank­
ing committee was averse to having a lasting
part in it. W hatever the reason, the Senate
named on the conference committee every
Democratic member of its!banking committee
except M r. Hitchcock. These were Owen, Reed,
Pomerene, Shafroth, O’Gorman, and Hollis.
The Republican conferees were Bristow, Nelson,
and Crawford.
Much bitterness was occasioned by the de­
cision of the Senate Democratic conferees not to
admit their Republican associates to conference
until the Democrats had adjusted their own
differences. Korbly and I were perfectly will­
ing to have Hayes, the House Republican, sit

THE BANK BILL IN CONFERENCE

with us, because he was fair and had good knowl­
edge of the problem; but Democratic Senators
strongly objected to bringing in Senator Bristow,
who appeared to have been violent and person­
ally distasteful in the Senate debates. Hence
the Republican conferees were for the time ex­
cluded.
The conference of the six Democratic Senators
and the two House members was amicable, but
decidedly earnest. The sessions lasted far into
the nights. The discussions were warm, but
never unfriendly; and it is worth while to remark
that, although Senator Reed, of Missouri, had
persistently been featured in the papers as queru­
lous and insurgent, he was throughout the con­
ference useful and reasonable. His first super­
ficial impressions of the administration measure
seemed to have given w ay to a considerate
examination of its provisions as they were ex­
plained and defended by the House conferees;
and there was none of the wrangling or the as­
perity so freely predicted and fervently wished
for by the enemies of currency reform.
Re­
calling clearly the scenes and incidents o f the
conference as if it were yesterday, I might
confidently say that every member of it at every
session of it made a worth-while contribution
to the fine result. On the last night, we worked
until ten minutes past 4 a . m ., the final item of







216

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agreement being to retain the Comptroller of the
Currency as an ex-officio member of the Federal
Reserve Board.
Perhaps it will never be entirely agreed as
to whether the Senate or House conferees dom­
inated; but I have preserved among the in­
numerable bits of data the memorandum made
b y Korbly and me of the things we would insist
on and the points we would yield, and it may
decently be said that the House, which voted
298 to 60 for the conference report, was not bet­
ter pleased with it than the two House conferees
who signed it. The newspapers of the day re­
ported that “ M ajority Leader Underwood was
given a great ovation when he rose in the House
at the conclusion of the debate and congratulated
the Banking and Currency Committee ‘ on ac­
complishing a result that many Congresses and
many committees have attempted in twenty
years and failed.’ ” But Underwood omitted to
reveal the secret recently disclosed b y Professor
Seymour when the latter told the public his su­
pernatural hero of currency reform had both
Houses of Congress and the conference room
encircled by pigwidgins, all the while whispering
to us exactly what to do.
In the Senate, the conference report had a
stormy time of it. The Senate conferees were
subjected to biting criticism from both sides of

THE BANK BILL IN CONFERENCE

the chamber for “ capitulating to the House.”
The fine old Viking from Minnesota, Knute Nel­
son, had been hurt to the quick by reason of his
exclusion from the conference preliminaries.
He was in an indignant mood. “ When the con­
ference met,” he explained to the Senate, “ the
Republicans were not permitted to be present.
I want to acquit the members of the House; I
want to do full justice to them. The conference
committee of the House, headed by M r. Glass,
took their Republican associate with them and
were willing to confer with the Republican con­
ferees of the Senate. Objection came from the
six Democratic Senate conferees. T hey saw
fit to exclude us.
The conference was pure
mummery; yet in the face of these bald facts the
chairman of the Senate committee has the
audacity to come here and say that we were given
an opportunity!”
It was in vain that Senator Owen and others
endeavoured to justify the action of the Demo­
cratic Senators by pointing to exactly the same
thing done by the Republicans on similar oc­
casions, notably when the Vreeland-Aldrich
currency bill was passed so swiftly, without even
being read from the desk. Senator Bristow
appeared infuriated. He lashed about him re­
gardless, sneering at the President as possibly
capable of “ some spasm of virtue” and bluntly




r’




218

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fin a n c e

accusing Senator Owen of having excluded the
Republican conferees “ for fear they would take
out of the bill some of his pet measures,” de­
signed to benefit him pecuniarily as a banker.
M r. Owen did not mince words in his retort,
characterizing the Bristow statement as “ not
only false, but ridiculous; and the Senator knows
it is false.” Owen sharply added: “ We ex­
cluded the Kansas Senator because we didn’t
want a debating society, but a conference.”
M r. Bristow violently complained of the ex­
purgation of the Senate provision for guaranty
of bank deposits which had been advocated by
every Republican Senator from the W est; nor
was he appeased when Senator Reed explained
that “ this was practically a last-ditch proposi­
tion on the part of the Senate. House conferees
absolutely refused to yield, and we had the
choice of delaying or defeating the entire bill.”
Accusing the Senate conferees of surrendering
to the House, Bristow exclaimed: “ You are
providing a centralization o f power that Alex­
ander Hamilton would have blushed with shame
to suggest,” whereupon Senator Ham Lewis,
alluding to Senators Root, Penrose, and Gallinger as “ the Mephistophelian trinity,” charged
that M r. Bristow had obediently followed their
leadership. “ The Senator from Kansas,” he
taunted, “ thinks a great machine called cen­

THE BANK BILL IN CONFERENCE

219

tralization is on the way to disturb the country.
Y et the Senator from Kansas did not hesitate
to propose to the Senate the creation of a single
central bank, with a single head, with a single
body, that could, with all the force of ancient
and modern power, grip the Republic in the
tyranny of centralism.’’
And thus the controversy raged for hours,
both sides upbraiding the Senate conferees for
yielding to the House. On this point, Senator
Thomas, of Colorado, especially deplored the
elimination by the conferees of certain Senate
amendments. “ I cannot escape the convic­
tion,” he said, “ that two men, members of the
other body, at the other end of this building, by
their successful insistence upon having their
own way have become the ultimate authors of
this legislation. . . . We are now face to
face with the indubitable fact that two men,
members of the House of Representatives, have
dictated the character and elements of this
bill, to whose insistence the six representatives
of this body finally surrendered. . . . And
so this great measure is practically the result
of the insistence of two determined men.”
Senator Ashurst, of Arizona, also complained
on this score, saying: “ The Senator from Min­
nesota [Mr. Clapp] the other evening said he
would like to draw a picture of three controlling







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

six; but he might have drawn a picture of two
controlling six, because I observe that the con­
ference report is signed by two conferees on the
part of the House of Representatives and six on
the part of the Senate.”
Senator Reed, apparently tired of this irritating
reiteration, brought the Senate back to the sub­
stantial situation with a brief but convincing
defense of the currency bill as reported. Said he:
“ The truth of the matter is that this bill is in­
tended to strengthen our banking system. The
truth is the bill will probably benefit the banks by
removing from them the great menace of panics
and constriction. B y removing this menace
from the banks we remove it from the country.
The panic first strikes the bank, but within the
next succeeding moment strikes the depositor
of the bank; it strikes the borrower from the
bank; it strikes the business of the country;
it goes down and strikes the man who digs in the
trench and who toils in the mine. A sound
financial system is essential to a sound business
system, and a sound business system is essential
to a sound industrial system, and all are essential
to the happiness of a people.”
Thereupon, the conference report on the cur­
rency bill was adopted by a vote of 43 to 25,
the Republicans, except Senators Weeks, Norris,
and Jones, persisting in their opposition. Before

THE BANK BILL IN CONFERENCE

221

the vote was ordered, Senator Weeks, of M as­
sachusetts, presented a letter from his colleague,
explaining the latter’s antagonism to the meas­
ure. It read, in part:
New York,
December 17, 19 13 .
M y d ea r S enator W e e k s :
. . . Throughout m y public life I have
supported all measures designed to take the
government out of the banking business. . . .
This bill puts the government into the banking
business as never before in our history, and
makes, as I understand it, all notes government
notes when they should be bank notes.
The powers vested in the federal board seem
to me highly dangerous, especially where there
is political control of the board. I should be
sorry to hold stock in a bank subject to such
domination. The bill as it stands seems to me
to open the way to a vast inflation of the cur­
rency. There is no necessity of dwelling upon
this point after the remarkable and most power­
ful argument of the senior Senator from New
York. I can be content here to follow the
example of the English candidate for Parlia­
ment who thought it enough “ to say ditto to
Mr. Burke.” I will merely add that I do not
like to think that any law can be passed which







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

will make it possible to submerge the gold
standard in a flood of irredeemable paper cur­
rency.
I had hoped to support this bill, but I cannot
vote for it as it stands, because it seems to me to
contain features and to rest upon principles in
the highest degree menacing to our prosperity,
to stability in business, and to the general welfare
of the people of the United States.
Very sincerely yours,
H en r y C abot L odge .
Bacon delighted to speak of intellectual watchtowers, from the vantage ground of wrhich one
might get a glimpse of things to be. Obviously,
the sage of Nahant was not on his promontory
when he wrote this letter to his associate in the
Senate. These regional banks, from net earn­
ings, paid a franchise tax of $60,000,000 to the
government for a single year— a sum nearly as
great as that paid by all the national banks in
the United States put together for a period of
twenty years theretofore. These regional banks
avert rather than invite disaster; they stabilize
rather than disturb business; they foster rather
than menace prosperity. And as for “ putting
the government into the banking business,” it
was inexplicable to me, as it still is, that an in­
dictment o f this nature should have been levelled

THE BANK BILL IN CONFERENCE

223

at the Federal Reserve Act by those who voted
for the proposed substitute! The reserve act
commits the immediate management of the
regional banks to the bankers who own them.
The substitute proposed, bearing the seal of
Republican authority and supported by Messrs.
Root, Lodge, Penrose, Gallinger, and the rest,
would have put these banks in control of the
federal government, owning not one dollar of
proprietary interest in them! Could incon­
sistency present itself in plainer guise? To
“ ditto” Edmund Burke was one thing. To
“ ditto” Elihu Root in a partizan frenzy was
different. How much better for the fame of
Senator Lodge it might have been had he deigned
to examine the bill which he assumed to con­
demn! He would have discovered that not one
dollar of the currency authorized to be issued was
“ unredeemable.” He would have learned that
redemption on demand in gold was expressly
provided for every note. He could, in this cir­
cumstance, have clearly recalled by contrast
that the only “ fiat” paper money ever issued
in the history of the Republic was that issued
under a party administration of M r. Lodge’s
own faith and, contrary to the teaching of Hamil­
ton and Gallatin, validated by a “ readjustment”
of the Supreme Court of the United States. With
this knowledge obtained and this revival of







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economic memories, it is inconceivable that the
senior Senator from Massachusetts would have
been eager to “ ditto” M r. Root or to have
entered upon the permanent records of the
Senate a comment so at variance with the facts
and a prophecy so completely to be contravened
by events. Fairness to Senator Lodge requires
the statement that he later reversed himself;
and, not long before his last illness, he personally
told the present writer that he considered the
reserve act “ a great legislative accomplishment
and an indispensable service to the banking
community of America.”
There is printed as Appendix A to this nar­
rative the brief address made by me in the
House of Representatives on December 2 2 ,19 13 ,
concisely explaining the changes made in the
banking and currency bill by the Conference
Committee to reconcile the disagreeing votes of
the two Houses of Congress. In this speech I
also responded sharply to certain bitter assaults
made in the Senate and elsewhere on various
provisions of the House bill. As Appendix B,
The Federal Reserve Act, as amended to date,
is printed for ready reference by any reader of
this chronicle who may be especially interested
in federal reserve matters.

C H A P T E R X IV
TH E MIRACLE ACCOMPLISHED

The Currency B ill Approved—“ A Constitution of Peace” —
An Interesting Ceremony at the White House—A
Christmas Gift to American Business

F

OR nearly ten days, President Wilson’s lug­
gage had been packed for Pass Christian,
Mississippi, where he expected to spend the
holidays. As soon as the currency bill was en­
grossed and signed by the Speaker of the House
and the Vice President it was sent to the White
House for presidential approval. There all ar­
rangements had been made for a brief but in­
teresting ceremonial. Those who were most
intimately identified with the legislation, to­
gether with quite a company o f guests, assembled
in the Executive offices on the evening of De­
cember 23 d to see the President attach his signa­
ture to the Federal Reserve Act, which revolu­
tionized the reserve banking and currency sys­
tem of the United States. The thing which had
been vainly discussed and intermittently at­
tempted for twenty years had finally been ac­
complished!




225




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AN ADVENTURE IN CONSTRUCTIVE FINANCE

The newspapers of the country featured the
story; but concurrently the metropolitan press
gave hesitating editorial comment on the event.
Their Washington correspondents, well apprised
of the almost insuperable difficulties which had
been surmounted and the exact nature of the
prolonged fight, had a keener appreciation of
the achievement than the editorial writers; their
stories of the event were full and, in some
instances, graphic. One of the great dailies in
New Y ork carried three columns about the
reserve provisions alone of the bill, supplied by
Representative Bulkley, who had been put by me
in charge of that feature of the measure and had,
with the expert assistance of Dr. Willis, special­
ized in reserve computations. V ery likely the
cautious editorial comment of the metropolitan
press was due to the fact that, with certain
notable exceptions, the public journals at the
financial centres had been hostile to the legisla­
tion, and it was not to be expected that they
would be eager to praise at once a thing they had
scarcely ceased to condemn.
President Wilson, surrounded by Cabinet
ministers, Treasury officials, the Vice President,
the Speaker of the House, Senators, and Rep­
resentatives of both parties, members of his
family, White House officials, and other invited
guests, was in high spirits, as anyone may note

THE MIRACLE ACCOMPLISHED

227

from a glance at the accounts of the event
which were wired b y the resident correspond­
ents. N aturally, these differed inappreciably
in detail, the appended story sent by the rep­
resentative of the New Y ork Sun being fairly
typical:
“ Washington, Dec. 2 3 .— President Wilson signed
the Glass-Owen banking and currency bill at one
minute after six o’clock to-night in the presence
of a crowd that thronged the Executive offices.
M r. Wilson was in a happy frame of mind. The
occasion marked a victory for the President, who
had worked hard for seven months to put the bill
through the two Houses of Congress.
“ It also signalized the fulfilment of the second
principal pledge of the platform upon which Mr.
Wilson ran as a candidate for the Presidency.
“ In a speech that he delivered after attaching
his signature to the bill, President Wilson pro­
claimed the law as a ‘ constitution of peace’ for
the business interests of the United States. He
expressed pleasure ‘ in completing a work which,
I think, will be of lasting benefit to the business
of the country.’
“ While the President did not say so in actual
words, he made it plain that it was his belief
that the new law would quicken the activities
of trade and commerce.







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“ Mr. Wilson said he had been surprised at the
‘ sudden acceptance’ of the measure by public
opinion everywhere. Business men, he said,
had opened their eyes to find in the measure,
which they supposed to be hostile, a serviceable
friend.
“ After the guests had assembled, and the Presi­
dent was about to take his seat at his desk, he
noted that Chairman Glass of the House com­
mittee was not in sight. M r. Glass had taken
an inconspicuous position behind the crowd at
the other end of the room from the President.
“ The President invited him to take a position
beside his desk with Senator Owen, the chairman
of the Senate committee. As
Virginia Rep­
resentative came forward, the President shook
hands with him warmly. This was the signal
for a round of hand-clapping.
“ As the President sat down at his desk he said:
“ ‘ I must do the deed first and perhaps I will
have something to say afterward.’
“ In the signing of the bill the President used
four gold pens. With the first he wrote ‘ Ap­
proved. 23 Dec. 1 9 1 3 * With the second he
wrote ‘Wood,’ and with the third ‘ row,’ and with
the last ‘ Wilson.’
“ The first pen was presented to Mr. Glass, the
second to Senator Owen, and the third to Secre­
tary McAdoo. The fourth was reserved for

THE MIRACLE ACCOMPLISHED

229

Senator Chilton of West Virginia, who had sent
it to the White House with a request that it be
used in the signing of the bill.
“ ‘ The deed/ having been accomplished, the
President arose and addressed his audience. He
was interrupted by applause as he referred to the
new law as a ‘ constitution of peace/ When the
President concluded he was again applauded and
congratulated on the consummation of the work.
An informal reception followed.”
The President’s speech was brief, as it was
hurried. Among other things he said:
“ I need not tell you that I feel a very deep
gratification at being able to sign this bill, and
I feel that I ought to express very heartily the
admiration I have for the men who have made it
possible for me to sign it.
“ There have been currents and counter cur­
rents, but the stream has moved forward. I
think that we owe special admiration to the
patience and the leadership and the skill and the
force o f the chairmen of the two committees,
and behind them have stood the committees
themselves exercising a degree of scrutiny and
o f careful thought in this matter which un­
doubtedly has redounded to the benefit of the bill
itself. . . .







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

“ It is a matter of real gratification to me that
in the case of this bill there should have been so
considerable number of Republican votes cast
for it. All great measures under our system of
government are of necessity party measures, for
the party of the m ajority is responsible for their
origination and their passage; but this cannot be
called a partizan measure. It has been relieved
o f all intimation of that sort by the cordial co­
operation of the men on the ether side of the two
houses who have voted with us and have given
very substantial reasons and very intelligent
reasons for acting with us. So that I think we
can go home with the feeling that we are in better
spirits for public service than we were even when
we convened in April.
“ Men are no longer resisting the conclusion
which the nation has arrived at as to the neces­
sity of readjustment of its business. Business
men of all sorts are showing their willingness to
come into this arrangement, which I venture to
characterize as the constitution of peace. So
that by common counsel and by the accumulat­
ing force of cooperation we are going to seek more
and more to serve the country.
“ I have been surprised at the sudden accept­
ance of this measure by public opinion every­
where. I say ‘ surprised’ because it seems as if it
had suddenly become obvious to men who had

THE MIRACLE ACCOMPLISHED

231

looked at it with too critical an eye that it was
really meant in their interest. They have opened
their eyes to see a thing, which they had sup­
posed to be hostile, to be friendly and service­
able— exactly what we intended it to be and what
we shall intend all our legislation to be.
“ The men who have fought for this measure
have fought nobody. They have simply fought
for those accommodations which are going to
secure us in prosperity and in peace.
“ It is in this spirit, therefore, that we rejoice
together to-night, and I cannot say with what
deep emotions of gratitude I feel that I have had
a part in completing a work which I think will
be of lasting benefit to the business of the coun­
try .”
Immediately after approving the Federal R e­
serve Act, the President boarded the train for
Pass Christian, whence he sent this message
of well-merited applause to his Secretary o f the
Treasury:
Pass Christian, Miss.,
Dec. 25, 19 13 .
W. C. M cA doo,
Washington, D. C.
We all unite in sending you warmest Christmas
greetings, and I want to add to these greetings
my expression of sincere gratitude and admira­







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tion for the work you have done in connection
with the currency bill. I do not know what I
should have done without your constant and
watchful efforts in this great piece of business.
W oodrow W ilso n .
To Senator Owen, chairman of the Senate
Banking and Currency Committee, the President
wrote this note:
W hite H ouse ,
December 23, 19 13 .
M y d ear S en ato r :
Now that the fight has come to a successful
issue, m ay I not extend to you my most sincere
and heartfelt congratulations and also tell you
how sincerely I admire the w ay in which you
have conducted a very difficult and trying piece
o f business. The whole country owes you a
debt of gratitude and admiration. It has been a
pleasure to have been associated with you in so
great a piece of constructive legislation.
Cordially,
W oodrow W ilso n .
H on . R . L. Ow en ,
United States Senate.
The President also sent the appended note to
the chairman of the Banking*and Currency Com­
mittee of the House of Representatives:

T H C W H IT E H O U S E
W ASH IN G T O N

D ecem ber

23, 1913

My dear Ur. Glass:
Uay Z not express my admiration for
the way in which you hare carried the fight
for the ourrency hill to an extraordinarily
successful issue.

Z hope and heliewe that the

■hole oountry appreciates the work you have done
at something like its real value and Z rejoice
that you hate so established yourself in its con­
fidence.
With sincere admiration
Cordially yours.

Hon. Carter Glass,
House of Representatives.







234

AN ADVENTURE IN CONSTRUCTIVE FINANCE

Two weeks later, after the momentary excite­
ment of the unusual occasion had subsided, the
Secretary of the Treasury dispatched this letter
to the chairman of the Banking and Currency
Committee of the House:
THE S E C R ETA R Y OF THE T R E A S U R Y

January 12, 1914*

My dear Glass:
H o w that the Federal Reserve Act is
law I write again to congratulate you on the
splendid and effective part you had in the
fon&l a t i o n , construction and passage of it.
I believe no one can speak with greater
knowledge and authority of the splendid part you
have had in this notable piece of business.
I n the concluding Stages of the fight and in
the work of the conferees you exhibited in a
rare degree those qualities of intelligence
and statesmanship which brought the measure to
successful fruition. You have made for your­
self enduring fame, and no one rejoices more in
your deserved success nor wishes you a longer
life of continued usefulness to your country
and to your friends than,

Hon. Carter Glass,
I House of Representatives.

THE MIRACLE ACCOMPLISHED

235

There were felicitations and expressions of
satisfaction from every national group which had
evinced a consistent interest in the legislation.
As representing the bankers of the country,
wires and letters came from such outstanding
men as A. Barton Hepburn, Sol. Wexler, Jam es
Speyer, Paul M . Warburg, Jam es A. Forgan,
and many others. Among the hundreds of mes­
sages from business men of every degree, par­
ticularly hearty congratulations came from such
prominent figures in commercial life as John
Wanamaker, John V. Farwell, Edward A. Filene,
Charles R . Crane, Irving T . Bush, Wallace
Simmons, and others of this rank. The N a­
tional Association of Credit Men, the National
Citizens’ League, Chambers of Commerce,
Boards of Trade, manufacturers’ associations,
notable educators, professional menof every type,
helped to swell the chorus of rejoicing. Of these
I treasure a volume greater, perhaps, than all
that has been set forth in this narrative; and if
anything could compensate for the twenty-two
months of nervous strain and anxiety which had
been endured by those directly charged with
responsibility for banking and currency reform,
certainly these generous manifestations of ap­
proval afforded an ample requital.
At the White House there were received
countless messages; for it was in the leadership







236

AN ADVENTURE IN CONSTRUCTIVE FINANCE

o f the President that banking and currency re­
form had its surest chance of eventual triumph.
N ot for an instant did M r. Wilson ever turn
aside from the task or hesitate to apply every
resource o f intellectual strength and executive
power. He dreamed no dreams nor hearkened
to any “ wizards that peep and that mutter.”
From beginning to end he stood with both feet
on the earth, beguiled by no plea that could
abate his purpose, alarmed at no threat that
could affect his prestige, deceived by none of the
stratagems employed to postpone or render
hopeless the day of deliverance. Without his
knowledge of the problem, deprived of his spirit
and direction, nothing of a lasting description
could have been achieved. It is because no
living person, as I believe, knows and appreciates
this as I do, that this chronicle is written.

CH APTER XV
A MYTH DESTROYED

The “ Intelledualists” Change Front—First Oppose, Then
Claim Paternity of Federal Reserve B ill — Mr. Aldrich's
Fierce Assault on the Measure

H IL E the federal reserve bill was pend­
ing, it was mercilessly condemned in de­
tail by certain interests. Where there was any
praise in these quarters, it was faint enough
to damn. This hostile criticism reflected not
alone the attitude of bankers, as the class which
imagined that it was chiefly affected by the
proposed readjustment; but it voiced the disap­
probation of those business groups which are
most readily impressed by banking thought.
This was not surprising, since the phenomenon
was and is o f frequent recurrence. A very
noteworthy exception was found among the
National Association of Credit Men, whose mem­
bers thought intelligently on the subject and
understood the elements of the problem. These
credit men were not only tolerant, but extremely
helpful throughout the entire period of discus­
sion.




237




2 38

AN ADVENTURE IN CONSTRUCTIVE FINANCE

It was astonishing, however, to find so many
philosophers in economics among the critics
and obstructionists. It was even more amusing
to note the complete about-face of these a little
later. After the currency measure was enacted
into law and the system had proved itself under
the searching test of a world war, some of the
professors who had assailed the bill before
public assemblages were among the first to set
up claims of paternity for themselves or for their
friends. One of these gentlemen who sharply
criticized the administration measure before
the New Y ork Academy of Political Science
in October, 19 13 , precipitately tried, in 1914 , to
seize the copyright, as it were, for a banker
friend who had been consistently antagonistic
to some of the very fundamental provisions
of the bill to the moment of its approval b y the
President. The banker was a very fine, as he
was also a very able, man; but he was far from
being the author of the Federal Reserve Act.
Dr. H. Parker Willis, expert adviser to the
Banking and Currency Committee of the House
of Representatives, pointedly and accurately
states in his elaborate documentary history of
the federal reserve system that the federal reserve
bill was not “ a copy or derivative of any other
b ill” privately prepared by currency experts and
submitted to the committee. The name of such

A MYTH DESTROYED

239

bills was Legion and the committee graveyard
could scarcely hold the output. Not a small
part was, in fact, plagiarism of the earlier drafts
of the federal reserve bill. Dr. Willis thinks the
federal reserve bill was the “ digested product
of elaborate and careful study of European bank­
ing experience adapted to American necessities.”
A different, if not a preferable, w ay of stating it
would be to say that the measure was the
digested product of an agonizing review of
American banking experience and a thoroughly
scientific study of practical methods of read­
justment. Thus the committee expert and I
reach the same destination in inverse order.
We agree exactly in saying the Federal Reserve
Act has no relationship to the Aldrich plan be­
yond a common use in some cases of indispens­
able banking technique and nomenclature.
Those who affect to discern an intimate resem­
blance in these two measures are invariably
persons, whether professors, politicians, or bank­
ers, who ardently advocated the Aldrich central
bank bill and, to the very end, peppered “ with
all the ingredients of scorn and contempt”
the federal reserve bill. Now that the federal
reserve system has exceeded all expectation of
success, these men have the effrontery to relate
it to the adversary plan, the more audacious of
them ascribing “ three fourths of its essential







2 40

AN ADVENTURE IN CONSTRUCTIVE FINANCE

features” to the utterly rejected Aldrich scheme
which they so desperately sought to put into ef­
fect. Not only is their claim entirely untrue;
it is readily susceptible of complete disproof.
No fundamental idea of the Aldrich bill had
its origin with the framers of that measure.
Some of the essential ideas of the Federal R e­
serve Act had been, in different guise, considered
and discussed long before either the Aldrich
bill or the Federal Reserve Act was projected.
The zone system of the Fowler bank bill, the
Muhlemann central reserve bank plan, even the
scheme of the Indianapolis M onetary Commis­
sion of 1898, and the device of the American
Bankers’ Association of a later date, might better
be appealed to in the citation of similitudes than
the scheme of the Aldrich bill. Very much more
to the point than any of these might be adduced
the organization and practices of the great clear­
ing houses of the commercial centres of the
country; for it was right here that the generic
idea of the federal reserve system had its origin
and from this base the structure was erected
with all its lateral parts.
So manifestly dangerous and contrary to the
genius of democratic institutions was the Aldrich
scheme of monetary reform that the Republican
party, with President T aft as its leader, failed to
accept it; the Democratic party, with Woodrow

m

'—

^

Wilson for its nominee, openly rejected it, and
the Progressive party, which nominated Theo­
dore Roosevelt for President and polled 4,000,000
votes, denounced it as a scheme “ to place the
currency and credit system of the United States
in private hands, not subject to effective public
control.” Not a member of either House of
the Congress ventured to propose the Aldrich
bill as a substitute for the federal reserve bill.
Not one of the surviving Senators or Repre­
sentatives who were members o f the Aldrich
Monetary Commission seemed willing to present
for consideration that imperialistic scheme to
seize the banking business o f the United States.
Aside from the technique familiar to all banking
and currency schemes and excluding from the
computation the nomenclature that inevitably
applies to descriptions o f commercial paper and
discount operations o f banks, there are few fea­
tures o f resemblance in the two plans. They
differ in principle, in purpose, and in processes;
and if these inherent dissimilarities, radical
as they are, were not in themselves sufficiently
obvious to prove the case, there could be sum­
moned a witness whose competency and credi­
bility would not be questioned by any person
with the least regard for historical truth.
The late Senator Nelson W. Aldrich was chair­
man of the National M onetary Commission.







242

AN ADVENTURE IN CONSTRUCTIVE FINANCE

He knew well the underlying principles of the
bill presented to Congress by that commission.
He was perfectly familiar with the text of the bill
itself, which he was supposed to have drafted
with the assistance of the commission s experts.
The Rhode Island Senator, for years chairman
o f the Finance Committee of the upper branch of
the Congress, had an intimate knowledge also
o f the provisions of the federal reserve bill. He
had a mind so accustomed to financial analysis
and a discernment usually so clear that he v^as
universally regarded as a master among pub­
licists. His very name attached to the Aldrich
bank bill caused thousands of American bankers
to accept it without asking or knowing much
about it.
On October 15, 1913* before the Academy of
Political Science in New Y ork City, M r. Aldrich
delivered an address on “ Banking Reform in the
United States.” It occupies sixty-two printed
pages in the record of proceedings, and was
devoted, almost in its entirety, to an examination
of the major provisions of the banking and
currency bill passed by the House and sub­
sequently enacted into law as the Federal
Reserve Act. I f anybody who is too simple to
differentiate for himself the inherent contrarieties
o f the Aldrich bill and the Federal Reserve Act
will read this address, he will quickly see that M r.

A MYTH DESTROYED

243

Aldrich did not make the inscrutable blunder of
relating the one measure to the other.
D irectly at variance with his ordinary style
of circumspect speech, M r. Aldrich, in his Acad­
emy address, was vehement in his criticism
of the federal reserve bill. He wras so harsh
in his judgments and unsparing in his char­
acterizations as to suggest the supposition that he
had emulated the example of that British prime
minister who confessed to delivering speeches
which had been prepared for him because he had
not the time to prepare them himself. It might
well be wondered if the intemperate zeal of this
Academy address, with its positive violence
in denunciation of the federal reserve bill,
should not be imputed to some disappointed
academician among those who were paid large
fees to contribute ideas to legislative problems
which were rejected. Apart from the impetu­
osity and the fierceness of the address by
Mr. Aldrich, foreign to his habit of debate, the
production betrayed a tedium of literary and
historical research and a perceptive, scholastic
flavour that revealed the Rhode Island Senator
in an entirely new role.
Mr. Aldrich in that New Y ork address
assailed every essential feature of the Federal
Reserve A ct: (i) He attacked the regional
organization of the system as contrasted with his







244

AN a d v e n t u r e i n c o n s t r u c t i v e f i n a n c e

central bank plan, finding fault with every
detail of the scheme and operation of the divi­
sional banks. (2) With the incisiveness of a
trained satirist he ridiculed and, with the in­
dignation of an irritated statesman, he literally
screamed at the note-issue provision of the bill,
bedecking it with vituperative epithets such as
“ fiatism” and “ greenbackism,” and “ Bryanism.” (3) He bitterly criticized the establish­
ment of the Federal Reserve Board as an
irresponsible central bank with extraordinary
powers improvidently granted. (4) He berated
these various powers separately and collectively,
predicting that their exercise would lead to a
financial oligarchy. (5) He denounced the bond­
refunding feature, predicting tremendous losses
to the banks and suggesting the probability of an
utter destruction of the entire national banking
system. (6) He condemned the rediscount re­
quirements as inflationary to the last degree. (7)
He railed at the open-market section of the act as
viciously accentuating the power of the reserve
banks to inflate the currency by issuing inade­
quately secured notes. (8) He savagely assailed
every reserve feature of the bill, particularly the
fundamental idea of withdrawing the reserve
funds o f the country from the great money
centres. (9) He deplored the apparent purpose
of the bill to make the reserve banks active

A MYTH DESTROYED

245

institutions in competition with the great banks
o f the large cities, with the consequent severance
o f long-established business relations, (io) He
charged that no provision was made to promote
foreign trade. (n )H e attacked the redemption
features o f the bill as utterly insufficient and
decrepit. (12) He deplored the proposition to
establish a system o f bank clearances. (13) He
predicted that the shifting o f reserves would
create intense confusion and bring about mo­
mentarily a destructive contraction o f commer­
cial credits. (14) He deprecated the reduction
o f reserve requirements as wholly useless and
undesirable, prophesying that it would lead to
indefinite and destructive inflation. (15) He
insisted that the statutory interest rate through­
out the country should be uniform everywhere,
and severely condemned the power given to the'
reserve board to differentiate conditions or
circumstances. (16) He commented adversely
on the failure to limit the amount o f discounts
which member banks might make. (17) He
censured desperately the plan o f government
deposits. (18) He charged that unexpected
favours were accorded bankers in great centres.
(19) He said the bill was “ socialistic” in its
features o f government control. (20) He pro­
nounced the bill unconstitutional in its grants
of power. (21) Finally, ascribing paternity of







246

AN ADVENTURE IN CONSTRUCTIVE FINANCE

the bill to three Virginians (meaning Wilson,
Owen, and Glass), he appealed to the utterances
of John Marshall and to Professor George
Tucker, friend and biographer of Jefferson, to
rebuke these improvident sons of that common­
wealth who, “ while they have not ignored the
lessons of experience, are apparently afraid to
make their legislation conform to its teachings
on account of the declarations of a party platf 0 Summarizinghis pronounced objections to the
federal reserve measure, M r. Aldrich, since
acclaimed by his confused and beaten partizans
as the real author of the bill he thus condemned,
concluded his philippic in these words:
“ I have tried to show that the bill has serious
defects It appeals to the populists b y adopting
their plan of note issues; to the socialists by
seeking to place the management of the most
important private business of the country m
the hands’o fth e government; it seeks the support
of bankers in great centres b y its unexpected
discrimination in their favour, but its dangerous
doctrines and unwise methods do not appea
to the judgment of the American people. Its
objections features have neither the support
of public opinion nor the approval of the banking
fraternity. They are contrary to the teaching
of economists and they are not supported by the

A MYTH DESTROYED

247

judgment of practical men. It threatens to
upset business and to produce the evil results
it was projected to cure/’
Thus, it is seen, M r. Aldrich claimed no
share, whatsoever, in the federal reserve bill.
On the contrary, he ranged rough-shod through
every section of it. Not a fundamental pro­
vision was left untouched by his intemperate
denunciation. And it is a poor tribute to his
discernment and his frankness to suggest that
he would have been foolish enough to excoriate
bitterly before an audience of political econo­
mists a piece of legislation which had been pat­
terned after his own production. The false
claim, which M r. Aldrich would have scorned,
was first set up at an exigent moment in the
presidential campaign of 19 16 as a counterpoint
to the boasts of an opposing party. It was
promptly and searchingly controverted on the
floor of the House of Representatives by the
chairman of the Banking and Currency Com­
mittee of that body in a speech which challenged
contradiction in any particular. No answer
in general or in detail was made in that forum
then; nor has any answer been made anywhere
since that had the slightest responsibility at­
tached to it. While the bare assertion itself
now and then crops out, the remarkable address
of M r. Aldrich before the Academy of Political







248

AN ADVENTURE IN CONSTRUCTIVE FINANCE

Science stands as a permanent and conclusive
answer to the impudent claim. And it passes
all comprehension, in view of this authentic
record, how any person can expect to be believed
when he asserts that the Federal Reserve Act
is, in either a practical or theoretical sense, an
imitation of the Aldrich currency scheme.
It is needless to add that the evil predictions
ventured by M r. Aldrich with reference to the
federal reserve system have not come true and
never will. The notes he misbranded as hat
are at a premium in every money mart of the
outside world; the national banking system has
not been destroyed, nor has a single national
bank lost a dollar on its bonds; the readjustment
and transfer of reserves from the money centres
to the regional banks was accomplished without a
ripple; the bank clearing system has been the
wonder of modern banking, saving to commerce
more than a hundred and fifty million dollars
per annum; the redemption features of the bill
stood up through the exigent period of a great
war without being even jarred; the system has
not “ upset business,” but, on the contrary, has
preserved the country from disaster; the act s
constitutionality, thrice tested as to two vita
provisions, was thrice affirmed by the courts,
there has developed no inability to keep credit
and currency issues within bounds, as is

A MYTH DESTROYED

249

proved by the furious, but ignorant, outcry of
inflationists against the imaginary “ crime of
deflation” ; and, while it was true, as M r. Aldrich
asserted, that the system when first set up “ had
not the approval of the banking fraternity,” it
has so established itself in all the nation that
Congress this moment is being besieged by “ the
banking fratern ity” to give the federal reserve
banks an indeterminate charter!
In less than three years after Mr. Aldrich
predicted “ a financial oligarchy” under the
federal reserve system, his chief coadjutor
in the construction o f the imperialistic Aldrich
bank scheme was urging Congress to broaden
the field and make more imperative the powers
of the Federal Reserve Board at Washington!
The system is so devoid o f the nature o f an
“ oligarchy” as to be not quite far enough re­
moved from the impious threats o f the agitator.
And yet few more inspiring incidents o f public
administration have ever occurred, although
little observed, than the refusal o f the United
States Senate to confirm to the Federal Board
a mere servitor o f a disgraced Cabinet minister
and the refusal o f the Board itself to permit
a President o f the United States to usurp its
lawful functions b y assuming to name an utterly
^experienced and incompetent local politician
a position o f commanding importance in a







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

federal reserve bank. In the one case, veteran
Senators revolted who never before were known
to hesitate when their administrative head spoke,
while, in the other case, the fellow who travelled
fifteen hundred miles to be initiated, as a purely
political appointee, into the technique of reserve
banking was by the Board summarily sent back
to his distant home with his bread-basket empty.
While the Federal Reserve Board m ay never,
if it should ever, become so detached and so
completely independent o f legislative and ex­
ecutive influence as to assume the status o f the
“ Supreme Court o f Banking,” as many eminent
bankers have desired, it is certainly to be de­
voutly wished that it m ay permanently hold
such a high place o f appreciation in the con­
fidence and esteem o f the country as to make it
futile, if not positively dangerous, for political
vandals to practise their arts against it. An
intelligent and fearless performance of its func­
tions involves as much o f sanctity and of
consequence to the American people as a like
discharge o f duty by the Supreme Court of
the United States.
Neither in this chronicle nor ever before have
I thought it important or even desirable to dis­
cuss federal reserve legislation in a partizan vein.1
1<fWe have not desired to approach or consider the question fromthe
standpoint of party politics. It is too universal a problemfor that. It

A MYTH DESTROYED

251

In its practical operation and its beneficent
effects it is of little consequence whether the
Reserve Act was enacted under a Democratic or
Republican administration of the federal govern­
ment. It is only when some partizan, with
blameworthy purpose, has sought to have it ap­
pear that the Reserve Act, passed under the
administration o f one party, was a mere imita­
tion of something attempted by the other, that
I have ever ventured on this phase of the subject.
And it was a provocation o f this kind that in­
duced me to give place to this chapter in this
book. For a reason akin, I now take note of
the closing act of Professor Seymour’s federal
reserve drama, with Colonel House behind the
scenes. Here m ay be discerned the same thread
of illusion that weaves its w ay through the play
from first to last. As if it were not enough to
minimize M r. Wilson’s major personal part in
reforming the currency, Professor Seymour
finally would deprive his administration of credit
is not a matter for party advantage. I have kept in constant contact
and pleasant intercourse with the ranking minority member of the com­
mittee, giving him every successive reprint of the bill, affording all the
information that he might desire, and inviting in good faith such sug­
gestions as he might care to make. And now, Mr. Chairman, sureof our
ground, yet conscious of human limitations, we submit this bill to the
judgment of the House, challenging a fair considerationof its provisions
and devoutly invoking the patriotic cooperation of our colleagues in
what should be a great service tothe country and a memorable achieve­
ment of the Sixty-third Congress.”—Concluding words of speech by
Carter Glass in presenting the federal reserve bill to House of Repre­
sentatives, December 10, 1913.







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

for doing anything more than managing to tramp
over the blazed and beaten path trod b y his
political adversaries; and Colonel House stands
behind the curtain consenting! Among Doctor
Seymour’s concluding sentences in the Intimate
Papers is this:
“ The main principles o f the solution [the
Federal Reserve Act] finally carried through by
Wilson, the Republicans had advocated, in­
dividually or collectively; but they had lacked
either the courage or the strength to write them
into law.”
This is but an echo of the Aldrich claimants,
expressly rejected by M r. Aldrich himself.
There is, I submit, scarcely a word of real truth
in the statement. When did Professor Sey­
mour’s party, or any other until the advent of
Wilson, ever advocate (1) a regional reserve
bank scheme, under government supervisory
control as against bank ownership and control ?
When did it ever favour (2) a reserve banking
system composed jointly of compulsory and per­
missible membership ? When did it ever suggest
(3) a system of altruistic central control, totally
divested of banking connections and (4) a
regional control shared by the stockholding banks
with the government of the United States?

A MYTH DESTROYED

253

When did it ever present for consideration a
scheme involving (5) compulsory impounding of
national bank reserves, with a permissible im­
pounding o f state bank reserves, in either a
central bank or regional banks? When did it
ever draft or advocate or suggest (6) a measure
to deprive the great reserve and central re­
serve cities of any part o f their reserve repos­
itory privileges, largely responsible for financial
panics, or (7) a bill to decentralize commer­
cial credits in ordinary course of trade while in­
stantly mobilizing the entire financial strength
of the system in time o f stress? When did it
ever present a measure (8) to set up a great par
collection system, handling items aggregating
two hundred and fifty-eight billions of dollars
per annum, making a solvent business man’s
check on a solvent bank as available all over the
nation for its face value as the gold in the Treas­
ury? When did it advocate a banking bill that
(9) authorized open market operations by re­
gional banks to regulate rediscounts and provide
a vital use for idle funds ? When did it ever, as a
Principle or a policy, advocate (10) a composite
uote, put out by the government as its own
obligation, but issued only on application of a
regional bank with joint liability o f all regional
banks? When did it ever favour ( 11) a banking
scheme providing a diversified as against a







254

AN a d v e n t u r e i n c o n s t r u c t i v e f i n a n c e

uniform rediscount charge throughout the coun­
try? At what period o f its forty years of power
at Washington did Professor Seymour’s party
(12) ‘‘ lack the strength” (to say nothing of its
courage) to put these principles and policies of
banking into effect had it desired to do so?
Y et, with M r. Aldrich categorically condemn­
ing all these things; with every member o f his
party in the United States Senate, but three,
voting against every one of these principles and
policies of banking as embodied in the Federal
Reserve Act, and the overwhelming m ajority of
its members o f the House o f Representatives
doing likewise, Dr. Seymour thinks it is cleverly
proper, in what he asserts to be a historical nar­
rative, to inject a partizan plea which would strip
President Wilson’s administration of all sem­
blance of initiative and every whit o f originality
in the great achievement of banking and currency
reform! And M r. Wilson’s “ silent partner” re­
mains silent!

CH APTER X V I
OLD GUARD’ S LAST STAND
System Imperilled by Consolidationists— The President
Angered—Reorganization Was Imminent— The Scheme
Abandoned

I

T IS not the purpose o f this narrative to deal
with federal reserve administration. N atu­
rally, there have been mistakes. Such mistakes
as have been made were not of a nature to impair
the effective operation of the system. More­
over, it m ay be noted with satisfaction that, in
the important particulars in which the validity
o f the Act has been assailed by antagonistic
interests, its constitutionality has been upheld
by the courts from the lowest to the highest.
There is one episode related to administration
which occurred so soon after the system was
set up and which was so intimately concerned
with the very integrity o f original federal reserve
legislation itself as to make a reference to it here
seem altogether pertinent. The pertinacity of
those who held to the consolidationist view of
bank credits has already been made clear. As
we have seen, they ardently desired a central




255




256

AN ADVENTURE IN CONSTRUCTIVE FINANCE

bank; and, denied that, exhausted every resource
o f ingenuity to prevail with Congress to make
the number o f regional banks as few as three,
to be located in the three great central reserve
cities.
When, after months o f consideration and
discussion, this was not done, it was supposed
the fight was ended. But it was not. The
zeal of those advocating centralization was
unabated and their persistence unchecked by
repeated reverses. T hey carried the fight ' into
the administration o f the system ; and, in less
than one year after the federal reserve banks
were organized for business, the Federal Reserve
Board at Washington entered upon a startling
task o f abolition which might have contravened
the purpose of Congress by reducing the number
o f regional banks to any point at which the
Board might have pleased to desist! This ex­
traordinary action was proposed and entered
upon under an interpretation o f the statute
which, if valid, could have completely subverted
the intent of the framers of the law. Indeed, the
action proposed marked a critical moment in
the history of the federal reserve banking system,
for it not only involved an inevitable clash
between Congress and the Board, with its
attendant bitterness, but also would have pre­
cipitated a violent agitation in the districts

OLD GUARD’S LAST STAND

257

sought to be abolished as well as in other dis­
tricts which might proceed in constant dread
of a similar fate whenever it should suit the
notion o f the Federal Reserve Board to put them
out o f business.
It was understood to be the intention o f the
Board to eliminate immediately the banks at
Kansas City, Minneapolis, Atlanta, and Dallas,
deferring action on the Richmond and Boston
banks, with the decision as to the last-mentioned
contingent on the willingness o f the New Eng­
land member banks to be transferred to New
York. The crucial point was as to the legal
right o f the Board to disestablish a single one
of the twelve banks. Granted authority, under
the statute, to revoke the charter o f one, the
right to consolidate the system into three central
reserve city banks, so desperately, but vainly,
fought for in Congress, would have been con­
firmed. Disestablishment might not have pro­
ceeded that far; but it is by no means improbable
that it would have gone to exactly that extreme
without prompt executive intervention.
The committee o f the Board having charge
of the matter, composed o f Messrs. Warburg,
Delano, and Harding, was good enough to send
a c°P y o f its report under seal o f confidence,
w ereupon I lost no time in writing a protest
against the action proposed to be taken, courte­







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ous altogether, but unmistakably and severely
frank in expression of dissent. This letter
challenged the legal right of the Board to disestablish any regional bank once organized and
authorized to begin business, holding that
Congress alone could abrogate the charters
of a reserve bank and terminate its existence,
except in case of liquidation b y the Board for
violation of law ; even in that event, a reorganiza­
tion was suggested. There was given in the
letter a hurried, but I think conclusive, review
o f the related provision o f the Act, with the cir­
cumstances attending its consideration and adop­
tion. The argument led inevitably to the view
that it would be a stark usurpation of power for
the Board to persist in its contemplated course.
It is proper to state that, while M r. Delano,
to whom m y letter was addressed, was among
those who felt the Federal Reserve Board was
authorized b y law to take the action proposed
and advocated inquiry into the feasibility ot it,
he was not, as I recall the circumstance, an
advanced consolidationist, intent on abolition
o f regional banks for the mere sake of centralization.
#
- •
Because of the transcendent importance o
proposition, with its potential consequences, an
as a matter o f ready reference to the readers o

OLD GUARD’ S LAST STAND

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this chronicle who would care to be apprised of
the more interesting circumstances associated
with federal reserve legislation, the appended
correspondence is presented as a fairly clear ex­
position of the controverted point as I viewed it:
Washington,
Confidential

November 13 , 19 15 .

M y d e a r M r. G lass:
On behalf o f the Committee o f the Federal
Reserve Board, who have had the matter in
charge, I send you herewith the first copy of
report which has been prepared, and which
will be presented to the Board at the meeting on
M onday morning. This is, o f course, confi­
dential information which is not being given out
but, as the author of the Federal Reserve Act,
I think, and our Committee feels, that you are
entitled to it. An added special reason for it
is that various rumours have gotten out as to
what the Committee had in mind to do, and we
wanted you to form no wrong impression.
Yours very truly,
TF. A. D elano .
*d°N. C a r t e r G la ss ,
c/o Raleigh Hotel,
Washington.







260

an

ad v en tu re

Strictly confidential

in

CONSTRUCTIVE FINANCE

Washington, D. C.,
November 13, 19 15 .

M y dear M r . D elano :
On reaching m y hotel to-night I find your
confidential note, with enclosure of report of
your committee, for which I thank you. I had
read in the Washington Star of yesterday a para­
graph to the effect that the Federal Reserve
Board contemplated some such action as that
proposed b y your committee; but, being some­
what incredulous, I called Dr. Willis over the
’ phone last night to ascertain, if I properly
might, whether the publication had a real basis
in fact. Being assured that it had, I to-day pre­
pared a statement for the newspapers in which I
challenge the right of the Board to do what is
suggested and comment on the reason assigned
b y the Star for the meditated proceeding. How­
ever, aside from m y utter distaste for newspaper
disputation, I am otherwise dissuaded from
public discussion o f the matter just at this
moment.
Y ou have been so consistently courteous and
cordial to me, m y dear M r. Delano, and so
considerate also, that it pains me to have to dis­
agree radically with any view that you express
concerning the administration of the federal re
serve system. Y et, the very fact that I have

OLD GUARD’ S LAST STAND

26l

felt so strongly drawn to you and have been so
confidently impressed by your earnest devotion
to the work of the Reserve Board prompts me
to write very plainly with respect to the com­
mittee report which you have done me the kind­
ness to transmit.
I was among the few members o f the House
Banking and Currency Committee who hoped
that the Reserve Board Organization Committee
would start the system with the minimum num­
ber o f regional banks. I was among the very
few members of either branch of Congress who
felt that there was much exaggeration of the
real peril in M r. W arburg’s "pip in g” system
which received such scant consideration; so
what I say now may not be related to any pre­
conceived prejudice against a reasonable concen­
tration of reserves or liking for a large number
of reserve banks. I simply question outright
the power of the Federal Reserve Board to reduce
the number o f banks and, apart from every
other consideration, I think such action would be
a usurpation of authority for which no defense
can be found in the text of the act itself, and I
kncKv it would be a perversion of the intent of
those who drafted the bill and managed the legis­
lation.
The currency bill, as originally drawn, con­
tained no reference to the question of abolishing







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reserve banks beyond that involved in the para­
graph relating to the charter life of a bank, which
could be terminated only by act of Congress or
by forfeiture for violation of law. This was
held by most of us to be sufficient. But there
were members of the Committee so bitterly op­
posed to the centralization of reserves and so
fearful of control by a few banks, in subjection
to “ special interests,” that an amendment was
made which provided that “ no federal reserve
district shall he abolished nor the location of a
federal reservehankchanged exceptupon the applica­
tion of three fourths of the memher hanks of such
district.” In vain some of us pointed out that
this was in conflict with the “ charter-life”
provision of the bill: those fearful of a system of
few banks prevailed in the House Committee.
But the Senate Committee, noting the conflict,
eliminated the amendment cited; and the House
conferees on disagreeing votes, of which I was one
of two, concurred in the alteration, for the reason
indicated. Thus we gave the Federal Reserve
Board authority to “ create new districts,” dis­
tinctly modifying the term by immediately and
clearly indicating that the modus was to be by
multiplication, “ not to exceed twelve in all.”
To “ create” doesn’t mean to “ destroy.”
We
distinctly did not give, even by implication, nor
intend to give, the Board power to reduce the

OLD GUARD’ S LAST STAND

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number of banks first created. There is not, in
my belief, a vestige of sanction in the act for any
different assumption. Certainly there is no
warrant of authority to “ abolish” districts in the
power conferred on the Board to “ readjust”
district lines. Readjustment of lines cannot
mean extinction of districts, nor can the power
to “ review,” upon appeal, the work of the Or­
ganization Committee in locating reserve banks
be reasonably interpreted into authority to
“ abolish” banks. No such interpretation o f the
phrase, standing alone, would be tenable: read
in connection with section 4, expressly reserving
to Congress alone the right to dissolve banks,
such interpretation, as it seems to me, is impos­
sible.
But this strained construction of the
phrase, if ever admissible, could not be applied
now without coming in plain and sharp conflict
with the charter-life provision of the act or with­
out involving the federal reserve system in dis­
astrous litigation. Such action to be regarded,
in a n y sense, as a “ review” of the work of the
Organization Committee as to chartering banks,
should have been taken (1) before the Secretary
of the Treasury, as required by the act itself,
“ officially announced the establishment of a Fed­
eral Reserve Bank” in a specified district and
(2) before the bank proposed to be abolished had
been, as provided by the law, “ authorized by the







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Comptroller of the Currency to commence business
under the provisions of this act.”
But, as I have said, it was never intended that
these terms should bear any such construction
as that which I fear your committee placed on
them, albeit you do not explicitly say upon what
sanction o f law the Federal Reserve Board would
rely for the extraordinary action proposed. I
am not a lawyer nor an adept in the interpreta­
tion of law; but I do know what the proponents
o f the Federal Reserve Act and the managers of
the legislation intended to write on the statute
book.
Moreover, assuming that you have the power,
I find m yself unable to agree with your com­
mittee’s argument for the proposed action, and I
totally dissent from the printed reason ascribed
to the Board for its contemplated abolition of
certain reserve banks. Congress did not act
carelessly nor in ignorance in fixing the maximum
number of reserve banks. I am writing hastily
at my hotel, where documents are not available;
but in the archives of m y committee room is
abundant evidence o f the painstaking care with
which expert compilations were applied to this
question, and not one of the existing reserve
banks falls one dollar under the computation of
probable resources made by our actuaries, so
there has been no decentralization of reserves

OLD GUARD’ S LAST STAND

265

beyond that which Congress deliberately sanc­
tioned. Of course, I do not know with what
evidence your committee can fortify its sugges­
tion that Congress did wrong in authorizing, and
the Organization Committee in establishing,
twelve reserve banks; but I cannot imagine that
it relates to lack of resources, because the chief
officer o f one o f the reserve banks proposed to
be abolished has recommended to the Board that
it shall include in its suggestions to Congress an
amendment to the Federal Reserve Act authoriz­
ing a return to member banks of 95 per cent, of
the normally available capital subscribed, thus
radically reducing the capital resources of the
banks! Furthermore, it is in the power o f the
Board to make the resources of strong banks
available to aid weaker banks in time of stress.
It is a complete, not a fragmentary system.
I cannot think, either, that your evidence re­
lates to the reason given in the Washington Star
for the abolition of certain banks, to the effect
that “ four of the banks lost money for the quar­
ter ending September 30.” You know and I
know that some of the administrators o f federal
reserve banks have not tried to earn expenses.
Quite the contrary, they have tried not to earn
expenses; to my knowledge they have intrigued
to this end. And this to me is not astonishing,
for a member o f the Board and your committee,







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our mutual friend M r. Warburg, has publicly
proclaimed that he would have been “ ashamed
of these banks” had they earned their expenses.
While I do not agree with M r. Warburg as to the
economics of this view, I am cheerfully willing
to concede that there was nothing sinister in his
declaration; but there are those who will mis­
understand his remark and ascribe it to a desire
to wreck the federal reserve system and build
upon its ruins his eagerly desired bank of banks.
And if the Federal Reserve Board, either through
usurpation of power or exercise of authority
which the Federal Reserve Act may be thought
to confer, should at this time try to abolish cer­
tain reserve banks because all the banks have not
earned expenses, M r. W arburg’s avowed wish
that they shall not be self-sustaining will be
plausibly imputed to him and to the Board as
undisguised hostility to the system and part of
a scheme to discredit it. And, unhappily, this
belief would be accentuated by the incontestable
fact that the Board itself, under the persistent
leadership of Mr. Warburg, has failed to put into
operation mandatory provisions of the Federal
Reserve Act which were intended to enable the
federal reserve banks to earn expenses, and which
no member of the Board, I must assume, will
deny would enable these banks to earn expenses.
It is my deliberate judgment that the action

OLD GUARD’ S LAST STAND

267

proposed b y your committee, if taken at this
time, would arouse a spirit of ferment, and of
bitter resentment in the country, especially in the
large sections affected, which would speedily be
reflected in action by Congress.
I have frankly admonished M r. Warburg in
the kindliest spirit of sincere friendship that his
conception of the federal reserve system as a
purely “ emergency” institution is wholly foreign
to the view of the administration which recom­
mended and the Congress that brought that
system into being. It was never intended by
anybody who had any effective part in the incep­
tion and passage of this legislative act that these
banks should be practically moribund for nine
out of every ten years of their existence and only
be put into action to “ save a situation” or to
retrieve a financial disaster.
I f we want a system of that kind, we can return
to the hybrid Vreeland-Aldrich scheme, which
would enable us to abolish the Federal Reserve
Board, as well as the federal reserve banks and
conduct the enterprise from a corner bureau in
the Treasury Building. I have supposed that in
the Federal Reserve Act we had instituted a
great and vital banking system, not merely to
correct and cure periodical financial debauches,
not simply, indeed, to aid the banking com­
munity alone; but to give vision and scope and







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

security to commerce and am plify the opportuni­
ties, as well as to increase the capabilities of our
industrial life at home and among foreign na­
tions. I am not willing yet to think that I have
misconceived the thing.
I have written ten times more than I purposed
to say, M r. Delano, when I started to acknowl­
edge the courtesy of your note; and, what is
more, have written with my own hand, which is
distinctly against my physician’s advice. But
I cannot conclude without taking the very great
liberty to suggest that you should long and care­
fully consider the astounding intimation of your
committee that the federal reserve system, which
at the very weakest period of its existence— in its
infancy, so to speak— has withstood the shock
and upheaval of the greatest war in the history
o f the earth, will, in its growth and strength, be
gravely endangered when the readjustments of
peace ensue. To me this is startling. I believe
such a forecast of deficiency seriously made
public by the Federal Reserve Board would
alarm the country to the point of panic, and do it
instantly. I believe it would put a check to
enterprise and a rein upon endeavour that would
result in immediate doubt and ultimate disaster.
I do not at all participate in your fears. I think
we have a good banking system, which will con­
tinue to prove itself in larger measure as those

OLD GUARD’ S LAST STAND

269

who administer it give it a fair chance and oper­
ate it with confidence. I know you want to do
this, and I could wish for you no greater distinc­
tion, nor for our country any greater blessing,
than would be involved in the actual achieve­
ment.
I hope to be able to have this letter typewrit­
ten before I leave for New Y ork M onday morn­
ing and to subscribe myself, with cordial regards,
Faithfully yours,
C a r t e r G l a ss .
H on. F. A. D elano ,
Federal Reserve Board,
Washington, D. C.
Whether this letter of mine influenced later
events, I shall not pretend to say. The note to
me was received Saturday night, November 13th.
M y reply was written instantly and dispatched
early M onday morning. The action contem­
plated by the Board for M onday was deferred
for one week to get legal advice from the A t­
torney General of the United States, who was
furnished, by request, with a copy of the fore­
going letter. The opinion o f the Attorney
General was adverse to the action proposed by
the Board, and the matter was not pursued.
However, for the moment, the suggested pro­
cedure provoked intense feeling among those







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privy to it. The Board was arrayed in two
factions, the division being four to three, one
side assuming to be trustees for the banks and
viewing the other as representing the govern­
ment. M y data, made at the time, reveal the
existence of astonishing hostilities and a threat­
ening situation. On Saturday, November 20th,
in a long talk at his home, I warned Mr. War­
burg that the Board should not pursue the course
it had in mind without first getting the sanction
of Congress by amendment of the Act. On
Sunday, November 2 1st, the day before the ap­
pointed time for the Board to act on the com­
mittee report, the President summoned me to the
White House for a conference on the subject.
He knew one side o f the various controversies
which had disturbed the Board. I gave him
both sides, derived by me from conversations
with members of the opposing factions. The
President asked me if I did not think the sit­
uation was sufficiently threatening to warrant
an immediate reorganization of the Board.
Against this, at the time, I strongly advised, for
reasons which subsequently were set down in my
diary, the text of which reproduced here would
make reading decidedly more interesting than
judicious. There can be no possible doubt that
the Board would have been summarily reor­
ganized by the President under his power of

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271

removal had it taken next day the action which
was contemplated. The President, aside from
being greatly exasperated, wrholly concurred in
the view that such action by the Board would
constitute an intolerable usurpation of power,
without either textual or implied legal sanction.
Happily, the thing was not done; and soon
thereafter a better concert in the Board seemed
to prevail.
As far as I know, this was the first and only
time President Wilson ever approached the
point of executive intervention with the affairs
of the Federal Reserve Board; and this time he
felt that he must act to avert what seemed to
him a plain defiance o f the will o f Congress,
albeit the Board was fortified by an approving
opinion from a New Y ork lawyer whose obliquity
of vision in contemplating federal reserve legisla­
tion was as consistent as it was extraordinary.
Distinguished in his profession, he never once
appeared able to understand the genius of the
federal reserve system or to comprehend what
it was all about.
Two members of the Board had, on occasion,
complained quite bitterly in conversation with
me of the President’s indifference to the Board
and its transactions and suggested that the
Board was entitled to a more cordial recognition
and sympathetic cooperation of the President.







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

They appeared to think that with this there
would be less friction and better progress.
Whether or not this suggestion to me was in­
tended to reach the President I never knew.
However, suspecting that such an idea was back
of it, I did venture soon thereafter to mention
the subject to M r. Wilson, whose response was
to the effect that he had purposely refrained from
contact with the Federal Reserve Board because
he wanted the Board to feel perfectly free to
pursue its course within the law without a
particle of constraint or restraint from the Execu­
tive. “ The very moment that I should attempt
to establish close relations with the Board,”
added the President, “ that moment I would be
accused of trying to bring political pressure to
bear.” The President held to the obviously
proper view that commercial credits and banking
processes were matters which should be as far
removed from all sinister influences as one pole
is from the other. It was to insure just this
thing that the federal reserve system was de­
vised, and a single departure from which once
threatened disastrous consequences.

C H A P T E R X V II
a

“

c o n s p ir a c y

”

t h a t

d id n ’t

o ccu r

Fable About a Cruel Abridgment of Bank Credits Dissected
•—Nothing of the K ind Happened—How a Plain Business
Conference Was Misinterpreted Three Years After

W

H E N it is recalled that, in the memorable
panic year of 1907, three months before
the crash came which rocked the very founda­
tions of the nation’s economic structure, the ag­
gregate rediscounts of all the national banks in
the United States was but $58,000,000, as con­
trasted with the rediscounts of $2,687,383,000 at
the federal reserve banks alone on Jan u ary 1,
19 2 1, we m ay get some conception of the service
performed by this new banking system to the
commerce and industry of the country in this
period of post-war reconstruction. And when
it is shown that in 1920 the rediscount loans of
some of the reserve banks in various agricultural
states equalled and, in some instances, exceeded
the total rediscounts of the national banks in all
the states in 1907, one m ay well marvel at the
effrontery of the person who has no better dis­
cretion than to challenge the ordinary understand­







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

ing of the public by railing at the federal reserve
system for an “ abridgment of legitimate credits”
in the period of extraordinary depression. It
was fairly computed that of the total of redis­
counts at the twelve regional reserve banks in
1920, at least $1,800,000,000 represented loans
for the agricultural industry.
Notwithstanding this there is a fable still
afloat, which has its amusing as well as vicious
aspects. The story is retailed with vehemence
in certain sections of the country by those pro­
fessional friends of the farmer who would find
subsistence without real work a distinct hardship
once deprived of their repertoire of such tales
of imaginary “ outrage.” It is to the effect that
the Federal Reserve Board had a “ secret”
conference at Washington in M ay, 1920, at
which it was resolved to deflate prices of agricul­
tural products by retiring currency and abridg­
ing credits for these essential things. Outside
a circle of paltry agitators addicted to fooling the
farmer for a living, this invention has received
scant credence except from persons who obsti­
nately refuse to accept the truth or are incapable
of understanding the processes of the federal
reserve system.
The truth is that the Federal Reserve Board
could not have legally done what the accusation
implies, as any person of sense may see by an

a

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examination of the federal reserve statute.
Moreover, the recorded facts and official figures
literally disprove the stupid assertion. Besides,
no human being can form any credible conjecture
as to why the Federal Reserve Board, except in
aimless malice, could have desired to do anything
of the kind suggested. The Board is strictly an
altruistic body. Its members own not a dollar
of bank stock nor are they permitted bank con­
nection of any description. T hey could have
no possible motive to inflate or deflate the
currency arbitrarily had they plenary power to
do either. Their salaries are fixed by law.
Acquisitively, it is nothing to them whether the
currency is extended or contracted. T hey can­
not issue a federal reserve note but on demand of
a bank nor retire one except pursuant to a defined
commercial transaction. Two thirds of the
directors of reserve banks are selected by the
member banks of the respective regions and the
other third from business men and farmers of the
localities. They constitute a part of the life of
their communities and could have no conceivable
desire to injure themselves or their neighbours by
resort to illicit or punitive banking methods.
The alleged “ secret” conference of the Federal
Reserve Board was proclaimed in practically
every newspaper in the United States served by
the major press associations. Reporters were







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

not present, of course, as they should not have
been and as they never are at any bank board
meeting in the world where the delicate subject
o f individual, community, or nation-wide credits
is discussed. This meeting of the board in M ay,
1920, was to hear reports of trade conditions and
the credit situation throughout the United States
from federal reserve agents and Class A directors
of all the regional reserve banks and from mem­
bers of the Federal Reserve Advisory Council.
The press and sane business men everywhere
were at the moment inveighing against the
shocking speculation and extravagance which
had seized the country; and prosecuting officers,
from the Attorney General of the United States
down, were being bitterly censured for not
“ putting price profiteerers in ja il.” Congress
had twice by resolution asked the Federal Re­
serve Board what it had done or proposed to do to
abate the alarming waste and expansion which
were threatening the economic foundations of
the nation. While the Board had no power to
initiate rediscount rates at the federal reserve
banks, it was required by law to review such
rates when instituted by these banks. It was
perfectly manifest that there must be rate read­
justment at some of the regional banks before
long as they were extended to a point of great
peril; and it was to learn the exact status of each

4

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th at

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277

district directly from its accredited representa­
tives that this meeting in Washington was held.
This was necessary to enable the central board
to review intelligently any rate readjustments
that might be presented by the regional banks
for its consideration. No more sensible thing
than this was ever done by the Board.
So far from being “ secret,” the address to the
conference of the governor of the Board, compre­
hensive in its nature, was ordered to be given to
the press and mailed in printed form to the
30,000 banks of the country with a view of im­
pressing the public with the gravity o f the situa­
tion as seen from Washington. This address
textually disclaimed either purpose or power of
the Federal Reserve Board to “ interfere with the
details of the business of federal reserve banks.”
It contained a temperate remonstrance against
the “ orgy of speculation and extravagance”
which was threatening legitimate business and,
by abusing the credits of individual banks, was
impeding the movement to markets of the very
essentials of life. “ Borrowings for pleasure and
luxury,” the speaker thought, should be sub­
ordinated to “ essential loans for necessities.”
It was not for federal reserve authorities to define
luxuries or necessities; this must be left to the dis­
criminating judgment o f individual bankers.
F a r from suggesting any curtailment of agricul­







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

tural credits, the speaker was of opinion that es­
sential commodities should be given precedence,
and particularly urged (page 33, printed pamph­
let) that the live-stock industry o f the West
“ should be taken care o f” even if the federal
reserve banks of that section, discovering them­
selves too greatly extended, should find it neces­
sary to rediscount with the stronger regional
banks of the system. The whole tenor of this
address by the Governor of the Federal Reserve
Board found expression in a sentence (page 5,
printed pamphlet) saying:
“ A sensible and gradual liquidation will result
in permanent improvement, as we all know; but
any attempt at radical or drastic deflation will
result in very serious consequences, and such a
policy should be avoided.”
This address was given to the press by order
of the conference; and every phase of the meeting
was given unguarded publicity except the dis­
cussion of rediscount rates. As to this, those
present were cautioned by the chairman of the
meeting to say nothing. No caution should have
been thought necessary. The gross impropriety
o f making public any contemplated action on
bank rates even of an individual bank of magni­
tude is obvious to any person capable of rational

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279

thinking. It is not done in any civilized coun­
try of the earth. Bearing in mind that the R e­
serve Board had no authority to initiate redis­
count rates, as all the persons at that meeting
acting in unison had not, for the Board or any
member of it or any official present to have given
out speculative opinions of what should be done
or might be done with respect to rates by the
directors of the respective regional banks, would
not only have been dangerous in the last degree,
but would have been an act of unpardonable
folly.
The Board did not know, nor could any person
at the meeting remotely guess, what might be
the action of the respective federal reserve banks
which alone had original jurisdiction of redis­
count rates. As a matter of fact, opinion in the
meeting sharply divided on the question. Three
reserve banks in the metropolitan districts, where
speculation was appalling, had decided to in­
crease rates before the meeting at Washington
was held; one or two others did likewise some
six months afterward, while six of the twelve
regional banks never did increase the interest
charge above the point prevailing at the time
this conference was held. Contemplate the
simplicity of the bank board that would make
advance announcement of its purpose to increase
its discount rate at a given date, and imagine







280

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how much money it would have left in its vaults
to loan at the increased figure! Picture the
scenes in the money markets, on the stock ex­
changes, and among borrowing business men
throughout the length and breadth of the land
had the Federal Reserve Board, foolishly exceed­
ing its well-defined authority, made public proc­
lamation of a purpose to advise or coerce the
regional banks to initiate rate increases! Of
course the M ay meeting at Washington neither
made any bank rate increases nor recommended
any. It had no authority to do either. No
member o f the Federal Reserve Board present
advocated either. Y et, because the incidental
rate discussion was not at the time blazoned in
the newspapers nor given publicity until nearly
three years thereafter, the silly charge is even
now repeated, and by credulous souls believed,
that a great “ deflation conspiracy” was put into
effect at this meeting.
Instead of “ deflating” commodity prices by
abridging credits and currency, the federal re­
serve banks, with the sanction of the Federa
Reserve Board, prodigiously expanded credits
and increased the volume of currency. Near y
eight months after this “ secret” conference in
M ay, 1920, at which it is said “ a precipitate de­
flation” conspiracy was formed, the amount o
credits at the federal reserve banks and the

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volume of notes outstanding were at the highest
point in the entire history of the federal reserve
banking system! Here are the official figures,
furnished by the regional banks, the authenticity
of which has never been, as it never can be, suc­
cessfully disputed:
Paper held under rediscount fo r member banks
in each Federal reserve district, also Federal reserve
notes in circulation on Ja n . 1,19 2 0 , and on Ja n . 1 ,
19 2 1.
FED ERA L
R ESER V E
BAN K

P A P E R H ELD U N D E R D ISC O U N T
FO R M E M B E R B A N K S

F E D E R A L R E S E R V E N O T ES IN
C IR C U LA T IO N

J a n . I , 19 2 0

Ja n . 1 , 19 2 1

J a n . 1 , 19 2 0

Ja n . 1 , 19 2 1

B o s t o n .....................

$ 1 8 8 ,0 3 9 ,0 0 0 .

$ 1 3 5 , 2 9 3 ,0 0 0 .

$ 2 4 4 ,0 9 3 ,0 0 0 .

$ 2 8 8 ,7 8 0 ,0 0 0 .

N e w Y o r k .............

7 9 0 ,8 0 3 ,0 0 0 .

87i»439,ooo.

8 0 7 ,6 16 ,0 0 0 .

8 6 7 ,4 8 1,0 0 0 .

P h ila d e lp h ia . . . .

2 3 7 ,3 0 0 ,0 0 0 .

13 3 ,4 8 4 ,0 0 0 .

2 3 7 ,0 5 1 ,0 0 0 .

2 7 8 ,3 2 2 ,0 0 0 .

C le v e la n d ...............

1 6 4 ,3 1 7 ,0 0 0 .

1 2 2 ,1 8 2 ,0 0 0 .

2 6 4 ,7 3 8 ,0 0 0 .

R i c h m o n d .............

1 1 4 ,7 7 2 ,0 0 0 .

i2S.473.ooo.

14 5 ,7 6 5 ,0 0 0 .

348,951,000.
155,169,000.

A t l a n t a ....................

8 8 ,0 3 2 ,0 0 0 .

16 6 ,6 4 0 ,0 0 0 .

15 5 ,5 11,0 0 0 .

17 3 ,4 0 6 ,0 0 0 .

C h i c a g o ..................

2 6 7 ,6 3 9 ,0 0 0 .

4 7 S ,5 6 3 ,ooo.

5 0 0 ,13 9 ,0 0 0 .

S t . L o u i s ................

7 7 ,6 7 9 ,0 0 0 .

H4,933,ooo.

14 5 ,2 9 8 ,0 0 0 .

M in n e a p o lis .........

7 3 ,8 5 7 ,0 0 0 .

9 3 ,9 9 4 ,0 0 0 .

8 7 ,1 8 7 ,0 0 0 .

545,395,000.
135,785,000.
79,498,000.

K an sas C it y . . . .

1 1 0 ,3 8 0 ,0 0 0 .

13 9 ,4 0 2 ,0 0 0 .

10 4 ,0 8 9 ,0 0 0 .

10 ,5 7 8 ,0 0 0 .

D a l l a s .......................

2 8 ,3 7 1,0 0 0 .

9 7 ,3 9 2 ,0 0 0 .

74,930,000.

79,453,ooo.

S a n F r a n c i s c o .. .

7 3 ,8 9 6 ,0 0 0 .

16 7 ,3 9 8 ,0 0 0 .

2 4 2 ,4 6 2 ,0 0 0 .

2 7 2 ,4 6 3 ,0 0 0 .

$ 2 ,2 1 3 ,3 0 3 ,0 0 0 .

$ 2 ,6 8 7 ,3 9 3 ,0 0 0 .

$ 3 ,0 0 8 ,8 7 8 ,0 0 0 .

$ 3 ,3 3 6 ,2 8 1 ,0 0 0 .

T otal ,

There is the indubitable record. It affords, in
small space, complete disproof of the false charge
about an alleged “ conspiracy” among federal
reserve authorities in M ay, 1920, to deflate the
currency and thereby to bear down the prices of







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

essential commodities. As already said, no
human being can contrive a credible conjecture
as to why the Federal Reserve Board or banks
would want to do such a thing. But this aside,
the figures themselves show that it was not done.
They exhibit reserve bank credits of only
$2,215,305,000 on Jan u ary 1, 1920, against
credits of $2,687,393,000 on Jan u ary 1, 19 21,
an expansion of $472, 088, 000 in the twelve-month
period ! The figures show also that, on Jan u ary
1, 1920, the volume of federal reserve notes out­
standing was only $3,008,878,000, as against
$3,336,281,000 on Jan u ary 1, 19 2 1, an increased
note issue for the year of $327 , 403, 000 ! There’s
the answer, in brief, to this wicked invention.
Meanwhile— not because of any credit or cur­
rency “ deflation” by federal reserve banks, but
in spite of an enormous credit and currency in­
flation by these banks— commodity prices in the
period indicated tumbled to pieces. The Bu­
reau of Statistics, Department of Agriculture, re­
ported that, at the very moment when regional
bank credits and note issues reached the highest
point of expansion in the history of the system,
cotton had dropped from 35 cents in January,
1920, to n § cents in Jan u ary, 19 2 1; wheat had
fallen from a high of 2.54 to 1.49; corn from 1.86
to 67, and oats from 1.04 to 46. Wool, flour,
pork, lard, and other commodities had fallen in

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proportion. This was because consumers, both
in this country and Europe, had gone on strike
and the bottom had dropped out of business in
America and abroad.
In the raging fever of commodity and stock
gambling, prices had pierced the clouds, actually
exceeding the highest point of the war period.
The stopping place was reached at last. People
would no longer pay. T hey quit stocking up.
T hey began to live from hand to mouth. A
paralysis of trade set in. Furnaces were banked,
mills and factories were closed, building was
abated, road construction halted, unemploy­
ment was rife, and the demand for all kind of
products frightfully diminished. This is why
prices toppled; the debacle was due to no lack of
rational credit accommodations. It undeniably is
true that, after the bottom had dropped out of
the markets, there was an enormous diminution
of credits at the regional banks and a reduction of
note circulation. But nothing is more certain
than that contraction of credit and currency
issues subsequent to Jan u ary 1, 19 2 1, did not
cause business depression, but was caused by
business depression. Contraction of credits oc­
curred after and not before the drop in prices.
There was little demand for either credit or cur­
rency, because commerce and industry were in a
state of torpor. Trading had almost ceased.







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Wherever or whenever, in this later period, there
were cases of bank accommodations being either
withdrawn or denied, it was not done by the
federal reserve banks, but by individual banks,
whose credit men, afraid to offend their cus­
tomers by withholding extensions, were both
weak and deceitful enough to ascribe their own
action to some imaginary “ order” of the Fed­
eral Reserve Board which was never issued.
Indeed, the Board repeatedly had occasion to
expose and rebuke this species of deception
when brought to its attention.
The whimsical feature of this alleged “ secret”
conference of the Reserve Board in M ay, 1920,
with its later denouement, was not free of an ele­
ment of obliquity. This phase of the episode re­
lates to the printing of the proceedings nearly
three years thereafter and an attempt, by deliber­
ate mutilation and perversion, to make it appear
that the purpose and effect of the meeting were
precisely the reverse of what was the fact. A re­
tired member of the Board had publicly charged
his former associates with unduly abridging com­
mercial credits. Noting with amazement that
this hostile criticism came from the only person
at that M ay conference who, as they remem­
bered, had remotely suggested a sharp “ tighten­
ing of purse-strings,” and an “ arbitrary restric­
tion of credit to non-essential industries and to

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concerns making inordinate profits,” other board
members fished out of the archives the yet un­
transcribed stenographic notes of the meeting;
had them typed for the first time and a few copies
printed solely with a view to giving belated
publicity, in detail, to the conference and thereby
confuting the charge thus repeatedly made by
the former member of the Board.
Two copies of the pamphlet, thus printed for
the first time, were sent to each person who was
present at the M ay, 1920, conference; and a copy
was sent to me at the Senate chamber on Jan u ary
29, 1923, with request to have it made a public
document. Before this could conveniently be
done an unscrupulous periodical, malevolently
hostile to the Board, procured from some source a
copy of the pamphlet, garbled its contents and,
by a process of omission and misrepresentation
that could not temperately be described, made it
appear that the purpose and action of that M ay
meeting were to abridge legitimate credits and
deflate the currency in order to depress prices.
The basis of this extraordinary performance was
not anything tangible that was done at the con­
ference or anything that ensued; but the simple
word of caution uttered against “ publicly dis­
cussing bank rates” was seized upon and stressed
and given the colour of something sinister.
Moreover, the periodical which, in this perverted







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

shape, spread the proceedings, so fresh from the
printing press as that the pages were scarcely
dry, was depraved enough to imply that the
stenographic report had been printed three years
theretofore and secretly circulated in favoured
circles, with a view to giving certain interests ad­
vance notice of an intention of the Reserve Board
to order a general increase of bank rates and thus
enable them to profit thereby! One answer to
this was the fact that the Board had not dealt
with bank rates at all. Another was that the
publisher knew his suggestion to be mendacious,
for the imprint o f the Government Printing Office
on the pamphlet, as well as the accompanying
letter, showed that the document had just been
issued. This libellous contortion of the facts was
the origin of the charge which to this moment
cheap agitators repeat and feverish people credu­
lously believe. Y et, one will search in vain the
minutes of the M ay meeting, transcribed for the
first time three years after the event, for a word
from any member of the Reserve Board, thus
accused by this periodical, in favour of a sharp
deflation of the currency o f regional bank credits.
And, as decisive of the question, it is shown that
reserve bank credits were not restricted by any
action of that conference; but, fo r eight months
after the M ay meeting, were expanded until they
touched the highest point in the history of the

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system— and this while commodity prices were
swiftly dropping to pieces. The Comptroller of
the Currency at that time, by no means to be
regarded as especially friendly to the Reserve
Board, said in a letter dated December 28, 1920:
“ In my opinion, the declines which have taken
place in commodity values in the past six months
have been due primarily to the operation of
natural causes; and these declines in orderly
manner have been facilitated by the policies
pursued by the Federal Reserve Board during
this period. The recession from the unnatural
prices which prevailed in the case of so many
commodities was desirable and inevitable, and it
was proper that the Federal Reserve Board should
have endeavoured to have this decline proceed
gradually,rather than by withholding all restraint,
making possible later on a collapse and disaster.’,
As proof, in greater detail, of the expansion,
rather than deflation, of reserve bank credits in
agricultural districts for this period of falling
commodity prices, it may be stated that the re­
serve bank at Richmond, Virginia, accommodat­
ing the grain, fruit, tobacco, and cotton portions
of the fifth district, increased its rediscounts by
more than #10,000,000 and expanded its note
issue by an equal amount.







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The reserve bank of Atlanta, in the cotton
and fruit belt, increased its rediscounts from
$88,052,000 on Jan u ary 1, 1920, to $166,640,000
on Jan u ary 1, 19 2 1, and its note issues from
$ 15 5 ,5 11,0 0 0 to $173,406,000, a total increase in
credits of $96,406,000.
The Chicago federal reserve.bank, in the grain
and live-stock section, increased its rediscounts
from $267,639,000 to $475,563,000, and its note
issues from $500,139,000 to $545>395>°°o; a
total expansion of $253,180,000.
The Reserve Bank of Saint Louis, accommodat­
ing the grain and live-stock territory, increased
its rediscounts from $77,679,000, to $114 ,9 33 ,000, and reduced its note issues by the sum of
$10,000,000, leaving an aggregate expansion of
credits amounting to $27,000,000.
The Kansas C ity federal reserve bank, in the
grain and stock section, increased its rediscounts
in this period of falling prices from $110,380,000
to $139,402,000, and its federal reserve note issue
was increased by $7,500,000, making a total ex­
pansion of $36,522,000.
The federal reserve bank at Dallas increased its
rediscounts from $28,371,000 to $97,392,000,
and increased its note issue by about $5,000,000;
total expansion $74,021,000.
The San Francisco federal reserve bank, ac­
commodating the fruit, daify, and other farm in­

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dustries of the Pacific States, increased its re­
discounts from #73,896,000 to #167,598,000, and
increased its note issues from #242,462,000 to
#272,463,000; a total expansion of #123,703,000.
The federal reserve bank at Minneapolis, in
the grain and milling territory, advanced its re­
discounts from #73,857,000 to #95,994,000, and
reduced its note issue from #87,187,000 to #79,498,000; a total expansion of #14,448,000.
Finally, it may be stated, the inflation of
regional bank credits for the year 1920 was so
entirely generous as to reflect a degree of im­
provident banking; for one federal reserve bank
totally dissipated its gold reserve and would
have been critically embarrassed but for the
timely aid of federal reserve banks located in the
industrial districts, and another federal reserve
bank has on its books an amount of uncollected
loans made in this period which aggregates a
greater sum than the capital stock of this
regional bank! And it may be added that the
refusal of credits by individual banks for the
period indicated must have been negligible; for
the Secretary of the Treasury, in an official
proclamation dated September 27, 1920, stated
that the total increase of commercial loans from
Jan u ary 1st to that date approximated #3,000,000,000. And these facts, taken together or
separately, completely dispose of the fable.







C H A P T ER X V III
A SUMMARY OF ACHIEV EM ENTS

Financing the World War—Expediting Recovery—Factivat­
ing Credit Settlements—Abolishing Money Panics and
Toll Gates—Lowering Interest Charges

T

H E federal reserve system was originally
created with a view solely to the necessities
and requirements of peace. Events, however, so
shaped themselves that before the organization
o f the new banking system had been completed,
the World W ar subjected it to an unexpected
kind of test. It was obliged, first of all, to adapt
itself to war conditions rather than those of
peace, its first necessity being the restoration of
the currency to normal, after emergency issues
permitted by an amendment to the Act had been
temporarily placed in circulation to meet the
sudden requirements entailed by the great out­
flow of gold caused by Great Britain’s urgent call
for the settlement of all obligations that were
due her on this side of the Atlantic.
Financing the War
This early duty was accomplished in a manner
which showed the immense power o f the system
290

A SUMMARY OF ACHIEVEMENTS

29I

and clearly established its capacity to cope with
almost any emergency. During the two years
which followed the outbreak of the World War,
a foundation was laid not only for the adequate
financing of peace requirements through the
better standardization and regulation o f com­
mercial paper and the installation of a satisfac­
tory system of collecting checks, but also for the
safer management of war finance, through the
establishment of an intimate cooperation be­
tween the Treasury and the banks, superseding
the old sub-Treasuiy system, and through the
preparation of a large supply of note currency
for use in case of need.
Thus it was that when the United States itself
entered the World W ar early in 19 17 , the way
toward raising the immense sums of money that
were required had already been made smooth.
First necessities were met by an issue of short­
term certificates which the reserve banks them­
selves took, but it soon appeared that new
financing on a great, and even unprecedented,
scale would be required. The first Liberty loan
afforded a searching test of the capacity of the
reserve banks; and resulted in completely dem­
onstrating the efficiency of the machinery
which the system had built up. It is not neces­
sary to follow the successive Liberty loans and
the intermediate Treasury certificate financing







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completely through in all their details to under­
stand the essential character of the service which
was then performed by the reserve system. It
consisted, first of all, in eliminating entirely
the old-fashioned plan of paying cash to the
Government, the latter immediately to pay it
out again. Thereby, the weakening effect of
cash withdrawals from the banking system was
entirely avoided, and the Government’s trans­
actions were integrated with the credit system of
the country—the result being to multiply by
many times the actual power of the public Treas­
ury in raising the funds of which it stood in need,
not only for its own necessities, but, as later
proved to be the case, those of the allied nations
in general.
This, however, was not all. On the contrary,
the second service rendered by the system in this
same connection was of almost equal significance.
Liberty loan requirements were so great as to
require use of the entire money-raising resources
of the country, and to necessitate action on the
part of every section and region in adapting itself
to the wishes of the Government and in putting
forth its best efforts to supply what was needed.
Obviously the funds so furnished had to be made
available at some one place or, at most, at a
comparatively small number o f places. To com­
pel their transfer from the districts in which they

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293

were raised to the points at which the Govern­
ment wished to pay them out, would in ordinary
cases have caused suspension of business pay­
ments on a widespread scale all over the country.
As things stood, however, it was never necessary
to declare anything in the nature of a moratorium.
The machinery o f the reserve system promptly
transferred through the gold settlement fund
and the clearing system the funds that had been
accumulated in remote parts of the country to
the distributing points where they would be paid
out, and, when so paid out, promptly redistrib­
uted these payments again to the points at
which they were to be disbursed.
Without going into the technical details of the
gold settlement fund, it may be briefly stated
that in Washington at the Treasury Depart­
ment, each federal reserve bank maintains a de­
posit of gold. At the close of each day’s business
the Federal Reserve Board, on telegraphic advice,
directs the crediting and debiting of each federal
reserve bank in the system with the appropriate
amount by which its gold deposit has been in­
creased or depleted by the transactions with the
other federal reserve banks, with the result that
by this settlement at Washington there is a book
transfer of title to gold, the basic medium of
exchange, without the physical shipment thereof.
The daily fluctuation of the credit balance of any







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federal reserve bank in the gold fund is due to the
service it performs in transferring credit to or re­
ceiving credit from other federal reserve banks
in order that settlement may be made of debts
from individuals or banking institutions in one
district to individuals or banking institutions in
another district without the necessity of the
physical shipment of currency. The benefit of
this service is available to any banking institu­
tion, without cost, regardless of membership in
the federal reserve system, for the reason that
it may secure the transfer b y means of the gold
settlement fund through its city correspondent,
which is a member of the federal reserve
system.
Shipment of specie in large quantities, hoard­
ing, accumulation of funds and similar evils
which had been common in other countries and
at other times were thus largely avoided
through this service of the federal reserve
system. It was the testimony of foreign ob­
servers that never had a banking system worked
more smoothly or efficiently in the performance
o f a great task than did the federal reserve
system. In addition to these less obvious under­
lying functions was the normal and essential duty
of the system in making advances to those who
required them in financing and carrying the
Liberty bonds. At the close of the war, holdings

A SUMMARY OF ACHIEVEMENTS

295

of bills secured b y Liberty bonds were more than
$1,500,000,000.
Stabilizing Foreign Currencies
There was another and less well recognized
service by which the reserve system facilitated
the management of the operations incident to
the war. Great Britain had from the start
thought it necessary to maintain the pound
sterling at a stable relationship to the dollar.
France and Italy had eventually joined her in
stabilizing their respective currencies at specified
rates as a war measure. The system o f stabiliz­
ation thus created was on the point of breaking
down at the time that the United States entered
the war and required for its maintenance a fund
in use of more than $1,000,000,000. Not only
did the reserve system furnish the funds through
the sale of Liberty bonds and Treasury certifi­
cates with which the foreign governments con­
tinued the process of stabilization after our entry
into the war, but it also rendered an invaluable
service in transferring gold to the credit of foreign
countries and in receiving it from them through
mutual arrangements which it perfected with
several of the foreign central banks. Through
its Division of Foreign Exchange the Federal
Reserve Board furthermore provided the infor­
mation which was needed for the management of







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the exchange operations thus undertaken. At
the same time it successfully controlled, through
its gold export committee, the movement of
specie into and out of the country, using to that
end the technical facilities of the reserve banks
themselves. When it appeared that Great Brit­
ain was close to a suspension of specie payments
in India, Congress passed a law allowing the
Treasury Department to lend to the British
Government silver then held in the Treasury
Department behind the outstanding certificates.
The federal reserve system provided a means for
filling the gap thus left in the circulation, by
means of its issue of federal reserve bank notes,
and it also carried through large operations in­
volving transfer of funds to and from India,
thereby maintaining the currents of trade with
the Orient from which invaluable war materials
were being drawn. In all 260 millions of silver
dollars were thus broken up while in place of the
certificates outstanding against them reserve
bank notes to $259,000,000 were issued.
Peace Readjustments
The close of the war found the reserve system
ready to render service as great in bringing con­
ditions back to normal as those it had performed
in carrying through the necessary operations
connected with war finance. As gold flowed

A SUMMARY OF ACHIEVEMENTS

297

into the country from abroad, it was received
and stored in the federal reserve banks, and
thereby prevented from exerting a directly in­
flationary effect upon prices and business condi­
tions in general. When recession of prices oc­
curred during 1920, as it did all over the world,
the reserve system was able to cushion the shock
by enlarging its accommodations to business and
to agriculture, its loans a year after the recession
had started being larger than they had been at
the outset. The reserve banks thereby per­
formed one of the essential functions of central
banking by showing themselves able and willing
to expand in the face of business contraction
just as on other occasions they had demonstrated
the ability to contract in the face of business ex­
pansion. At the close of the year 1920 its dis­
counted paper held was nearly $2,700,000,000
against $2,200,000,000 at the opening of the year.
An Incomparable Collection Agency
No account of the reserve system and its ac­
complishments would be sufficient without some
reference to the technical side of what it has
done, notwithstanding that the more spectacular
and showy aspects of the effort of the system are
seen in its management of public and private
credit on the great scale just sketched. Refer­
ence has already been made to the gold settle-







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ment fund and the machinery of clearance and
collection which had come to be so great a re­
liance early in the war. The Reserve Act had
wisely, and against the bitterest opposition of
some banks and Congressmen inspired by these
banks, retained in its text a provision authorizing
the reserve banks to act as clearing houses for
their members, and the Reserve Board to act as a
national clearing house for the reserve banks
themselves. It was not long after the system
had been established that the Board, in compli­
ance with the provisions on this latter head, in­
stalled machinery whereby the gold settlement
fund was created at Washington on the basis
of a gold contribution made by each reserve
bank. Transfers in the fund were telegraphi­
cally made, upon the orders of the several banks
first weekly and now daily. The direct result
has been to do away almost entirely with the
shipments of gold from place to place which
were formerly so expensive besides being entirely
unnecessary. In each of the several districts,
a par collection system has been installed, at
first for the use of members but later extended to
non-members. This system, in spite of the bitter
attacks and the constant legislative and judicial
warfare upon it carried on by specialized banking
interests in different parts of the country, has
performed its purpose by greatly reducing, and,

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299

in many regions, eliminating, the oppressive and
multitudinous exchange charges which at the
hands of selfish country banks and their city
correspondents had become so terrible a burden
upon business during the years preceding 19 13.
The aggregate amount of checks (exclusive of
duplications) handled by the ^system during
1919, when the system had attained its growth,
amounted to 136 billions of dollars. During
1925 the number of checks handled was 778,686,000, representing an aggregate amount of
$258,611,276,000.
Banking Toll Gates
The work of the federal reserve system in con­
nection with the plan of clearing checks at par
deserves, however, very much more attention
than it has ever received. In most foreign bank­
ing systems, the complicated exchange charges
which have long existed in the United States are
unknown. Neither in England nor on the Con­
tinent has there ever been in any recent period
the practice which prevails here of charging sub­
stantial fees for the collection of checks. The
system in the United States grew up as the out­
come of extended development among country
banks whose sources of income were at times not
very abundant and which therefore seized upon
opportunities for adding slightly to their earnings







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which might not otherwise have been resorted to.
The outcome was the imposition of a very heavy
burden upon business which has been estimated
variously at from #75,000,000 to #125,000,000
per annum. N ot only was this true, but a very
much more serious evil had grown up incidentally
to the exchange charge. Under the old system
o f varied reserves according to the location o f a
bank, whether in the “ country,” a reserve city, or
a central reserve city, there was an advantage to
the individual bank in sending a check to some
other bank which could count it as a reserve in­
stead of sending it directly home to the bank on
which it was drawn for collection or settlement.
The result was that a great many banks were in­
duced to deposit checks upon out-of-town in­
stitutions with other banks at a distance, the
latter undertaking to collect them free of charge,
yet to give immediate credit to the depositing
bank before they had been collected. B y de­
positing them in this w ay the bank that originally
received them obtained a free collection service
at the same time that it imposed an exchange
charge upon its customer while it was also able
to have the check counted as reserve in its paper
for an indefinite period which frequently
amounted to weeks. This system was very bad
for business because it tended to keep a great
volume of checks and drafts outstanding for a

A SUMMARY OF ACHIEVEMENTS

3OI

long time, thereby carrying on the books of
banks in general an uncollected element which
tended to inflate the outstanding credit and to
make it seem much larger than it really was.
At times like the panic of 1907, when bank sus­
pension had occurred, immense volume of these
checks in the mails became uncollectible for the
time with the result that banks were deprived
of the use of their funds and had to suffer cor­
respondingly. There was thus both a heavy
burden upon business due to the existence of an
unnecessary collection charge, and a serious
danger to banking liquidity or solvency due to
the existence of an immense amount of what
was called “ float.” Both factors were elements
of danger.
The federal reserve system set itself to correct
both of these conditions. It has been some­
what handicapped by the fact that discriminat­
ing legislation directed against par collection has
been adopted in a few states, while on the other
hand coalitions among country banks for the
purpose of preventing checks from being sent
to reserve banks have tended in some degree to
restrict the success and effectiveness of the re­
serve institutions. But this has been merely a
blemish upon the great success of the enterprise.
The reserve system has largely done away with
the enormous and hazardous “ float” which







302

AN ADVENTURE IN CONSTRUCTIVE FINANCE

formerly clogged the mails and prevented banks
from knowing exactly where they stood, while
it has immensely reduced the exchange charges
visited upon the community by “ toll-gate” in­
stitutions which seized this method of filling an
otherwise somewhat depleted exchequer.
Benefits to Public
When it is realized that of the 27,337 incorpo­
rated banks (other than mutual savings banks)
in the United States on October 3 1, 1926, there
were 9,336 member banks and 14,066 non­
member banks in the federal reserve par col­
lection system, a total of 23,402 as against 3,935
smaller non-member banks which persist in col­
lecting toll from the commerce of their sections,
it readily may be seen how purely irrational and
unbusinesslike has been the futile attempt to
impede and destroy this great check collection
institution. And when it is seen that the banks
which are clearing checks at par, without charge
to their customers, represent about 97 per cent,
of the total banking resources of the United
States as against about 3 per cent, for the banks
which persist in exacting these fees from the
business men of their communities, we well may
be astonished at the fact that the legislatures of
three or four states have sought to evade the de­
cisions of the Supreme Court of the United States

SUMMARY OF ACHIEVEMENTS

by even compelling their state banks to exact
collection charges of the business men of these
states. Some day, when the awakening comes,
legislators who thus submit to the concerted
influence of small banking groups against the
larger interests of commerce and industry will
sharply be brought to task. The national as­
sociation of every business group in the United
States is on record against this unjust charge.
The utterly flimsy nature of the pretense that
these check-collection charges constitute “ a rea­
sonable compensation for service rendered” is
revealed by the simple statement that, notwith­
standing the Federal Reserve Act expressly per­
mits clearing banks to make a “ reasonable
charge,” to be determined by the Reserve Board,
the actual cost to the banks is so inappreciable
that no actuary has ever been discovered with
skill enough to find out what is “ a reasonable
charge.” It has even been computed that the
net balance under the old system was against
the banks exacting these fees.
The benefits which accrue to business men and
to the public generally under the par clearance
system as conducted by the federal reserve banks
may be summarized briefly as follows:
(i)
It enables the business man to get ioo per
cent, payment o f his invoices in the most con­
venient and expeditious manner. This means

T







304

AN ADVENTURE IN CONSTRUCTIVE FINANCE

that when he receives a $100 check for a #100 in­
voice he gets $10 0 for it, not less.
(2) It has made the check of the business man,
be he merchant, manufacturer, or farmer, a much
more satisfactory and acceptable means of pay­
ment for all purchases, even in distant cities.
It has relieved him from having to purchase
drafts or carry bank balances at distant places
in order to make distant payments.
(3) It has reduced to a minimum the time re­
quired to collect checks, thereby making the
proceeds of a check available to its owner much
sooner than formerly.
(4) It results in a much more expeditious
handling of checks, thus providing prompt advice
and return of dishonoured checks, and minimiz­
ing the chance o f loss through bank failures.
The Legal Status
The par clearance o f checks by federal reserve
banks is conducted pursuant to the express pro­
visions of the Federal Reserve Act, which have
been construed by the Supreme Court of the
United States to mean that:
(1) Federal reserve banks are required by law
to receive and collect at par all checks drawn
upon member banks of the Federal Reserve
System;
(2) Federal reserve banks are authorized to

A SUMMARY OF ACHIEVEMENTS

305

receive and collect checks drawn upon non­
member banks, if such checks can be collected at
par;
(3) Member banks are required by law to re­
mit at par for checks drawn upon themselves and
presented to them for payment by federal re­
serve banks;
(4) I f non-member banks remit at all for
checks forwarded to them by federal reserve
banks they must remit at par; and
(5) Federal reserve banks are prohibited by
law from paying exchange.
The principles mentioned above are definitely
established by the decisions in the cases of Amer­
ican Bank & Trust Co. v. Federal Reserve Bank
of Atlanta, 262 U. S. 643; Farmers & Merchants
Bank v. Federal Reserve Bank of Richmond,
262 U. S. 649, and Pascagoula National Bank v.
Federal Reserve Bank o f Atlanta, 3 Fed. (2nd)
465, 1 1 Fed. (2nd) 866,46 Sup. Ct. 637. Neither
the Federal Reserve Board nor the federal re­
serve banks, therefore, have any option in the
matter and cannot permit banks to deduct ex­
change when remitting for checks presented by
federal reserve banks.
The services of the reserve system in connec­
tion with what is called the “ gold problem”
should be mentioned in this same connection,
especially as they have seldom been correctly







306

an

ad ven tu r e

in

c o n st r u c tiv e

fin a n c e

appraised. At the close of the war we had on
hand a substantial national stock of gold, but
the post-war years brought immense transfers of
the metal to our shores, as foreign countries
adopted this mode of settling their obligations
and as new production of gold found itself obliged
to seek a market where the price was not regu­
lated. The outcome was an increase in gold
holdings up to an amount which is now variously
estimated as anywhere from $4,000,000,000 to
$4,500,000,000, or probably about one third
o f the visible gold supply of the world. This
large holding of gold has of late years been held
to the extent of almost two thirds in the vaults of
the reserve banks. As it has come into the Anited
States, it has been used by the member banks
to which it was consigned for the purpose of
paying off their obligations to the federal reserve
banks of their respective districts. The federal
reserve banks have held it as the basis for their
outstanding credit. T hey have thus kept it
from entering immediately into circulation and so
constituting the foundation for an extended in­
flation in prices and values as it might have, had
the system not been in existence. Whatever
may be thought of the discount policy of the re­
serve system there can be no doubt that in one
way or another the gold holdings referred to have
been protected from the direct drafts which

A SUMMARY OF ACHIEVEMENTS

307

would otherwise have been brought to bear on
them. Thus an important service to the general
object of price stabilization has been rendered.
Underlying this obvious and conspicuous ser­
vice rendered by the gold settlement and par col­
lection systems, is the equally real but less com­
monly recognized economy of reserves which
the new plan rendered possible. The gold settle­
ment and par clearance systems render it possible
to use every unit of specie available in the
country as the basis, upon occasion, of grants of
credit. This does not necessarily contribute in
any w ay whatever to inflation under proper
management of banking resources but it does
enable individual institutions to make the most
of their funds and to keep them active with as
little loss of reserve strength as may be. Figures
recently compiled by the Federal Reserve Board
show that the average reserves of the United
States, taking all member banks, are only about
7.5 per cent, notwithstanding that the reserve
strength and general liquidity of the country are
undoubtedly far ahead of what they were before
the war when the average reserve strength was
probably double this figure.
“ Toning U p” the Credit System
Attention should also be given to the genuine
success the reserve system has had in improving







308

an

a d v en tu r e

in

c o n st r u c tiv e

fin a n c e

credit analysis and commercial paper. M any
efforts had been made to accomplish some degree
o f unity in commercial paper usage and some de­
gree of strictness in credit analysis before the
war. But the success in either direction had
been incomplete and partial. The reserve sys­
tem has not only introduced various new types
o f paper which under proper conditions of use are
desirable auxiliaries to current methods of
financing, as in the case of bankers’ acceptances,
but it has also contributed largely to uniformity
of accounting statements and standardization of
credit information. The progress in these par­
ticulars has been greater in some districts than
in others, but it has been real in all, and it has had
an important and directly beneficial effect in
“ toning u p ” the entire credit system of the
United States. To-day statistical analysis of the
credit position of the country can be made with
an accuracy previously unknown and as a result
the accurate ascertainment of the actual credit
position at any time is now practically feasible.
This is an improvement in the general credit
situation whose importance cannot be ignored,
and is much more far-reaching in its significance
than any of the more conspicuous and widely
known achievements of the system.
The assistance of the federal reserve system to
the farming community during the difficult times

A SUMMARY OF ACHIEVEMENTS

309

through which that community has passed has
seldom been properly appraised. Most liberal
provision for the discounting of farmers’ paper
was made in the original Federal Reserve Act.
Indeed the Act erred rather upon the side of over­
liberality than upon that of niggardliness. The
Federal Reserve Board went even further and
gave an extremely broad interpretation of the
provisions of the law relating to farm paper so
that hardly a legitimate productive activity of
the farm, giving rise to straightforward com­
mercial paper, could fail of receiving accommoda­
tion at the reserve institutions. The banks,
particularly those in the producing regions of the
country, conceived it to be their duty to render
full assistance to the farmer and, as was shown
by an actual investigation of the holdings of
reserve banks and their members in 1922, the
amounts so advanced by members of the system
in semi-agricultural and agricultural counties,
taking the country as a whole, was certainly not
less than #4,650,000,000 or 24 per cent, of all
loans. In 1920, the total estimated amount of
farm paper rediscounted by reserve banks them­
selves was about #2,000,000,000. In addition to
this ordinary or direct financing, the reserve
banks have been extremely liberal in their dis­
counting of acceptance and other paper, issued
for the purpose of enabling farmers and their







310

AN ADVENTURE IN CONSTRUCTIVE FINANCE

associations to carry farm products in warehouses
and elevators. Add to this the fact that the
reserve banks have at all times given first atten­
tion to export paper, including that representing
shipments of farm products to other countries,
and the invaluable service rendered by these in­
stitutions to the farmer and to agricultural enter­
prise in general can be properly appraised.
Trade Acceptances and Other Services
It is well worth noting that since the war the
reserve system has from time to time played an
important part in contributing to the rehabili­
tation and restoration of foreign currency and
banking systems. In 1925, the Federal Reserve
Board authorized the establishment of a credit
by the twelve banks of the reserve system in
behalf of the Bank of England which was then
engaged in bringing about a return to the gold
standard in Great Britain. The system had
already contributed to the restoration of affairs
in Poland and has since then undertaken to per­
form a like service in connection with the mone­
tary reform in Belgium. There are other and
less well known channels through which reserve
banks have placed the fluid funds of the Lnited
States at the service of continental countries
which could show that they were on the road to
greater soundness. One of them was seen in the

authorization of the Board for the purchase of
trade acceptances endorsed by German banks
at a time when the gradual restoration o f sound
conditions in Germany was being sought at the
conclusion of the inflation period. The system
has constantly purchased in our own market
sound investments for, and held funds in behalf
of, foreign banks. And in addition to all of
these valuable services, it has constantly dis­
counted for and bought, from branches and
agencies of foreign banks established in the
United States, paper representing the move­
ment of goods from those countries to ours and
from this to other nations.
In fact, this service of the reserve system has
resulted, even in spite of our lack o f foreign
branches, in greatly reducing the cost o f carrying
on foreign trade and in facilitating the movement
of goods to points of exportation, and from there
abroad. The system has not limited itself to
paper growing out of our direct trade with other
countries, but has expressly taken the position
that it will recognize the eligibility o f paper
growing out of foreign trade between any nations
in which American interests are concerned. So
in a variety of ways it has tended to facilitate not
only our own immediate foreign business but also
foreign business of every description. The an­
nual purchases and rediscounts o f acceptances




_____




312

AN ADVENTURE IN CONSTRUCTIVE FINANCE

growing out o f foreign trade, made by reserve
banks, have at times been as high as #1,700,000,000 or more. As is well known, these accept­
ances have been purchased at very close figures,
the acceptance rate being usually the lowest
rate for such paper prevailing anywhere in the
world. All this has tended to transfer to the
United States a great deal of financing which
formerly found its centre in London and in other
parts of the world, not merely because the capital
could be found in the United States but because
there existed here a money market machinery
which was available and which could be used at
low rates for the purpose of financing the opera­
tions involved. This has been recognized all
over the world as a contribution to foreign trade
finance which has immensely helped in making
possible the regular functioning of a foreign trade
machinery that had been badly disorganized as
a result of the war and the conditions following
the struggle, while it has also been accepted by
them as an improvement upon the financing
plans which had previously obtained.
It would be difficult to enumerate the various
achievements of the federal reserve system in any
adequate way. It has existed during a period of
world reconstruction in which the maintenance
of sound or even endurable conditions depended
upon having an elastic adaptable banking

A SUMMARY OF ACHIEVEMENTS

3 13

system available as a constant reliance. This
the reserve system has supplied and its value and
success have been found in the fact that in the
beginning of its history the system was by its
constituent Act, thanks to the protection of the
measure from injurious amendment, given a
well-modelled and vigorous structure.

S ummary of T hings D one for B u sin ess b y
the F ed e r a l R e se r v e S ystem
(As Seen by the United States Chamber of
Commerce.)1
1. It has given business greater confidence in
the ability of the banks to care for credit needs.
2. It has introduced an elastic currency and
eliminated money panics.
3. It has eliminated extreme seasonal fluctu­
ations in rates of interest.
4. It has brought business safely through the
war and post-war crises.
5. It has saved millions of dollars to business
through its par payment system for check
collection.
6. It has made the gold reserve more effective
as a basis for credit extension in times of ex­
traordinary demand.
7. It has aided in the financing of foreign and







314

AN

ad v en tu r e

in

c o n st r u c tiv e

fin a n c e

domestic trade by developing a discount market
for acceptances.
8. It has provided a means for handling huge
financial operations of the government without
interference with business.
9. It has aided in the reestablishment of the
gold standard abroad.
10. It has given us an experienced banking
organization which will assist us in meeting the
future exigencies of business at home and abroad
with courage and confidence.







a p p e n d ix

a

S P E E C H OF
HON. C A R T E R G L A SS.
In

the

H o u se o f R e p r e s e n t a t iv e s
DECEMBER

22, 1913

The House had under consideration the conference report on the bill
(H. R. 7837) to provide for the establishment of Federal reserve banks,
to furnish an elastic currency, to afford means of rediscounting com­
mercial paper, to establish a more effective supervision of banking inthe
United States, and for other purposes.
Mr.

G l a ss .

M r . S p e a k e r, on th e 18 th d a y o f la s t

S e p te m b e r th is H o u se, b y a v o te o f 286 to 85, p assed H . R .
7 8 3 7 , k n o w n as th e c u rre n c y b ill.

T h e co n ferees on th e

p a rt o f th e H o u se to reco n cile th e d iffere n ce s w ith th e
S e n a te n o w h a v e th e p lea su re o f re p o rtin g th e bill b ac k
w ith o u t one sin gle fu n d a m e n ta l a lte ra tio n o f its s tru c tu re .
I h ad p u rp o sed m a k in g a d e ta ile d e x p la n a tio n o f th e
ch an ges in th e b ill, b u t in th e lim ite d tim e re m a in in g I
can o n ly in d ic a te to th e H o u se ju s t w h a t w a s done in con ­
feren ce co n c ern in g th e S e n a te a m e n d m e n t to th e H o u se
b ill, w h ich w a s in th e n a tu re o f a s u b s titu te .
ORGANIZATION COMMITTEE
T h e H o u se bill p ro v id e d fo r an o rg a n iz a tio n co m m ittee
v e ste d w ith th e p o w e r o f p u ttin g th e n e w re gio n al re se rv e
b a n k sy ste m in p ra c tic a l o p e ra tio n , th e said c o m m ittee to
be com posed o f th e S e c r e ta r y o f th e T r e a s u r y , th e S ec re-







3 18

AN ADVENTURE IN CONSTRUCTIVE FINANCE

t a r y o f A g ric u ltu re , and th e C o m p tro lle r o f th e C u rre n c y .
T h e S e n a te a lte red th is p ro v isio n b y e lim in a tin g th e S e c re ­
t a r y o f A g ric u ltu re and th e C o m p tro lle r o f th e C u rre n c y
and s u b s titu tin g tw o m e m b ers o f th e f ed era l R e s e rv e
B o a rd to be d e sig n a te d b y th e P re sid e n t.
th e H o u se p ro v isio n w a s re sto re d .

In con feren ce

T h e H o u se co n ferees

re g a rd e d it as e x c e e d in g ly im p o rta n t t h a t th e C o m p ­
tro lle r o f th e C u rre n c y , h a v in g in tim a te k n o w led g e o f all
th e d e ta ils o f b a n k in g , sh o u ld be a m em b er o f th e o rg a n i­
z a tio n co m m itte e ; and also th e S e c r e ta r y o f A g ric u ltu re ,
w h o , a t th is tim e , h ap p e n s to be ex p e rien c ed in eco n o m ics.
M o re o v e r, it w a s o b je c te d t h a t th e S e n a te a m en d m en t
w o u ld in d e fin ite ly d e la y th e o rg a n iz a tio n o f th e s y ste m
b y reason o f th e fa c t t h a t th e w o rk o f o rg a n iz a tio n cou ld
n o t proceed u n til th e P re sid e n t sh ou ld first d e sig n a te at
le a s t tw o m em b ers o f th e F e d e ra l R e s e rv e B o a rd , w h ich
cou ld n o t in te llig e n tly be done u n til th e b o u n d a ry lines
o f th e v a rio u s regio n s cou ld first be esta b lish e d .

T h u s th e

a lte ra tio n b y th e S e n a te w a s re g a rd e d b y th e H o u se co n ­
ferees as im p ra c tic a b le ; and th e o rg a n iz a tio n o f th e sy ste m
w ill, co n se q u e n tly , d e v o lv e u pon th e S e c r e ta r y o f th e T r e a s ­
u ry , th e S e c re ta ry o f A g ric u ltu re , an d th e C o m p tro lle r o f
th e C u rre n c y , as p ro v id e d o rig in a lly in th e H o u se b ill.

FEDERAL RESERVE BOARD
T h e S e n a te a m en d m en t also e lim in a te d fro m m e m b er­
sh ip on th e F e d e ra l R e s e r v e B o a rd th e S e c r e ta r y o f A g r i­
c u ltu re and th e C o m p tro lle r o f th e C u rre n c y .
b y th e S e n a te reflected

T h is actio n

th e d e lib e ra te o p in io n o f th e

D e m o c ra tic P a r t y c a u c u s a n d a p p a r e n tly re p re se n te d th e
u n an im o u s co n v ic tio n o f th e ca u c u s and th e S e n a te .

The

H o u se co n ferees sign ified a w illin g n e ss to y ie ld w ith re sp ect
to th e S e c re ta ry o f A g ric u ltu re , b u t stre n u o u s ly re sisted the

p ro p o sitio n to elim in a te th e C o m p tro lle r o f th e C u rre n c y .
T h e co n ferees on th e p a rt o f th e S e n a te lo n g p e rsisted in
th e d e te rm in a tio n n o t to p e rm it th is o fficial to h old m em ­
b ersh ip on th e F e d e ra l R e s e r v e B o a rd , b u t th e H o u se co n ­
ferees, w ith eq u a l p e rtin a c ity , in sisted th a t th e C o m p tro lle r
o f th e C u rre n c y , a lr e a d y ch a rg ed b y la w w ith th e su p e r­
v isio n an d w ith a la rg e p o w e r o f co n tro l o f th e n a tio n a l
b a n k s o f th e c o u n try , w a s b y v ir tu e o f his o fficial d u tie s
p e c u lia rly

su ited

fo r m e m b ersh ip on th e

b o ard .

The

H o u se co n ferees p r e v a ile d ; so t h a t th e F e d e ra l R e s e rv e
B o a rd w ill be com p osed o f th e S e c r e ta r y o f th e T r e a s u r y ,
th e C o m p tro lle r o f th e C u rre n c y , and fiv e m e m b ers to be
ap p o in ted b y th e P re sid e n t fo r term s o f i o y e a r s ea ch ,
in ste a d o f 6 y e a r s , as o rig in a lly p ro v id e d in th e H o u se
b ill, and w ith sa la rie s o f $ 12 ,0 0 0 p e r an n u m , in ste a d o f
$ 10 ,0 0 0 p e r a n n u m , as p ro v id e d in th e H o u se bill.

NUMBER OF BANKS
C o n c e rn in g th e n u m b e r o f re g io n a l re se rv e b a n k s to be
e sta b lish e d , th e H o u se b ill, as y o u k n o w , p ro v id e d th a t
th ere sh ould n o t be less th a n 1 2 , le a v in g su b se q u e n t in ­
crea se in th e n u m b er o f b a n k s to th e ju d g m e n t o f th e F e d ­
e ra l R e s e rv e B o a rd .

T h e S e n a te am en d ed th e bill in th a t

p a rtic u la r so as to p ro v id e t h a t th e n u m b e r o f b a n k s
sh ou ld n o t be less th a n 8 n o r m o re th a n 1 2 .

O n th a t

p o in t th e H o u se co n ferees y ie ld e d .

VOTING FOR DIRECTORS
In th is co n n e ctio n , th e H o u se b ill p ro v id e d th a t th e d i­
re cto rs o f cla sse s A and B o f th e re g io n a l re se rv e b a n k s—
th e first cla ss p e c u lia rly re p re s e n ta tiv e o f th e b a n k in g
in te re st and th e second c la ss re p re s e n ta tiv e o f th e b u sin e ss

T







320

AN ADVENTURE IN CONSTRUCTIVE FINANCE

c o m m u n ity — sh o u ld be selected fro m a p p ro v e d lis ts to
be su p p lied b y th e sto c k h o ld in g b a n k s.

T h e S e n a te so

am en d ed th is p ro v isio n as to ex te n d th e field o f ch o ice,
p e rm ittin g th e e le cto rs to v o te fo r a n y in d iv id u a l in th e
re g io n a l re se rv e d istr ic t.

R e g a rd in g th is as an u t t e r ly

im p ra c tic a b le , i f n o t in te rm in a b le , p ro cess, th e H o u se
co n ferees stood firm and th e S e n a te y ie ld e d .

T h e H o u se

a cce p te d th e S e n a te m o d ifica tio n co n c ern in g a p re fe re n tia l
b a llo t, so as to p re v e n t th e p o s s ib ility o f a tie v o te fo r
d irec to rs.
QUALIFICATIONS OF DIRECTORS
C o n c e rn in g th e q u a lific a tio n o f d irec to rs o f regio n al re­
se rv e b a n k s, th e H o u se bill p ro v id e d th a t d ire c to rs o f class
B cou ld not be o fficers, d ire c to rs, o r e m p lo y e e s o f m em b er
b a n k s. T h e S e n a te so am en d ed th e p ro v isio n as to p ro ­
h ib it sto ck h o ld ers o f m em b er b a n k s fro m b ein g d irec to rs o f
cla ss B in th e re g io n a l re se rv e b a n k s ; b u t on th is p o in t th e
S e n a te reced ed .
CAPITALIZATION
T h e H o u se bill p ro v id e d th a t th e c a p ita l o f th e regio n al
re se rv e b an k s sh o u ld be in a m o u n t e q u a l to 20 p e r c e n t , of
th e c a p ita l o f m em b er b a n k s, o n e -h a lf to be p a id in, and
th e o th e r h a lf s u b je c t to c a ll, b ein g in th e n a tu re o f a d ou ­
ble lia b ility .

T h e S e n a te so a lte re d th is p ro visio n as to

p ro v id e th a t th e a g g re g a te c a p ita l o f a re gio n al re se rve
b a n k shou ld be in a m o u n t e q u a l to 6 p e r cen t, o f th e c a p ita l
and su rp lu s o f m e m b er b a n k s.

T h e H o u se p ro v isio n w a s

b ased u pon th e th e o ry th a t a b a n k ’ s c a p ita l sto c k is less
lia b le to v a r ia tio n th a n its su rp lu s.

N e v e rth e le ss , th e

H o u se y ie ld e d on th is p o in t, n o t re g a rd in g it as a t all v ita l.
In d e e d , th e a g g re g a te c a p ita l u n d e r th e one p ro visio n

APPENDIX A

321

w ill be a p p ro x im a te ly th e sam e as th a t p ro v id e d b y th e
o th e r p lan .
EARNINGS
In th e m a tte r o f d istrib u tio n o f th e e a rn in g s o f th e p ro ­
posed regio n al re se rv e b a n k sy ste m th ere w a s q u ite a w id e
d iffere n ce in th e S e n a te a m en d m en t fro m th e H o u se b ill.
T h e H o u se b ill, as y o u w ill re ca ll, p ro v id e d a c u m u la tiv e
d iv id e n d o f 5 p e r ce n t, to be p a id to th e sto ck h o ld in g
b a n k s, a fte r w h ich a su rp lu s fu n d o f 20 p e r ce n t, w a s re­
q u ired to be e sta b lish e d b y th e re g io n a l re se rv e b a n k s.
I he ex cess e a rn in g s a b o v e th e c u m u la tiv e 5 p e r cen t, d iv i­
dend and th e 20 p e r cen t, su rp lu s w e re to be d iv id e d be­
tw e en th e G o v e rn m e n t and th e sto c k h o ld in g b a n k s in a
ra tio o f 60 p e r ce n t, to th e G o v e rn m e n t and 40 p e r cen t, to
th e b a n k s.

T h e G o v e rn m e n t’ s ea rn in g s w e re to be ap p lied

to th e e x tin c tio n o f th e bonded in d eb ted n ess o f th e U n ite d
S ta te s .

T h e S e n a te so am en d ed th is p ro v isio n as to a llo w

th e b a n k s a 6 p e r ce n t, c u m u la tiv e d iv id e n d and re q u ired
th e re g io n a l re se rv e b a n k s to p ro v id e a su rp lu s o f 20 p e r
c e n t., th e e n tire n et e a rn in g s in excess o f th e d iv id e n d and
su rp lu s to g o to th e U n ite d S ta te s G o v e rn m e n t.

H o w e v e r,

o n e -h a lf o f th e G o v e rn m e n t’ s e a rn in g s w a s to c o n stitu te a
fra n c h ise t a x and th e o th e r h a lf w a s to be a p p ro p ria te d to
an in su ran c e fu n d fo r th e p ro te ctio n o f th e in d iv id u a l d e­
p o sito rs o f n a tio n a l b a n k s.

SO-CALLED DEPOSIT INSURANCE
T h is S e n a te a m en d m en t w a s b it t e r ly co n te sted b y th e
H o u se co n ferees as b ein g a m ere p re ten se o f a d e p o sit
g u a r a n ty .

I t w a s, in d eed , n e ith e r a d e p o sit g u a r a n t y n o r

a p o te n t in su ran ce fu n d , in th e ju d g m e n t o f th e co n ferees
on th e p a rt o f th e H o u se.




T h e re fo re th e H o u se co n ferees




322

AN ADVENTURE IN CONSTRUCTIVE FINANCE

in siste d u pon th e m o d ifica tio n o f th e S e n a te am en d m en t b y
s trik in g o u t th is a lleged d e p o sit in su ran c e, b u t p e rm ittin g
th e c u m u la tiv e d iv id e n d to rem ain a t 6 p er ce n t, as fixed
b y th e S e n a te , th e b ala n ce o f th e excess e a rn in g s o f th e
sy ste m

to go to th e U n ite d S ta te s G o v e rn m e n t.

The

v ie w o f th e H o u se co n ferees w a s th a t w h en w e h a v e , if
e v e r w e sh all h a v e , a d e p o sit g u a r a n ty la w , th e t a x shou ld
be assessed a g a in st th e b a n k s ; th a t th e b a n k s, in th a t
e v e n t, shou ld be re q u ired to g u a ra n te e th e ir ow n d ep o si­
to r s ; and th a t n o t a d o lla r o f th e fu n d s o f th e U n ite d S ta te s
G o v e rn m e n t sh ou ld be a p p lie d to t h a t p u rp o se .

[A p ­

p la u se .]
T h e co n ferees on th e p a rt o f th e H o u se fe lt, re ga rd less
o f th e m e rits o f th e p ro p o sitio n to in su re o r g u a ra n te e b a n k
d e p o sits, th a t th e in c o rp o ra tio n o f th is S e n a te a m en d m en t
h ere w o u ld d e la y in d e fin ite ly , i f n o t d e fe a t, th e p ro p o sitio n
fo r a real d e p o sit g u a r a n t y la w . F o r th is reason th e H ou se
co n ferees stood firm and th e S e n a te co n ferees y ie ld e d ; so
th a t in th e b ill as rep o rted b a c k th ere is no p ro v isio n fo r an
alleg ed d e p o sit in su ran ce.
POWERS OF RESERVE BOARD
T h e p o w e rs o f th e F e d e ra l R e s e rv e B o a rd w ere in som e
m in o r p a rtic u la rs and in one o r tw o m a te ria l a sp ects
a lte re d b y th e S e n a te a m en d m en t, n o ta b ly w h ere th e
H o u se au th o riz ed th e F e d e ra l R e s e r v e B o a rd to co m p el one
F e d e ra l re se rv e b a n k to re d isco u n t th e d isco u n te d p a p e r o f
a n o th e r F e d e ra l re se rv e b a n k u n d e r c e rta in re stric tio n s.
S u ch a u th o r ity cou ld o n ly be ex ercised in tim e o f e m er­
g e n c y and o n ly b y th e a ffirm a tiv e actio n o f fiv e o f th e seven
m e m b ers o f th e F e d e ra l R e s e r v e B o a rd . T h e S e n a te
a m en d m en t sw e p t a w a y e v e r y one o f th e re stric tio n s im ­
posed b y th e H o u se b ill and v e ste d th e F e d e ra l R e s e rv e

B o a rd w ith p le n a ry p o w e r to o rd e r th e re d isco u n t a t its
p lea su re and b y a m a jo r it y v o te .

T h e H o u se co n ferees in ­

sisted upon a re sto ra tio n o f th e re q u ire m e n t th a t a t le a s t
fiv e m e m b ers o f th e F e d e ra l R e s e r v e B o a rd m u s t co n cu r
in th e p ro p o sed a ctio n .

REDISCOUNTS
In th e m a tte r o f re d isco u n t o p e ra tio n s th e o n ly m a ­
te ria l ch a n ge m a d e b y th e S e n a te a m en d m en t to th e H o u se
bill re la te s to th e tim e lim it o f c e rta in a g ric u ltu ra l cre d its.
T h is , yo u w ill re ca ll, w a s an item o f th e bill w h ich p ro v o k e d
co n sid era b le c o n tro v e rs y in th e H o u se D e m o c ra tic ca u cu s
and in th e H o u se itse lf.

In th e ju d g m e n t o f som e o f us

th e d iffere n ce is m ore a p p a re n t th a n re al, and c e r ta in ly
m ore p o litic a l th a n eco n o m ic.

T h e H o u se b ill, k e e p in g

c o n s ta n tly in v ie w th e c a p ita l p u rp o se o f e sta b lish in g re­
gio n a l re se rv e b a n k s w ith q u ick and liq u id a sse ts, p ro m p t­
ly and c e r ta in ly re sp o n siv e to th e c o m m e rc ia l, a g ric u ltu ra l,
an d in d u stria l re q u ire m e n ts o f th e c o u n try , p ro v id e d a.
9 0 -d a y m a t u r it y fo r p a p e r s u b je c t to d isc o u n t, m a k in g
no d isc rim in a tio n w h a tso e v e r fo r o r a g a in st th e m e rc h a n t,
th e m a n u fa c tu re r, o r th e fa rm e r. T h e S e n a te a m e n d ­
m e n t, in th e case o f a g ric u ltu ra l c re d its, e x te n d ed th e pe­
riod o f m a t u r it y to six m o n th s.

T h e H o u se h a v in g re­

ve rsed it s e lf on th is p a r tic u la r p ro p o sitio n and h a v in g in ­
s tru c te d th e H o u se co n ferees to y ie ld
a m e n d m e n t, th e co n ferees a cq u iesc ed .

on th e

S e n a te

In th is co n n ectio n , M r . S p e a k e r, I w ish to s a y t h a t w h ile
th e H o u se co n ferees w o u ld h a v e , in a n y e v e n t, im p lic itly
fo llo w e d th e in stru c tio n o f th e H o u se , w e d id so th e m o re
r e a d ily in th is case fro m th e c o n v ic tio n th a t sound b a n k in g
in s tin c t and u n iv e rsa l b a n k in g ex p e rien c e w ill ta k e c a re
o f th e situ a tio n p resen ted b y th is ch a n ge in th e H o u se b ill.







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AN ADVENTURE IN CONSTRUCTIVE FINANCE

I n sh o rt, w e are p e rfe c tly co n fid en t th a t th ose to w h o m
sh a ll be confid ed th e p o w e r and re sp o n sib ility o f a d m in iste r­
in g th is n ew b a n k in g and c u rre n c y s y ste m w ill h a v e th e
w isd o m a n d co u ra g e to m a in ta in it in th e m o st efficie n t
s ta te p o ssib le.
RESERVES
I n d e a lin g w ith th e re se rv e re q u ire m e n ts, th e S e n a te
a m en d m en t to th e H o u se bill so m e w h a t stren g th e n ed th e
re se rv e b y a d v a n c in g th e m in im u m re q u ire m e n t from 3 3 !
to 4 0 p e r c e n t, o f go ld o r la w fu l m o n e y , p re sc rib in g a fla t
p e n a lty o f 1 p e r ce n t, on all im p a irm e n t o f th e re se rve b e­
h ind th e n o tes b etw een 40 p e r ce n t, and 32^ p e r c e n t., and
a u th o riz in g th e F e d e ra l R e s e r v e B o a rd to assess a g ra d u ­
a te d t a x o f

p e r ce n t, p e r an n u m u pon each

p e r cen t,

o r fra c tio n th e re o f t h a t such re se rv e fa lls b elo w 32 ^ per
c e n t.
T h e re se rv e re q u ire m e n ts fo r in d iv id u a l b a n k s w a s v e r y
m a te r ia lly red u ced b y th e S e n a te a m e n d m e n t; in d eed , it
w a s loosened up to an a la rm in g e x te n t, m a k in g in fla tio n
d a n g e ro u sly p ro b a b le .

T h e S e n a te a m en d m en t did n o t

re q u ire a d o lla r o f re se rv e to be k e p t in th e v a u lt s o f in ­
d iv id u a l b a n k s, b u t m a d e it p o ssib le fo r e v e r y d o lla r o f
th e re se rv e to be k e p t in th e re g io n al re se rv e b a n k s, th u s
fr u s tr a tin g th e p u rp o se o f th e H o u se to p u t a sto p to th e
v ic io u s p ra c tic e o f p y ra m id in g re se rv e s u n d e r w h ich th e
te n d e n c y to

in fla tio n

is a lw a y s

p o ssib le

and

in v itin g .

T h e H o u se co n ferees a d ju s te d th is p o in t o f d iffere n ce n o t
e n tir e ly to th e ir sa tisfa c tio n , b u t v a s t ly to th e b e tte rm e n t
o f th e p ro v isio n , so th a t w h ile th e re se rv e re q u irem e n ts as
to in d iv id u a l b a n k s are so m ew h a t less e x a c tin g th a n th e y
w ere in th e H o u se b ill th e y are v e r y m u ch m o re e x a c tin g
th a n th e y w e re in th e S e n a te a m en d m en t to th e H o u se
b ill

BOND REFUNDING
T h e S e n a te r a d ic a lly a lte re d th e bond p ro v isio n o f th e

T he p iv o ta l p o in t o f b a n k in g and c u rre n c y

H o u se bill.
re fo rm

in th is c o u n try a ro u n d w h ic h c o n tr o v e r s y h a s

ra g e d fo r a q u a r te r o f a c e n tu ry h a s been th e rig id an d in ­
e la stic n a tu re o f a c u rre n c y b ased on G o v e rn m e n t b o n d s.
I h e d em an d o f th e b a n k e r, th e te x tb o o k w rite r, th e b u s i­
ness m a n , and o th e r c u rre n c y e x p e rts h a s been fo r th e
a b ro g a tio n o f th e b o n d -secu red c u rr e n c y sy ste m an d th e
g ra d u a l su b stitu tio n th e re fo r o f a c u rr e n c y b ased on co m ­
m e rcia l a sse ts an d im m e d ia te ly re sp o n siv e to b u sin ess
re q u irem e n ts.

T h a t h as been th e u n iv e rsa l c o n te n tio n

o f all person s w h o h a v e a c le a r co m p reh en sio n o f th e
q u estio n .

I t h as been th e d e cla red p o lic y o f th e D e m o ­

c r a tic P a r t y fo r y e a r s , th e d e c la ra tio n h a v in g a p p e a re d in
sp ecific term s in th ree o f its re cen t n a tio n a l p la tfo rm s.
N e v e rth e le ss , th e S e n a te in its w isd o m ra d ic a lly a lte re d
th a t p ro visio n o f th e H o u se bill so as to m a k e an a p p re c i­
a b le re tire m e n t o f th e b o n d -secu red c u rre n c y u n lik e ly , i f
n o t im p o ssib le.

1 he H o u se co n fere es ga in e d a m e a su re o f

a d v a n ta g e b y so m o d ify in g th e S e n a te a m en d m en t as to
m a k e p ro b a b le th e re tire m e n t o f a t le a s t $30 0 ,0 0 0 ,0 0 0 o f
th e b on d -secu red c u rre n c y w ith in a period o f 20 y e a r s , and
the p o ssib le re tire m e n t o f $50 0 ,0 0 0 ,0 0 0 o f t h a t c u rre n c y ,
to be su p ersed ed b y e la s tic F e d e ra l re se rv e c u rre n c y , b ased
upon a gold re se rv e an d co m m erc ia l a sse ts, e x p a n d in g and
c o n tra c tin g a u to m a tic a lly w ith th e b u sin ess re q u ire m e n ts
o f th e c o u n try .
. NO CHARGE FOR EXCHANGE
O ne o f th e m o st im p o rta n t p ro v isio n s o f th e c u rre n c y
bill p assed b y th is H o u se w a s th a t w h ich so u g h t to p u t an







326

AN ADVENTURE IN CONSTRUCTIVE FINANCE

end to th e fla g ra n t abu se in v o lv e d in e x c e ssiv e ch a rges b y
b a n k s th ro u g h o u t th e c o u n try fo r co llectio n s and e x ­
ch a n ges. T h e H o u se bill p ro vid ed th a t e x c h a n g es should
be m a d e a t p a r and t h a t ch a rg es fo r co llec tio n s shou ld n o t
exceed th e a c tu a l co st to th e b a n k s. T h is item o f th e bill,
as m o st o f y o u re m em b e r, w a s b itte r ly c o n tro v e rte d in th e
D e m o c ra tic ca u cu s, and also in th e H o u se.

N a t u r a lly

th o u sa n d s o f b an k s d e riv in g la rg e p ro fits from th e p ra ctic e
o f c h a rg in g c o n s tru c tiv e in te re st u pon ch eck s in tra n sit
an d v e r y a r b itr a r y ch a rges fo r co llectio n s and fo r e x ­
ch a n g e s e x h ib ite d g re a t d ista s te to th is p ro visio n o f the
b ill.

T h e y v ig o r o u s ly p ro te ste d to m e m b ers a g a in st th e

in clu sio n o f th is p ro h ib itio n , and th u s th e e ffo rt to rem o ve
th is t a x b u rd en u pon th e b u sin ess o f th e c o u n try w a s con ­
te ste d w ith th e u tm o st p e rtin a c ity .

H o w e v e r, th ose o f us

in th e H o u se w h o so u g h t to te a r dow n th ese to llg a te s u pon
th e h ig h w a y s o f co m m erce p re v a ile d .

1 he fig h t w a s re­

n ew ed in th e S e n a te , and th a t b o d y so m od ified th e H o u se
p ro v isio n as to le a v e it so le ly w ith in th e d isc retio n o f the
F e d e ra l R e s e rv e B o a rd to d im in ish o r abo lish th e e v il com ­
p lain ed

o f, as it m ig h t p lea se.

declin ed to y ie ld on th is p o in t.

The

H o u se co n ferees

T h e y in sisted upon such

a m o d ifica tio n o f th e S e n a te am en d m en t as w ill e x a c t e x ­
ch an ges a t p a r and re stric t c h a rg e s fo r co lle c tio n s to th e
a c tu a l co st o f such tra n s a c tio n s to th e b a n k s.

In b rie f,

as th e bill n o w is re p o rted to th e H o u se th e b a n k s c a n ­
n o t m a k e ex c h a n g e and co llectio n ch a rg es a sou rce o f
p ro fit; th e y ca n n o t a n y lo n g e r c h a rg e c o n s tru c tiv e in te r­
e s t; th e y ca n n o t e x a c t a t a x fo r a th e o re tic a l tra n s fe r o f
fu n d s from p o in t to p o in t w h en no tra n s fe r is a c t u a lly
m a d e , b u t o n ly an e n tr y on th e books.

T h e y can no lo n g er

h a ra ss th e com m erce o f th e c o u n try n o r p en alize th e b u si­
n ess m en o f th e N a tio n

b y an u n ju st ta x .

W h ile th e

APPENDIX A

327

H o u se co n ferees did n o t succeed in e n tire ly re sto rin g th e
p ro v isio n as it le ft th is C h a m b e r, th e y v a s t ly im p ro v e d th e
am en d m en t m ad e b y th e S e n a te . T h e p ro v isio n , as it
sta n d s, w ill re su lt in an im m ense s a v in g to th e tra d e s ­
people o f th e U n ited S ta te s .

I t w ill e lim in ate th e a m a z ­

in g w a ste fu ln e ss in cid e n t to m a n y in d ep en d en t collection
o rg a n iz a tio n s b y s u b s titu tin g one co m p ac t collection s y s ­
tem .

I t w ill abolish th e ex c h a n g e ch a rg es a lto g e th e r and

a p p re c ia b ly red u ce ch a rg es a g a in st co llectio n s.

I sp ea k

th u s co n fid e n tly o n ly in a n tic ip a tio n o f w ise actio n b y th e
F e d e ra l R e s e rv e B o a rd w h en a p p o in ted .

I f th e b o ard

w ill h a v e th e w isd o m and co u ra ge to esta b lish im m e d ia te ly
a co m p reh en sive and eco n o m ical plan o f b a n k cle arin g s, it
w ill be d ifficu lt to co m p u te th e a d v a n ta g e s th a t th is sec­
tio n o f th e c u rre n c y bill w ill secure.

W h ile som e b an k s

w ill h a v e th e ir p ro fits d im in ish ed , it w ill be p ro fits to w h ich
th e y are n o t fa ir ly en title d and fo r th e loss o f w h ich th e y
w ill be m ore th a n co m p en sa ted b y th e b e tte r and sp eed ier
fa c ilitie s a ffo rd ed fo r th e tra n sa c tio n o f b u sin ess.

GOVERNMENT DEPOSITS
In th e m a tte r o f G o v e rn m e n t d e p o sits th e H o u se b ill
req u ired th a t th e re gio n al re se rv e b an k s sh ou ld be con ­
s titu te d fiscal a gen ts o f th e U n ite d S ta te s G o v e rn m e n t and
re q u ired th e S e c r e ta r y o f th e T r e a s u r y to d e p o sit all o f
th e cu rre n t fu n d s o f th e G o v e rn m e n t in th ese b a n k s, o m it­
tin g , o f co u rse, th e T r e a s u r y tru s t fu n d s.

T h e S e n a te so

a lte re d th is p ro visio n o f th e H o u se bill as to m a k e it
o p tio n a l w ith th e S e c r e ta r y o f th e T r e a s u r y to so d e p o sit
th e G o v e rn m e n t fu n d s and to p lace it w ith in th e d isc retio n
o f th a t o fficial to c o n stitu te th e re gio n al re se rv e b a n k s
fisca l a g en ts o f th e U n ite d S ta te s G o v e rn m e n t.




I h ave




328

AN ADVENTURE IN CONSTRUCTIVE FINANCE

been u n ab le to g e t a n y c le a r p e rce p tio n o f th e reaso n fo r
th is a lte ra tio n o f th e H o u se bill fu rth e r th a n th a t I a little
su sp ect t h a t it w a s done fo r t a c tic a l p u rp o ses, p e rh a p s to
e n a b le th e S e c r e ta r y o f th e T r e a s u r y to co m b a t th e sch em es
o f in tra c ta b le b a n k e rs, sh o u ld th ere be su ch .

T h e o b je c t

o f th e fra m e rs o f th e H o u se bill in m a k in g th e p ro v isio n
m a n d a to ry in ste a d o f d isc re tio n a ry w a s to fu rn ish the re­
gio n a l re se rv e b a n k s w ith th e id le fu n d s o f th e G o v e rn ­
m e n t as a b asis fo r a c tiv e b u sin ess tra n sa c tio n s, and a t th e
sam e tim e to co rrect th e u n scie n tific and senseless p rocess
o f w ith d ra w in g th ese fu n d s from b usin ess ch an n els and im ­
p o u n d in g th em in th e T r e a s u r y and su b -tre a su rie s.

I t is

sc a rc e ly th in k a b le th a t w e sh a ll e v e r h a v e a S e c re ta ry o f
th e T r e a s u r y w h o w o u ld n o t so exercise th e d iscretio n co n ­
ferred u pon h im b y th e b ill, as n o w re p o rted , as to c a r r y
o u t th e re al p u rp o se w h ich th e H o u se h ad in v ie w w h en
it m a d e th is p ro visio n m a n d a to r y ; hence, th e H o u se con­
ferees r e lu c ta n tly y ie ld e d th e p o in t a b o u t 3 o ’ clo ck th is
m o rn in g .

BANK EXAMINATIONS
In th e m a tte r o f b a n k e x a m in a tio n s som e m in o r a lte r­
a tio n s w ere m a d e b y th e S e n a te a m en d m en t and som e
te c h n ic a l ch a n g es also, w h ich w e re m od ified in co n feren ce
so th a t th ere is little p ra c tic a l d ifferen ce b etw een th e
S e n a te

a m en d m en t and

th e o rig in a l H o u se

b ill.

O ne

n o ta b le ch a n ge m ad e b y th e S e n a te w a s an a u th o riz a tio n
o f in q u isito ria l in v e stig a tio n s b y co m m ittee s o f th e H ou se
u pon th e ir ow n in it ia t iv e ; b u t th e H o u se co n fere es in ­
sisted u pon so a lte rin g th is a m en d m en t as to p e rm it in­
q u isito ria l actio n b y th e S e n a te and H o u se jo in t ly , o r b y
e ith e r H o u se a c tin g th ro u g h a co m m ittee d ire c tly a u th o r­
ized to exercise in q u is ito ria l p o w ers.

APPENDIX A

329

THE NOTE ISSUES
T h e n o te p ro v isio n o f th e H o u se bill h as been b itte r ly
a ssa ile d , both in th e o th e r b ran ch o f C o n g ress and b y
c e rta in m en o f la rg e ex p erien ce and in flu en ce in b a n k in g .
T h e p re sid e n t o f th e la rg e s t b a n k in g in stitu tio n in th e
W e stern H e m isp h ere w e n t all o v e r th e c o u n try re c e n tly ,
ch a rg in g th a t th e F e d e ra l re se rv e n o tes p ro v id e d b y the
H o u se bill and b y th e S e n a te a m en d m en t to th e H o u se b ill,
s u b s ta n tia lly n o w
m itte e , c o n stitu te

re p o rted fro m
fia t m o n e y .”

th e co n feren ce com-!
T h is ch a rg e w a s v e ­

h e m e n tly ech oed , w ith o u t in v e stig a tio n o r re flectio n , as
I am ob lig ed to b eliev e, in th e o th e r b ran ch o f C o n ­
g re ss.

M r . S p e a k e r, th e ch a ra c te riz a tio n is n o t o n ly in ­

a c c u ra te , is n o t o n ly u n tru e , is n o t o n ly a m a z in g , b u t is
p o s itiv e ly w a n to n .
I h a v e said in sp eech es elsew h ere w h a t I sh all n o w re­
p e a t here. T h e re is n o t in th is c o u n try and th ere h as
n e v e r been in a n y c o u n try o f th e civ ilize d w o rld a g o v e rn ­
m e n t issue o r a b an k -n o te issu e c o m p ara b le in se c u r ity to
th e F e d e ra l re se rv e n o tes p ro v id ed b y th e bill w h ich y o u
a re n o w ask ed to e n a c t in to la w . [A p p lau se.]
NOT AN ELEMENT OF FIATISM1
F ia t m o n e y !

W h y , sir, n e v e r since th e w o rld began w a s

th e re such a p e rv e rsio n o f te rm s ; and a m o n th ago I stood
b efo re a b rillia n t a u d ien ce o f 700 b an k e rs and b u sin ess m en
in N e w Y o r k C it y , and th ere ch allen g ed th e p re sid e n t o f
th e N a tio n a l C it y B a n k to n a m e a sin gle le x ic o g ra p h e r on
th e fac e o f th e e a rth to w h o m he m ig h t a p p e a l to ju s t if y
h is c h a ra c te riz a tio n o f th ese notes.

I tw itte d h im w ith

th e fa c t th a t n o t 1 Per ce n t, o f th e in te llig e n t b an k e rs o f
‘ F i a t m o n e y : P a p e r c u r r e n c y o f g o v e rn m e n t is su e , w h ic h is m a d e le g a l te n d e r b y fia t o r
la w , d o e s n o t re p r e s e n t, o r is n o t b a se d u p o n , s p e c ie , an d c o n ta in s n o p ro m ise o f re d e m p ­
t io n ,— Webster’s New International Dictionary .







330

AN ADVENTURE IN CONSTRUCTIVE FINANCE

A m e ric a cou ld be in d u ced to agree w ith h is d efin itio n o f
th ese n o tes, and ask ed him to n am e a sin gle fin a n c ia l w r ite r
o f th e m e tro p o lita n press o f h is ow n to w n , to w h o m he
m ig h t c o n fid e n tly a p p e a l to ju s t ify h is a b su rd c h a rg e .
“ F ia t m o n e y ” is an irre d e e m a b le p a p e r m o n e y w ith no
sp ecie b asis, w ith no go ld re se rv e , b u t th e v a lu e o f w h ic h
d ep en d s so le ly u pon th e ta x in g p o w e r o f th e G o v e r n ­
m en t e m ittin g it.

T h is F e d e ra l re se rv e note h a s 40 p e r

ce n t, go ld re se rve b eh ind i t ; h as 10 0 p er ce n t, sh o rt-te rm ,
gilt-e d g e co m m ercial p a p e r b eh in d it, w h ich m u st p a ss
th e sc ru tin y , first, o f th e in d iv id u a l b a n k , n e x t o f th e re­
gio n a l re se rve b a n k , and fin a lly o f th e F e d e ra l R e s e r v e
B o a rd . In a d d itio n to th is, it co n stitu te s a first and p a ra ­
m o u n t lien on all th e a sse ts o f th e re gio n al re se rv e b a n k ,
in c lu d in g th e d ou ble lia b ilit y o f th e m em b er b a n k s ; a n d ,
su p era d d ed to th is, it h as b eh in d it th e ta x in g p o w e r, th e
c re d it, and th e h on o r o f a N a tio n o f
free
peop le. T h e re is n o t a sem b la n c e o f fia tism a b o u t th ese
n o te s; and a t th e v e r y m o m en t th a t M r . V a n d e r lip , o f th e
N a tio n a l C i t y B a n k o f N e w Y o r k , w a s in C h ic a g o re c k ­
le s s ly

ch a ra c te riz in g

th ese

n o tes

as

“ f ia t ”

m e a n in g

w ith o u t su fficien t s e c u r ity — P a u l M . W a rb u rg , p e rh a p s
th e g re a te s t in te rn a tio n a l b a n k e r in A m e ric a , w a s h ere in
W a sh in g to n p ro te stin g to m e t h a t th e s e c u r ity b eh in d th e
n o tes w a s e n tire ly to o e x a c tin g !
M r . V a n d e rlip m isses th e m a rk a m ile, w h ile M r . W a r ­
b u rg is n o t fa r fro m b ein g rig h t; b u t w e h a v e th o u g h t it
b e tte r to e rr on th e side o f p ru d en ce ra th e r th a n in c u r th e
risk s o f in s e c u rity .
DANGEROUS TALK
N o m an w ith th e p re stig e o r in flu en ce w h ich id e n tific a ­
tion w ith one o f th e g re a te s t b a n k in g in stitu tio n s in th e

APPENDIX A

331

w orld g iv e s h im shou ld fa il to a p p re c ia te th e im p o rta n c e
o f his p u b lic u tte ra n c e s.

H e should n o t fa il to u n d e rsta n d

th a t his re sp o n sib ility to so c ie ty tra n scen d s th a t o f a m ere
in d iv id u a l; an d I p re d ic t w ith g re a t confid ence t h a t w h en
th e p resid en t o f th e N a tio n a l C it y B a n k o f N e w Y o r k
com es to realize h ow in c o n sid era te w a s h is c h a ra c te riz a ­
tio n o f th ese F e d e ra l re se rv e n o tes, as w ell as h ow d a n g e r­
o u s, he w ill re g re t e v e r h a v in g g iv e n u tte ra n c e to such an
ill-co n ce ive d

opin io n .

W h en

th e in stitu tio n

w h ich

he

h ea d s sh all h a v e b ecom e a p a rt o f and a fa c to r in th e s y s ­
tem w h ich th is b ill p ro v id e s M r . V a n d e rlip w ill be ash am ed
to rem em b er th a t he m a d e su ch a b itte r and u t t e r ly u n fa ir
a ss a u lt on th e m easu re.
A n d , M r . S p e a k e r, i f th is be tru e o f a g re a t b a n k officer,
w ith a m a n ife st s e lf-in te re st a t s ta k e , w ith h ow m u ch
g r e a te r force m a y th is rep ro ach fo r a lik e offen se be d irected
a t a M e m b e r o f C o n g ress o f th e U n ite d S ta te s , w ith o n ly
h is c o u n try to se rv e .

I said a w h ile ago th a t th is ch a rg e o f

“ fia t is m ” w a s v e h e m e n tly echoed in th e o th e r bran ch o f
C o n g re ss.

I t cou ld n o t h a v e been fr a n k ly done u pon an

in te llig e n t a n a ly s is o f th e p ro v isio n s o f th e b ill, and it
sh ould n o t h a v e been done w ith o u t su ch an e x a m in a tio n .
B u t th e criticism w a s m a d e w ith su ch fe rv o r and such
absen ce o f q u a lific a tio n as to m a k e th e ch a rg e e sp e c ia lly
a la rm in g to fo reign in v e sto rs in A m e ric a n sec u rities.

In ­

d eed , it w a s m a d e in such ra n k fash io n as to p u t in je o p ­
a r d y a b ro a d th e c re d it o f o u r en tire b a n k in g and c u rre n c y
sy ste m as p rop osed in th is m e asu re.
I desire h ere to e n te r in d ig n a n t p ro te st a g a in st such
c ritic ism .

T h e c o n stitu tio n a l d u t y o f a C o n g ressm a n to

w a rn h is c o u n try o f p erils w h ich he m a y foresee is n o t
g r e a te r th a n th e m o ra l o b lig a tio n to sound no false a la rm .
A n d , in e ith e r e v e n t, th e o b lig a tio n assu m es th e n a tu re







332

AN ADVENTURE IN CONSTRUCTIVE FINANCE

o f a g ra v e re sp o n sib ility w h en th e C o n g re ssm a n sp e a k in g
ad d s to th e re p u ta tio n o f a g re a t la w y e r th e fa m e o f an
in te rn a tio n a l sta te sm a n .

N o m an o f th is ty p e , w ith su ch

re sp o n sib ilitie s, shou ld fo r p a r t y a d v a n ta g e o r fo r a n y
p u rp o se trifle w ith th e c re d it o f his c o u n try , e ith e r a t h om e
o r a b ro a d .
AS TO INFLATION
T h is b ill, in its H o u se fo rm , h as lik e w ise been su b je c te d
to th e c ritic ism o f p ro v id in g a w id e ra n ge o f “ in fla tio n .”
O n th is p o in t I h a v e been m ore am u sed th a n e x a sp e ra te d ,
b ecau se th e s ta r tlin g in co n siste n cie s o f th e c ritic s h a v e
been s im p ly lu d ic ro u s.

O n th e v e r y d a y th a t M r . F o rg a n ,

a g re a t b a n k e r, w a s a sse rtin g b efo re th e S e n a te co m m ittee
th a t th e bill “ im m e n se ly c o n tra c te d co m m ercial c r e d its ,”
h is fe llo w to w n sm a n , M r . D a w e s , e x -C o m p tro lle r o f th e
C u rre n c y , w a s p ro c la im in g o u t W e st th a t th e bill
m o u sly in fla ted co m m ercia l c r e d its .”

en o r­

S u r e ly it cou ld not

do b oth th in gs a t th e sam e tim e ; n o r w ill it e v e r do eith e r
a t a n y tim e .

I t w ill affo rd a la rg e ex p a n sio n o f cre d its,

w h en needed, u pon a p e rfe c tly sound b a sis and in su re
ce rta in c o n tra c tio n o f c red its a t th e end o f le g itim a te com ­
m e rcia l tra n sa c tio n s.

T h is w a s w h a t it w a s design ed to

do, and w ith o u t th e p o w er to do w h ich th e bill w o u ld be
m a n ife s tly d eficien t.
T h is c h a rg e o f “ in fla tio n ,” lik e th e c ritic ism in regard
to th e “ f i a t ” n a tu re o f th e n o tes, w a s echoed in th e S e n a te ;
and y e t th e bill cam e b a c k from th e S e n a te w ith th e p o ssi­
b ilitie s o f in fla tio n v a s t ly in c rea sed . T h e o n ly th in g done
in th e o th e r b o d y to d im in ish th e p o ssib ilitie s o f o v e r ­
ex p a n sio n w a s s lig h tly to in crea se th e go ld re se rv e ; b u t
a t th e sam e tim e th e bill w a s so am en d ed in th e o th e r b o d y
as to p e rm it th e b a n k s to co u n t th e F e d e ra l re se rve n o tes as
re se rv e ; th e re se rv e re q u irem e n ts w ere a p p re c ia b ly re-

d u c e d ; b a n k s w e re acco rd ed th e d a n g e ro u s p riv ile g e o f u n ­
re stric te d “ a c c e p ta n c e s,” and o th e r th in g s w e re done t h a t
m a d e th e b ill, fo r th e first tim e , a m en a b le to th e c h a rg e
th a t it p ro v id e d “ in fla tio n .”
B u t th e H o u se co n ferees in siste d u pon a re sto ra tio n o f
s a fe g u a rd s.

A s th e bill n o w sta n d s w e h a v e p ro v id e d

a g a in st in fla tio n in a lm o st e v e r y c o n c e iv a b le w a y — b y th e
re q u ire m e n t o f a s u b s ta n tia l go ld re se rv e ; b y th e re q u ire ­
m e n t o f a se c o n d a ry re se rv e o f sh o rt-tim e co m m erc ia l
p a p e r; b y re stric tin g th e p o w e r o f th e re se rv e b o ard to issu e
n o tes e x c e p t u pon a p p lic a tio n fro m th e b a n k s ; b y th e in te r­
p o sitio n o f b a n k in g in s tin c t and e x p e rien c e a p p lied in a
th re e fo ld d egree— th a t is to s a y , b a n k in g d isc retio n is
a p p lie d in th e o rig in a l d isc o u n t o p e ra tio n o f th e in d iv id u a l
b a n k ; b a n k in g d isc retio n

is a p p lie d

in th e re d isco u n t

o p e ra tio n o f th e re gio n al re se rv e b a n k ; b a n k in g d isc retio n
is a p p lie d w h en th e F e d e ra l R e s e r v e B o a rd p asses u pon th e
a p p lic a tio n o f th e re g io n al re se rv e b a n k fo r a d d itio n a l c u r­
re n c y .

T h u s in fla tio n is h eld in ch eck , first, b y th e lim ite d

s u p p ly o f g o ld ; seco n d , b y th e lim ite d a m o u n t o f sh o rttim e co m m ercia l p a p e r; th ird , b y th e b a n k in g d isc retio n
o f th e in d iv id u a l b a n k ; fo u rth , b y th e b a n k in g d isc retio n
o f th e re gio n al re se rv e b a n k ; fifth , b y th e b a n k in g d is­
cretio n o f th e F e d e ra l R e s e r v e B o a rd , w ith a b ro ad v ie w
o f co n d itio n s n o t in a sin gle d is tr ic t, b u t th ro u g h o u t th e
en tire c o u n try .
CHANGES SUMMARIZED
W ith o u t d e sirin g to p ro lo n g th is re v ie w o f th e q u estio n s
d iscu ssed and d e term in ed b y th e S e n a te and H o u se con ­
ferees, I m a y b rie fly su m m a riz e th em as fo llo w s:
i.

The

H o u se

con ferees

resto red

th e

S e c r e ta r y

of

A g ric u ltu re and C o m p tro lle r o f th e C u rre n c y to th e o rg a n ­
iz atio n co m m ittee .




_____




334

AN

a d v en tu r e

in

c o n st r u c tiv e

fin a n c e

2. T h e H o u se con ferees resto red th e C o m p tro lle r o f th e
C u r r e n c y to th e F e d e ra l R e s e rv e B o a rd , g iv in g th e P re s ­
id e n t p o w e r to a p p o in t fiv e m e m b ers w ith io - y e a r term s
in stea d o f six w ith 6 -y e a r term s.
3. T h e H o u se co n ferees s tru c k o u t th e p ro v isio n from th e
S e n a te bill a u th o riz in g d o m estic a cce p ta n ces.
4. T h e H o u se co n ferees th re w o u t th e so -called “ in su r­
ance o f d e p o s its ” p ro visio n .
5. T h e H o u se co n ferees th re w o u t th e S e n a te p ro visio n
p e rm ittin g F e d e ra l re se rv e n o tes to be used as re se rv e s in
th e in d iv id u a l b an k s.
6. T h e H o u se in serted a p ro visio n re q u irin g th a t th e
n et e a rn in g s go in g to th e G o v e rn m e n t shou ld be ap p lied to
th e go ld

re d em p tio n fu n d o r to th e re d u ctio n

o f th e

bonded in d eb ted n ess o f th e U n ite d S ta te s .
7. T h e H o u se in serted a p ro visio n re q u irin g th a t b ran ch
b a n k s sh all be o p e ra te d b y a b o a rd o f seven d irec to rs,
h a v in g th e sam e q u a lific a tio n s as d ire c to rs o f th e fe d e r a l
re se rv e b a n k s, fo u r to be a p p o in ted b y th e p a re n t b an k
and th ree b y th e F e d e ra l R e s e rv e B o a rd .
8. T h e H o u se a lte red th e S e n a te re se rv e fe a tu re s so as
to ex te n d th e tra n sitio n period fro m tw o to th ree y e a r s , as
w a s p ro v id ed in th e H o u se bill.
9. T h e H o u se so a lte red th e S e n a te re se rv e p ro visio n as
to re q u ire th a t a t le a st o n e-th ird o f th e re se rv e s o f c o u n try
b a n k s sh ou ld be h eld in th e v a u lt s o f th e lo ca l b a n k s,
w h erea s th e S e n a te p ro v isio n p e rm itte d a ll th e re se rv e s to
be h eld in th e v a u lt s o f th e re se rv e b a n k .
10 . T h e H o u se co n ferees p r a c tic a lly resto red th e co l­
lectio n a t p a r o f ch eck s and ex c h a n g es.
1 1 . A n ew section on b a n k e x a m in a tio n s w a s w ritte n ,
o m ittin g som e o f th e o b je c tio n a b le p ro v isio n s p u t in b y th e
S en a te.

12 . T h e H o u se co n ferees so am en d ed th e S e n a te bond
p ro visio n as to req u ire th e re tirem en t o v e r a p eriod o f 20
y e a rs o f a b o u t $ 30 0 ,0 0 0 ,0 0 0 o f th e b o n d -secu red n a tio n a lb a n k n o tes, w h erea s the S e n a te a m en d m en t did n o t p ro ­
v id e fo r th e re tirem en t o f m ore th an $ 12 5 ,0 0 0 ,0 0 0 .
1 3 . T h e H o u se co n ferees th re w o u t th e p ro visio n pro­
h ib itin g d irec to rs o f th e F e d e ra l rese rve b a n k s, class C ,
fro m b ein g sto ck h o ld ers o f a n y b a n k , and p ra c tic a lly re­
sto red th e H o u se p ro visio n re q u irin g d irec to rs o f th is class
to be selected fro m a lis t su p p lied b y th e F e d e ra l rese rve
b an k .
14 . T h e H o u se co n ferees p r a c tic a lly resto red th e H o u se
re stric tio n s in th e m a tte r o f re q u irin g one F e d e ra l re se rve
b a n k to re d isco u n t fo a n o th er F e d e ra l re se rv e b an k .
1 5 . T h e H o u se con ferees lim ite d th e d en o m in a tio n s o f
th e n o tes to be issu ed to $ 5 m in im u m , s trik in g o u t th e $ 1
and $ 2 p ro visio n o f th e S e n a te , w h ic h , it w a s co n te n d e d ,
w o u ld cau se in fla tio n .
16 . T h e S e n a te p ro visio n fixin g a n u m b er o f b a n k s a t n o t
less th a n 8 o r m o re th an 1 2 sta n d s, as a g a in st th e H o u se
p ro v isio n m a k in g th e n u m b er n o t less th a n 12 .
1 7 . T h e re w a s a co m p ro m ise on th e m in im u m c a p ita l,
th e S e n a te bill re q u irin g $3,0 0 0 ,0 0 0 and th e H o u se bill
$5 ,0 0 0 ,0 0 0 .

T h e c a p ita l w a s fin a lly fixed to $4 ,0 0 0 ,0 0 0 .

18 . T h e S e n a te p ro v isio n s trik in g th e S e c re ta ry o f A g r i­
c u ltu re o ff th e F e d e ra l R e s e rv e B o a rd stan d s.
19 . T h e S e n a te m e th o d o f b a llo tin g fo r d irec to rs w a s re­
ta in ed .
20. T h e S e n a te in crea se o f go ld re se rv e b eh in d th e n o te
issu es to 40 p e r c e n t., w ith a g ra d u a te d t a x fo r fa llin g b elow
th a t a m o u n t, sta n d s.
2 1 . T h e m eth o d o f ra isin g th e c a p ita l o f th e F e d e r a l
re se rv e b a n k s on c a p ita l and su rp lu s o f m em b er b a n k s in -




I

...

.




336

AN ADVENTURE IN CONSTRUCTIVE FINANCE

stea d o f on c a p ita l alon e w a s re tain e d in th e S e n a te am en d ­
m en t.
22. T h e S e n a te in c rea se o f sa la rie s o f m em b ers o f th e
F e d e ra l R e s e r v e B o a rd from $ 10 ,0 0 0 to $ 12 ,0 0 0 is re ta in e d ,
as is th e a lte ra tio n in th e term o f se rv ic e fro m 6 to 1 0 y e a rs .
2 3 . T h e re w ere se v e ra l h u n d red a lte ra tio n s o f th e te x t o f
th e S e n a te a m en d m en t.
ESSENTIALLY THE HOUSE BILL
T h e re a re , M r . S p e a k e r, m a n y m in o r a lte ra tio n s in th e
te x t o f th e H o u se b ill, b u t th ere is none in its e ssen tial
fe a tu re s. T h e re also are m a n y ch an ges in th e d e ta ils o f
th e S e n a te a m en d m en t, an d in m a tte rs o f p h ra se o lo g y
th ere are n u m erou s a lte ra tio n s o f both th e H o u se bill and
th e S e n a te a m en d m en t.

B u t , in th e la s t a n a ly s is , th e

m e asu re h ere p re sen ted as th e co n feren ce re p o rt u pon th e
d isa g re ein g v o te s o f th e tw o H o u ses is in all fu n d a m e n ta l
re sp ects th e H o u se c u rre n c y bill.

T h e re p o rt is p resen ted

w ith th e co n fid en t h op e and e x p e c ta tio n th a t it w ill be
a d o p te d and th a t C o n g re ss w ill h a v e th u s w ritte n u pon th e
s ta tu te bo ok s le g isla tio n th a t h a s been so re ly needed and
in s is te n tly dem an d ed b y th e b a n k in g and b u sin ess in­
te re sts o f th e c o u n try fo r m a n y y e a rs .

A P P E N D IX B
FED ER A L R ESER V E ACT
(APPROVED DECEMBER 23, 1913)
As amended Aug. 4, 1914 (38 Stat., 682, Chap. 225); Aug. 15, 1914 (38
Stat., 691, Chap. 252); Mar. 3, 1915 (38 Stat., 958, Chap. 93); Sept. 7,
1916 (39 Stat., 752, Chap. 461); June 21, 1917 (40Stat., 232, Chap. 32);
Sept. 26, 1918; Mar. 3, 1919; Sept. 17, 1919; Dec. 24, 1919; Apr. 13,
1920.
An Act To provide for the establishment of Federal reserve banks,
to furnish an elastic currency, to afford means of rediscounting com­
mercial paper, to establish a more effective supervision of bankinginthe
United States, and forother purposes.
Be it enacted by the Senate and House of Representatives
of the United States of America in Congress assembled,
T h a t th e sh o rt title o f th is A c t sh a ll be th e “ F e d e ra l
R e s e r v e A c t .”
W h e re v e r th e w o rd “ b a n k ” is used in th is A c t , th e
w ord sh all be held to in clu d e S ta te b an k , b a n k in g a sso ­
c ia tio n , and tru s t c o m p a n y , e x c e p t w h ere n a tio n a l b an k s
o r F e d e ra l re se rv e b an k s are sp e c ific a lly referred to.
T h e term s “ n a tio n a l b a n k ” and “ n a tio n a l b an k in g
a s s o c ia tio n ” used in th is A c t sh a ll be h eld to be s y n o n y ­
m o u s and in te rc h a n g e a b le .

T h e te rm “ m em b er b a n k ”

sh all be held to m ean a n y n a tio n a l b a n k , S ta te b a n k , or
b a n k o r tru s t c o m p a n y w h ich h as b ecom e a m e m b er o f
one o f th e re se rve b a n k s c rea ted b y th is A c t.

T h e term

“ b o a r d ” sh all be held to m ean F e d e ra l R e s e rv e B o a r d ;
th e term “ d is t r ic t ” sh all be h eld to m ean F e d e ra l rese rve




337




338

AN ADVENTURE IN CONSTRUCTIVE FINANCE

d is tr ic t; th e term “ re se rv e b a n k ” sh a ll be held to m ean
F e d e ra l re se rve b an k .

FEDERAL RESERVE

S ec. 2.

D IS T R IC T S

A s soon as p ra c tic a b le , th e S e c re ta ry o f th e

T r e a s u r y , th e S e c re ta ry o f A g ric u ltu re and th e C o m p tro ller
o f th e C u rre n c y , a c tin g as “ T h e R e s e r v e B a n k O rg a n i­
z a tio n C o m m itte e ,”

sh a ll d e sig n a te n o t less th an eigh t

n o r m ore th a n tw e lv e cities to be k n ow n as F e d e ra l re­
se rv e cities, and sh a ll d iv id e th e co n tin e n ta l U n ited
S ta te s , ex c lu d in g A la s k a , in to d istric ts, each d istric t to
co n ta in o n ly one o f su ch F e d e ra l re se rv e cities.

T h e de­

te rm in a tio n o f said o rg a n iz a tio n co m m ittee sh all n o t be
su b je c t to re v ie w e x c e p t b y th e F e d e ra l R e s e rv e B o a rd
w h en o rg a n iz e d :
a p p o rtio n ed w ith

Provided,
du e

T h a t th e d istric ts sh all be

re g a rd

to th e co n ve n ien ce and

c u s to m a ry cou rse o f b u sin ess an d s h a ll n o t n e c e ssa rily
be co term in o u s w ith a n y S t a t e o r S ta te s .

T h e d istric ts

th u s c rea ted m a y be re a d ju ste d and n ew d istric ts m a y
fro m tim e to tim e be cre a te d b y th e F e d e ra l R e s e r v e
B o a rd , not to exceed tw e lv e in a ll.

S u ch d istric ts sh all

be k n ow n as F e d e ra l re se rv e d istric ts and m a y be d e sig ­
n a te d b y n u m b er.

A m a jo r it y o f th e o rg a n iz a tio n co m ­

m itte e sh all c o n stitu te a q u o ru m w ith a u th o rity to a ct.
S a id

o rg a n iz a tio n

c o m m ittee sh a ll be a u th o rized

to

e m p lo y cou n sel and e x p e rt aid , to ta k e te stim o n y , to send
fo r person s and p a p ers, to a d m in iste r o a th s, and to m a k e
su ch in v e stig a tio n as m a y be deem ed n e c e ssa ry b y th e
said c o m m ittee in d e term in in g th e re se rv e d istric ts and
in d e sig n a tin g th e citie s w ith in such d istric ts w h ere such
F e d e ra l re se rv e b a n k s sh all be s e v e ra lly lo ca te d . T h e
said co m m itte e sh all su p e rv ise th e o rg a n iz atio n in each
o f th e cities d e sig n a ted o f a F e d e ra l re se rv e b a n k , w h ich

APPENDIX B

339

sh all in clu d e in its title th e n am e o f th e c it y in w h ich it is
situ a te d , as “ F e d e ra l R e s e rv e B a n k o f C h ic a g o .”
U n d e r re g u la tio n s to be p rescrib ed b y th e o rg a n iz atio n
co m m ittee , e v e r y n a tio n a l b a n k in g asso ciatio n in the
U n ite d S ta te s is h e re b y req u ired , and e v e r y e lig ib le b a n k
in th e U n ite d S ta te s and e v e r y tru s t c o m p a n y w ith in the
D is tr ic t o f C o lu m b ia , is h e re b y a u th o riz ed to s ig n ify in
w ritin g , w ith in s ix t y d a y s a fte r th e p a ssa g e o f th is A c t,
its a cce p ta n ce o f th e term s and p ro v isio n s h ereof.
th e o rg a n iz a tio n

W h en

co m m itte e sh a ll h a v e d e sig n a ted

the

cities in w h ich F e d e ra l re se rv e b a n k s are to be o rgan ized ,
and fixed th e g e o g ra p h ic a l lim its o f th e F e d e ra l re se rve
d istric ts , e v e r y n a tio n a l b a n k in g a sso c iatio n w ith in th a t
d istric t sh all be re q u ired w ith in t h ir t y d a y s a fte r n o tice
from

th e o rg a n iz a tio n

co m m ittee , to su b scrib e to the

c a p ita l sto ck o f such F e d e ra l re se rv e b a n k in a sum eq u a l
to six p e r cen tu m o f th e p a id -u p c a p ita l sto c k and su rp lu s
o f such b a n k , o n e-six th o f th e su b sc rip tio n to be p a y a b le
on ca ll o f th e o rg a n iz a tio n co m m itte e o r o f th e F e d e ra l
R e s e r v e B o a rd , o n e-six th w ith in th ree m o n th s and onesix th w ith in six m o n th s th e re a fte r, and th e re m a in d e r o f
th e su b sc rip tio n , o r a n y p a rt th ere o f, sh all be s u b je c t to
c a ll w h en

d eem ed

n e c e ssa ry

by

th e

F e d e ra l

R e s e rv e

B o a rd , said p a y m e n ts to be in gold o r go ld ce rtific a te s.
T h e sh areh o ld ers o f e v e r y F e d e ra l re se rv e b a n k sh a ll be
h eld in d iv id u a lly resp o n sib le, e q u a lly and r a t a b ly , and n o t
one fo r an o th er, fo r all c o n tra c ts, d e b ts, an d en g ag em e n ts
o f such b a n k to th e e x te n t o f th e a m o u n t o f th e ir su b ­
scrip tio n s to such sto ck a t th e p a r v a lu e th e re o f in a d d i­
tio n to th e a m o u n t su b sc rib ed , w h e th e r su ch su b sc rip ­
tio n s h a v e been p aid u p in w h o le o r in p a rt

u n d e r th e

p ro v isio n s o f th is A c t.
A n y n a tio n a l b a n k fa ilin g to s ig n ify its a c c e p ta n c e o f
th e term s o f th is A c t w ith in th e s ix t y d a y s a fo re sa id ,







340

AN ADVENTURE IN CONSTRUCTIVE FINANCE

sh all cease to a c t as a re se rv e a g e n t, upon t h ir t y d a y s ’
n o tice, to be g iv e n w ith in th e d isc retio n o f th e said o r­
g a n iz a tio n co m m ittee o r o f th e F e d e ra l R e s e r v e B o a rd .
S h o u ld a n y n a tio n a l b a n k in g a sso c iatio n in th e U n ite d
S ta te s n o w o rgan ized fa il w ith in one y e a r a fte r th e p a s­
sage o f th is A c t to becom e a m e m b er b a n k o r fa il to com ­
p ly w ith a n y o f th e p ro v isio n s o f th is A c t a p p lic a b le
th e re to , a ll o f th e rig h ts, p riv ile g e s, and fra n c h ise s o f
su ch a sso c iatio n g ra n te d to it u n d e r th e n a tio n a l-b a n k
A c t, o r u n d e r th e p ro v isio n s o f th is A c t, sh a ll be th e re b y
fo rfe ited . A n y n o n co m p lia n ce w ith o r v io la tio n o f th is
A c t sh a ll, h o w e v e r, be d eterm in ed and a d ju d g e d b y a n y
co u rt o f th e U n ite d S ta te s o f c o m p ete n t ju risd ic tio n in a
su it b ro u g h t fo r t h a t p u rp o se in th e d istric t o r te r r ito r y in
w h ich su ch b a n k is lo c a te d , u n d e r d irec tio n o f th e F e d e ra l
R e s e r v e B o a rd , b y th e C o m p tro lle r o f th e C u rre n c y in
h is ow n n am e b efo re th e a sso c iatio n sh all be d eclared
d isso lved .

In ca ses o f su ch n o n co m p lian ce o r v io la tio n ,

o th e r th a n th e fa ilu re to becom e a m e m b er b a n k u n d er
th e p ro v isio n s o f th is A c t , e v e r y d ire c to r w h o p a rtic ip a te d
in o r a ssen ted to th e sam e sh a ll be h eld lia b le in his p er­
so n al o r in d iv id u a l c a p a c ity fo r all d a m a g e s w h ich said
b an k , its sh a re h o ld e rs, o r a n y o th e r person sh a ll h a v e su s­
ta in ed in co n seq u en ce o f su ch v io la tio n .
S u ch d isso lu tio n sh a ll n o t ta k e a w a y o r im p a ir a n y
re m e d y

a g a in st

such

c o rp o ra tio n , its

sto ck h o ld ers

or

officers, fo r a n y lia b ilit y o r p e n a lty w h ich sh a ll h a v e
been p re v io u sly in cu rred .
S h o u ld th e su b sc rip tio n s b y b a n k s to th e sto ck o f said
F e d e ra l re se rve b a n k s o r a n y one o r m ore o f th em be, in
th e ju d g m e n t o f th e o rg a n iz a tio n co m m ittee , in su fficien t
to p ro v id e th e a m o u n t o f c a p ita l req u ired th e re fo r, th en
and in th a t e v e n t th e said o rg a n iz a tio n co m m ittee m a y ,
u n d er co n d itio n s and re g u la tio n s to be p rescrib ed b y it,

APPENDIX B

341

o ffer to p u b lic su b sc rip tio n a t p a r such an a m o u n t o f sto ck
in said F e d e ra l re se rv e b a n k s, o r a n y one or m o re o f
th em , as said c o m m ittee sh all d e term in e, su b je c t to th e
sam e co n d itio n s as to p a y m e *'" an d sto c k lia b ility as
p ro v id ed fo r m em b er b an k s.
No

in d iv id u a l,

co p a rtn e rsh ip ,

or

c o rp o ra tio n

o th e r

th a n a m e m b er b a n k o f its d is tr ic t sh a ll be p e rm itte d to
su b sc rib e fo r o r to h old a t a n y tim e m ore th a n $ 2 5 ,0 0 0
p a r v a lu e o f sto ck in a n y F e d e ra l re se rv e b an k .

Such

sto c k sh a ll be k n o w n as p u b lic sto c k and m a y be tra n s ­
ferre d on th e b o ok s o f th e F e d e ra l re se rv e b a n k b y the
ch a irm a n o f th e b o erd o f d irec to rs o f su ch b an k .
Sh o u ld th e to ta l su b sc rip tio n s b y b a n k s and th e p u b lic
to th e sto c k o f said F e d e ra l re se rv e b a n k s, o r a n y one or
m o re o f th em , be, in th e ju d g m e n t o f th e o rga n iz atio n
co m m itte e , in su ffic ien t to p ro v id e th e a m o u n t o f c a p ita l
re q u ire d th e re fo r, th en and in th a t e v e n t th e said o rg a n i­
z a tio n c o m m ittee sh a ll a llo t to th e U n ite d S ta te s such an
a m o u n t o f said sto c k as said c o m m ittee sh a ll d eterm in e.
S a id U n ite d S ta te s sto c k sh all be p aid fo r a t p a r o u t o f
a n y m o n e y in th e T r e a s u r y n o t o th e rw ise a p p ro p ria te d ,
an d sh all be h eld b y th e S e c r e ta r y o f th e T r e a s u r y and
d isp osed o f fo r th e b en efit o f th e U n ite d S ta te s in such
m a n n er, a t such tim e s, and a t su ch p rice, n o t less th a n p a r,
as th e S e c r e ta r y o f th e T r e a s u r y sh a ll d e term in e.
S to c k n o t h eld b y m e m b e r b a n k s sh a ll n o t be e n title d
to v o tin g pow er.
T h e F e d e ra l R e s e r v e B o a rd is h e re b y em p ow ered to
a d o p t and p ro m u lg a te ru les and re g u la tio n s g o v e rn in g
th e tra n sfe rs o f said sto ck .
N o F e d e ra l re se rv e b a n k sh a ll co m m en ce b u sin ess w ith
a su b scrib ed c a p ita l less th a n $4,0 0 0 ,0 0 0 .

T h e o rg a n iz a ­

tio n o f re se rv e d istric ts and F e d e ra l re se rv e cities sh all
n o t be co n stru ed as c h a n g in g th e p re sen t s ta tu s o f re se rv e







342

AN ADVENTURE IN CONSTRUCTIVE FINANCE

cities and c e n tra l re se rv e citie s, e x c e p t in so fa r as th is
A c t ch a n g es th e a m o u n t o f re se rv e s t h a t m a y be ca rried
w ith a p p ro v e d re se rv e a g en ts lo ca te d th ere in .

T h e o r­

g a n iz a tio n co m m itte e sh a ll h a v e p o w er to a p p o in t such
a ssista n ts and in c u r such exp en ses in c a rry in g o u t the
p ro v isio n s o f th is A c t as it sh all deem n e c e ssa ry , and such
exp en ses sh all be p a y a b le b y th e T re a s u re r o f th e U n ite d
S ta te s u pon v o u c h e r a p p ro v e d b y th e S e c re ta ry o f th e
T r e a s u r y , and th e sum o f £ 10 0 ,0 0 0 , o r so m u ch th e re o f as
m a y be n e c e ssa ry , is h e re b y a p p ro p ria te d , o u t o f a n y
m o n e y s in th e T r e a s u r y n o t o th e rw ise a p p ro p ria te d , fo r
th e p a y m e n t o f su ch exp en ses.
BRANCH OFFICES
A s amended b y act approved Ju n e 2 1 ,

Sec. 3.

19*7

( 4 ° Sta t., 2 3 2 , chap. 32 ).

T h e F e d e ra l R e s e r v e B o a rd m a y p e rm it or

re q u ire a n y

F e d e ra l re se rv e b a n k to e sta b lish

b ran ch

b a n k s w ith in th e F e d e ra l re se rv e d istr ic t in w h ich it is
lo ca te d

o r w ith in th e d istr ic t o f a n y

F e d e ra l re se rv e

b a n k w h ich m a y h a v e been su sp en d ed .

S u c h b ran c h e s,

s u b je c t to such ru les and re g u la tio n s as th e F e d e ra l R e ­
se rv e B o a rd m a y p re scrib e , sh a ll be o p e ra te d u n d e r th e
su p e rv isio n o f a b o ard o f d ire c to rs to co n sist o f n o t m ore
th a n

seve n n o r less th a n th re e d ire c to rs, o f w h o m

a

m a jo r it y o f one sh a ll be a p p o in ted b y th e F e d e ra l re se rv e
b a n k o f th e d istr ic t, and th e re m ain in g d ire c to rs b y th e
F e d e ra l

R eserve

B o a rd .

D ire c to rs

of

b ran c h

banks

sh a ll h old office d u rin g th e p lea su re o f th e F e d e ra l R e ­
se rv e B o a rd
FEDERAL RESERVE BANKS
A s amended by act approved Ju n e 2 1 , 1 9 1 7 (40 S ta t., 2 3 2 , chap. 32)5
act approved Septem ber 26, 19 18 .

S ec.

4.

W h en th e o rg a n iz a tio n c o m m ittee sh a ll h a v e

esta b lish e d F e d e ra l re se rv e d istr ic ts as p ro v id e d in sec-

I

I

APPENDIX B

343

tio n tw o o f th is A c t , a c e rtific a te sh all be filed w ith th e
C o m p tro lle r o f th e C u rre n c y sh o w in g th e g e o g ra p h ic a l
lim its o f such

d istric ts

and

th e

d e sign a ted in each o f such d istric ts.

F e d e ra l

re se rv e

c ity

T h e C o m p tro lle r o f

th e C u ir e n c y sh all th ereu p o n ca u se to be fo rw a rd e d to
each n a tio n a l b an k lo ca ted in each d istric t, and to such
o th e r b an k s d eclared to be e lig ib le b y th e o rg a n iz atio n
co m m ittee

w h ich

m ay

a p p ly

th e re fo r,

an

ap p lica tio n

b la n k in form to be a p p ro v e d b y th e o rg a n iz atio n com ­
m itte e , w h ich

b la n k

sh all

co n ta in

a reso lu tio n

to

be

ad o p ted b y th e b o ard o f d irec to rs o f each b an k ex e cu tin g
such a p p lic a tio n , a u th o riz in g a su b sc rip tio n to th e ca p i­
ta l sto ck o f th e f e d e r a l re se rv e b an k o rg a n iz in g in th a t
d istr ic t in a cco rd a n ce w ith th e p ro v isio n s o f th is A c t.
W h en th e m in im u m a m o u n t o f c a p ita l sto ck p rescrib ed
b y th is A c t fo r th e o rg a n iz a tio n o f a n y F e d e ra l re se rve
b a n k sh all h a v e been su b sc rib ed an d a llo tte d , th e o rg a n i­
z a tio n c o m m ittee sh all d e sig n a te a n y fiv e b an k s o f th ose
w h ose a p p lic a tio n s h a v e been re ce iv e d , to e x e cu te a cer­
tific a te o f o rg a n iz a tio n , and th ereu p o n th e b an k s so deslg n a ted sh a ll, u n d er th e ir sea ls, m a k e an o rg a n iz atio n
c e rtific a te w h ich sh all sp e c ific a lly sta te th e n am e o f such
F e d e ra l re se rve b a n k , th e te rrito ria l e x te n t o f th e d istric t
o v e r w h ich th e o p e ra tio n s o f such F e d e ra l re se rv e b a n k
are to be ca rried on, th e c it y and S ta te in w h ich said b an k
is to be lo ca ted , th e a m o u n t o f c a p ita l sto ck and th e n u m ­
b er o f sh a re s in to w h ich th e sam e is d iv id e d , th e n am e
and p lac e o f d o in g b u sin ess o f each b an k e x e cu tin g such
c e rtific a te , and o f all b an k s w h ich h a v e su b scrib ed to th e
c a p ita l sto ck o f such F e d e ra l re se rv e b a n k and th e n u m ­
b er o f sh a re s su b scrib ed b y each , and th e fa c t th a t th e
c e rtific a te is m a d e to en a b le th ose b a n k s e x e c u tin g sam e,
an d all b an k s w h ich h a v e su b sc rib ed o r m a y th e re a fte r
su b sc rib e to th e c a p ita l sto ck o f su ch F e d e ra l reserve







344

AN ADVENTURE IN CONSTRUCTIVE FINANCE

b a n k , to

a v a il th e m se lv e s o f th e

a d v a n ta g e s o f th is

A c t.
T h e said o rg a n iz a tio n c e rtific a te sh a ll be a ck n o w led ge d
befo re a ju d g e o f som e c o u rt o f reco rd o r n o ta r y p u b lic ;
and sh all be, to g e th e r w ith th e a c k n o w le d g m e n t th e re o f,
a u th e n tic a te d
tra n s m itte d

by

th e

seal o f su ch

co u rt, o r

n o ta r y ,

to th e C o m p tro lle r o f th e C u rre n c y , w h o

sh a ll file, reco rd and c a re fu lly p re se rv e th e sam e in h is
office.
U p o n th e filin g o f such c e rtific a te w ith th e C o m p tro lle r
o f th e C u rre n c y as a fo re sa id , th e said F e d e ra l re se rv e b a n k
sh all becom e a b o d y c o rp o ra te , and as su ch , and in th e
n a m e d e sig n a te d in su ch o rg a n iz a tio n c e rtific a te , sh all
h a v e p o w er—
F ir s t . T o a d o p t and use a c o rp o ra te seal.
S econ d . T o h a v e su ccession fo r a period o f tw e n ty
y e a r s fro m its o rg a n iz atio n u n less it is sooner d isso lv ed b y
an A c t o f C o n g re ss, o r u n less its fran c h ise becom es fo rfe ited
b y som e v io la tio n o f la w .
T h ir d . T o m a k e c o n tra c ts.
F o u rth . T o sue and be su ed , co m p la in an d d e fen d , in
a n y co u rt o f la w o r e q u ity .
F ift h . T o a p p o in t b y its b o ard o f d irec to rs su ch officers
and e m p lo y e es as are n o t o th e rw ise p ro v id ed fo r in th is
A c t, to define th e ir d u tie s, re q u ire bon d s o f th em and fix
th e p e n a lty th ere o f, and to d ism iss a t p lea su re such offi­
cers o r em p lo y e es.
S ix th . T o p re scrib e b y its b o ard o f d ire c to rs, b y -la w s
n o t in c o n siste n t w ith la w , re g u la tin g th e m a n n er in w h ich
its g e n e ra l b u sin ess m a y be co n d u cted , and th e p riv ile g e s
g ra n te d to it b y la w m a y be exercised and e n jo y e d .
S e v e n th . T o exercise b y its b o ard o f d irec to rs, o r d u ly
a u th o riz ed

officers

or

a g e n ts,

all

p ow ers

sp e c ific a lly

g ra n te d b y th e p ro visio n s o f th is A c t and such in c id e n tal

APPENDIX B

345

p ow ers as sh all be n e c e ssa ry to c a r r y on th e business o f
b a n k in g w ith in th e lim ita tio n s p rescrib ed b y th is A c t.
E ig h t h .1

U pon

d e p o sit

w ith

th e

T re a s u re r

o f th e

U n ited S ta te s o f a n y bonds o f th e U n ite d S ta te s in th e
m a n n e r p ro v id e d

b y e x istin g la w

re la tin g to n a tio n a l

b a n k s, to re ceive fro m th e C o m p tro lle r o f th e C u rre n c y
c irc u la tin g n o tes in b la n k , re gistere d and co u n tersign ed
as p ro v id ed b y la w , e q u a l in am o u n t to th e p a r v a lu e o f
th e bonds so d e p o sited , such n o tes to be issu ed in d er the
sam e co n d itio n s and p ro v isio n s o f la w as re la te to the
issu e o f c irc u la tin g n o tes o f n a tio n a l b an k s secured b y
bonds o f th e U n ite d S ta te s b ea rin g th e circ u la tin g p riv ileg e, e x c e p t th a t th e issu e o f such n o tes sh all n o t be
lim ite d to th e c a p ita l sto ck o f such F e d e ra l re se rv e b an k .
B u t no F e d e ra l re se rv e b an k sh all tra n s a c t a n y b u si­
ness e x c e p t such as is in c id e n ta l and n e c e ssa rily p re lim i­
n a r y to its o rg a n iz a tio n u n til it h as been au th o rized b y
th e C o m p tro lle r o f th e C u rre n c y to com m en ce business
u n d e r th e p ro v isio n s o f th is A c t.
E v e r y F e d e ra l re se rv e b a n k sh a ll be co n d u cted u n d er
th e su p e rv isio n and co n tro l o f a b o ard o f d irec to rs.
T h e b o ard o f d ire c to rs sh all p erfo rm th e d u tie s u s u a lly
a p p e rta in in g to th e office o f d ire c to rs o f b a n k in g asso cia ­
tio n s and all such d u tie s as are p rescrib ed b y law .
S a id b o ard sh a ll a d m in iste r th e a ffa irs o f said b an k
f a ir ly

and

im p a r tia lly

and

w ith o u t

d isc rim in atio n

in

fa v o r o f o r a g a in st a n y m e m b er b a n k o r b a n k s and sh a ll,
s u b je c t to th e p ro v isio n s o f la w and th e o rd ers o f th e
F e d e ra l R e s e r v e

B o a rd , ex te n d

to each m e m b er b a n k

such d isc o u n ts, a d v a n c e m e n ts, and a cco m m o d a tio n s as
iS e c s e c t .c n 1 8 .

A ls o se c . 5 o f a c t a p p r o v e d A p r .

23, 1 9 1 8 . a u th o r iz in g is su a n c e o f
$ 1 an d $2) a g a in s t se­

f e d e r a l R e s e r v e B a n k n o te s in a n y d e n o m in a tio n s ( in c lu d in g

c u r it y o f U n ite d S t a t e s c e r tific a t e s o f in d e b te d n e s s, o r o f U n ite d S t a t e s o n e - y e a r gold
n o te s .
>
*







346

AN ADVENTURE IN CONSTRUCTIVE FINANCE

m a y be s a fe ly and re a so n a b ly m ad e w ith du e regard for
th e claim s and d e m a n d s o f o th e r m em b er b a n k s.
S u ch b o ard o f d irec to rs sh all be selected as h e re in a fte r
specified and sh a ll co n sist o f nine m em b ers, h old in g office
fo r th ree y e a rs , and d iv id e d in to th ree classes, d e sig n a ted
as classes A , B , an d C .
C la s s A sh all co n sist o f th ree m em b ers, w h o sh a ll be
chosen b y

and

be re p re s e n ta tiv e

o f th e sto ck h o ld in g

b an k s.
C la s s B sh all co n sist o f th ree m em b ers, w h o a t th e tim e
o f th e ir election sh all be a c t iv e ly en gaged in th e ir d istric t
in co m m erce, a g ric u ltu re , o r som e o th e r in d u stria l p u rsu it.
C la s s C sh all co n sist o f th ree m em b ers w h o sh all be
d e sig n a ted b y th e F e d e ra l R e s e rv e B o a rd .

W h en the

n e c e ssa ry su b sc rip tio n s to th e c a p ita l sto ck h a v e

been

o b tain e d fo r th e o rg a n iz a tio n o f a n y F e d e ra l re se rv e b a n k ,
th e F e d e ra l R e s e r v e

B o a rd

sh all a p p o in t th e cla ss C

d irec to rs and sh a ll d e sig n a te one o f such d irec to rs as
ch a irm a n

o f th e

b o ard

to

be

selected .

P en d in g

th e

d e sig n a tio n o f su ch ch a irm a n , th e o rg a n iz a tio n co m m ittee
sh all exercise th e p o w ers and d u tie s a p p e rta in in g to th e
office o f ch a irm a n in th e o rg a n iz a tio n o f su ch F e d e ra l
re se rv e b an k .
N o S e n a to r o r R e p r e s e n ta tiv e in C o n g re ss sh all be a
m e m b er o f th e F e d e ra l R e s e r v e B o a rd o r an officer o r a
d ire c to r o f a F e d e ra l re se rv e b an k .
N o d ire c to r o f c la ss B sh a ll be an o fficer, d ire c to r, o r
e m p lo y e e o f a n y b a n k .
N o d ire c to r o f cla ss C sh all be an officer, d ire c to r, em ­
p lo yee, o r sto ck h o ld e r o f a n y b an k .
D ire c to rs o f cla ss A and cla ss B sh a ll be ch osen in th e
fo llo w in g m a n n e r:
T h e F e d e ra l R e s e r v e B o a rd sh a ll c la s s ify th e m em b er
b an k s o f th e d istric t in to th ree g e n era l g ro u p s o r d iv i­

APPENDIX B
sions, d e sig n a tin g each g ro u p b y n u m b er.

347

E a c h g ro u p

sh all co n sist as n e a rly as m a y be o f b an k s o f sim ila r c a p i­
ta liz a tio n .

Each

m e m b er b a n k sh all be p e rm itte d

to

n o m in a te to th e ch a irm a n o f th e b o ard o f d irec to rs o f
th e F e d e ra l re se rv e b a n k o f th e d istric t one c a n d id a te fo r
d ire c to r o f cla ss A an d one ca n d id a te fo r d ire c to r o f class
B.

T h e ca n d id a te s so n o m in a ted sh a ll be listed b y th e

c h a irm a n , in d ic a tin g b y w h om n o m in a te d , and a c o p y o f
said list sh a ll, w ith in fifte en d a y s a fte r its co m p letio n , be
fu rn ish ed b y th e ch a irm a n to each m em b er b an k .

E ach

m em b er b an k b y a reso lu tio n o f th e board o r b y an
a m en d m en t to its b y -la w s sh all a u th o riz e its p resid en t,
ca sh ier, o r som e o th e r o fficer to c a st th e v o te o f th e m em ­
b e r b a n k in th e ele ctio n s o f cla ss A and class B d irecto rs.
W ith in fifte en d a y s a fte r re ce ip t o f th e list o f ca n d id a tes
th e d u ly a u th o rized officer o f a m e m b er b a n k sh all c e rtify
to th e ch a irm a n h is first, seco n d , and o th e r choices fo r
d ire c to r o f cla ss A

and cla ss B , re sp e c tiv e ly , upon a

p re fe re n tia l b a llo t u pon a fo rm fu rn ish ed b y th e ch a irm a n
o f th e b o ard o f d irec to rs o f th e F e d e ra l re se rv e b an k o f th e
d istric t.

E a c h such officer sh a ll m a k e a cross o p p o site

th e n a m e o f th e first, seco n d , and o th e r choices fo r a
d ire c to r o f cla ss A and fo r a d ire c to r o f cla ss B , b u t sh all not
v o te m ore th a n one ch oice fo r a n y one c a n d id a te .

No

o fficer o r d ire c to r o f a m em b er b a n k sh a ll be e lig ib le to
se rv e as a cla ss A d ire c to r u n less n o m in a ted and elected
b y b a n k s w h ich are m e m b ers o f th e sam e g ro u p as th e
m em b er b a n k o f w h ich he is an o fficer o r d irec to r.
A n y person w h o is an o fficer o r d ire c to r o f m ore th a n one
m e m b er b a n k sh a ll n o t be elig ib le fo r n o m in a tio n

as

a cla ss A d ire c to r e x c e p t b y b a n k s in th e sam e g ro u p as
th e b a n k h a v in g th e la rg e s t a g g re g a te reso u rces o f a n y
o f th ose o f w h ich such p erson is an o fficer o r d ire c to r.
A n y c a n d id a te h a v in g a m a jo r it y o f a ll v o te s c a s t in







348

AN ADVENTURE IN CONSTRUCTIVE FINANCE

th e colum n o f first ch oice sh a ll be d e cla red elected .

If

no c a n d id a te h a v e a m a jo r it y o f all th e v o te s in th e first
co lu m n , th en th ere sh a ll be ad d ed to g e th e r th e v o te s c a st
b y th e electo rs fo r su ch ca n d id a te s in th e second colu m n
and th e v o te s c a s t fo r th e se v e ra l ca n d id a te s in th e first
co lu m n .

I f a n y c a n d id a te th en h a v e a m a jo r it y o f th e

electo rs v o tin g , b y a d d in g to g e th e r th e first an d second
ch oices, he sh all be d e cla red ele cted .

I f no c a n d id a te

h a v e a m a jo r ity o f ele cto rs v o tin g w h en th e first and
second ch oices sh all h a v e been a d d ed , th en th e v o te s c a st
in th e th ird colu m n fo r o th e r ch oices sh a ll be ad d ed to­
g e th e r in lik e m a n n er, and th e c a n d id a te th en h a v in g th e
h ig h e st n u m b er o f v o te s sh all be d e cla red ele cted .

An

im m e d ia te re p o rt o f electio n sh a ll be d eclared .
C la s s C d irec to rs sh all be ap p o in ted b y th e F e d e ra l
R e s e rv e B o a rd .

T h e y sh all h a v e been fo r a t le a st tw o

y e a rs re sid en ts o f th e d istr ic t fo r w h ich th e y a re a p ­
p o in ted , one o f w h o m sh a ll be d e sig n a ted b y said b o ard
as ch a irm a n o f th e b o ard o f d ire c to rs o f th e F e d e ra l
re se rv e b an k and as “ F e d e ra l re se rv e a g e n t.”

H e sh all

be a person o f teste d b a n k in g ex p e rien c e, and in a d d itio n
to his d u tie s as ch a irm a n o f the b o ard o f d ire c to rs o f th e
F e d e ra l re se rv e b a n k he sh all be re q u ired to m a in ta in ,
u n d er re g u la tio n s to be e sta b lish e d b y th e F e d e ra l R e ­
serv e B o a rd , a lo ca l office o f said b o a rd on th e p rem ises
o f th e F e d e ra l re se rv e

b an k .

He

sh a ll

m ake

re g u la r

re p o rts to th e F e d e ra l R e s e rv e B o a rd and sh all a ct as its
o fficial re p re se n ta tiv e fo r th e p e rfo rm an c e o f th e fu n c tio n s
co n ferred upon it b y th is a ct.

H e sh all re ceive an a n n u al

co m p en satio n to be fixed b y th e F e d e ra l R e s e r v e B o a rd
and p aid m o n th ly b y th e F e d e ra l re se rv e b an k to w h ich
he is d e sig n a ted .
a p p o in ted

by

O ne o f th e d irec to rs o f cla ss C sh all be

th e

F e d e ra l

R eserve

B o a rd

as

d e p u ty

ch a irm a n to ex e rcise th e p ow ers o f th e ch a irm a n o f th e

APPENDIX B
b o ard w h en n e c e ssa ry .

349

In case o f th e a b se n ce o f th e

c h a irm a n and d e p u ty c h a irm a n , th e th ird -c la ss C d ire c to r
sh a ll p resid e a t m e etin g s o f th e b o ard .
S u b je c t to th e a p p ro v a l o f th e F e d e ra l R e s e r v e B o a rd
th e

F e d e ra l re se rv e

a ssista n ts.

Such

a g e n t sh a ll a p p o in t o n e o r m o re

a ss is ta n ts ,

who

sh a ll

be

p erson s

of

teste d b a n k in g ex p erien ce, sh a ll a ss is t th e F e d e ra l rese rve
a g e n t in th e p e rfo rm an c e o f h is d u tie s and sh all also h a v e
p o w e r to a c t in h is n a m e and stea d d u rin g his absence
o r d isa b ility .

T h e F e d e r a l R e s e r v e B o a rd sh all req u ire

such bonds o f th e a ss is ta n t F e d e ra l re se rv e a gen ts as it
m a y deem n e c e ssa ry fo r th e p ro te ctio n o f th e U n ited
S ta te s . A ss is ta n ts to th e F e d e ra l re se rv e a g en t shall
re ce iv e an a n n u a l c o m p en sa tio n , to be fixed and p aid in
th e sam e m a n n e r as th a t o f th e F e d e ra l re se rv e agen t.
D ire c to rs o f F e d e ra l re se rv e b a n k s sh a ll re ce iv e , in
a d d itio n to a n y co m p en sa tio n o th e rw ise p ro v id e d , a
re aso n ab le a llo w a n ce fo r n e c e ssa ry exp en ses in a tte n d in g
m eetin g s o f th e ir re sp e c tiv e b o ard s, w h ich a m o u n t sh all
be p a id b y th e re sp e c tiv e F e d e ra l re se rv e b an k s.

Any

co m p en sa tio n th a t m a y be p ro v id ed b y b o ard s o f d ire c to rs
o f F e d e ra l re se rv e b a n k s fo r d ire c to rs, o fficers, o r em ­
p lo yees sh all be s u b je c t to th e a p p ro v a l o f th e F e d e ra l
R e s e rv e B o a rd .
T h e R e s e rv e B a n k O rg a n iz a tio n C o m m itte e m a y , in
o rg a n iz in g F e d e ra l re se rv e b a n k s, ca ll su ch m e etin g s o f
b a n k d irec to rs in th e se v e ra l d istric ts as m a y be n e c e ssa ry
to c a r r y o u t th e p u rp o ses o f th is A c t , and m a y exercise
th e fu n ctio n s h erein co n ferred u pon th e ch a irm a n o f th e
b o ard o f d irec to rs o f each F e d e ra l re se rv e b a n k pen d in g
th e co m p le te o rg a n iz a tio n o f such b an k .
A t th e first m e etin g o f th e fu ll b o ard o f d irec to rs o f each
F e d e ra l re se rve b a n k , it sh all be th e d u t y o f the d irec to rs
o f classes A , B , and C , re sp e c tiv e ly , to d e sig n a te one o f th e







350

AN ADVENTURE IN CONSTRUCTIVE FINANCE

m e m b ers o f each cla ss w h ose term o f office sh all ex p ire
in one y e a r from th e first o f J a n u a r y n e a re st to d a te o f
such m e etin g , one w h ose term o f office sh all ex p ire a t th e
end o f tw o y e a r s from said d a te , and one w h ose term o f
office sh all ex p ire a t th e end o f th ree y e a rs from said d a te.
T h e r e a fte r

ev ery

d ire c to r

of a

F e d e ra l

re se rv e

bank

chosen as h ere in b e fo re p ro v id ed sh all h old office fo r a
term o f th ree y e a rs .

V a c a n c ie s th a t m a y o cc u r in the

se v e ra l classes o f d ire c to rs o f F e d e ra l re se rv e b a n k s m a y
be filled in th e m a n n e r p ro v id e d fo r th e o rig in a l selection
o f such d ire c to rs, su ch a p p o in tee s to hold office fo r the
u n exp ired term s o f th e ir p red ecesso rs.
STOCK ISSUES; INCREASE AND DECREASE OF CAPITAL

Sec. 5.

T h e c a p ita l sto c k o f each F e d e ra l re se rv e b a n k

sh all be d iv id e d

in to sh a re s o f $ 1 0 0

each .

T h e o u t­

s ta n d in g c a p ita l sto c k sh a ll be in crea sed from tim e to
tim e as m em b er b a n k s in crea se th e ir c a p ita l sto ck and
su rp lu s o r as a d d itio n a l b a n k s b ecom e m e m b ers, and
m a y be d ecreased as m e m b er b a n k s red u ce th e ir c a p ita l
sto ck o r su rp lu s o r cease to be m em b ers.

S h a re s o f th e

c a p ita l sto ck o f F e d e ra l re se rv e b a n k s o w n ed b y m em b er
b a n k s sh all n o t be tra n sfe rre d o r h y p o th e c a te d .

W h en

a m em b er b a n k in c rea ses its c a p ita l sto c k o r su rp lu s,
it sh all th ere u p o n su b sc rib e fo r an a d d itio n a l a m o u n t
o f c a p ita l sto c k o f th e F e d e r a l re se rv e b a n k o f its

d is­

tric t eq u a l to six p e r ce n tu m o f th e said in crea se, oneh a lf o f said su b sc rip tio n to be p aid in th e m a n n e r h ere in ­
b efo re p ro v id e d

fo r o rig in a l su b sc rip tio n , and o n e -h a lf

s u b je c t to c a ll o f th e F e d e ra l R e s e r v e B o a rd .

A bank

a p p ly in g fo r sto c k in a F e d e ra l re se rv e b a n k a t a n y
tim e a fte r th e o rg a n iz a tio n th e re o f m u st su b sc rib e fo r
an a m o u n t o f th e c a p ita l sto c k o f th e F e d e ra l re se rv e
b a n k e q u a l to six p e r ce n tu m

o f th e p a id -u p c a p ita l

APPENDIX B

351

sto ck and su rp lu s o f said a p p lic a n t b a n k , p a y in g th e re fo r
its p a r v a lu e p lu s o n e -h a lf o f one p er cen tu m a m on th
fro m th e period o f th e la s t d iv id e n d .

W h en th e c a p ita l

sto c k o f a n y F e d e ra l re se rv e b an k sh a ll h a v e been in ­
creased eith e r on acco u n t o f th e in crease o f c a p ita l sto ck
o f m em b er b an k s o r on acco u n t o f th e in crease in the
n u m b e r o f m em b er b an k s, th e b o ard o f d irec to rs shall
ca u se to be ex e cu ted a c e rtific a te to th e C o m p tro lle r o f
th e C u rre n c y sh o w in g th e

n cre a se in c a p ita l sto c k , th e

a m o u n t p aid in , and b y w h o m p a id .

W h en a m em b er

b a n k red u ces its c a p ita l sto ck it sh a ll su rren d er a p ro ­
p o rtio n a te a m o u n t o f its h old in gs in th e c a p ita l o f said
F e d e ra l re se rv e b a n k , and w h en a m e m b er b an k v o lu n ­
t a r ily liq u id a te s it sh all su rren d er all o f its h old in gs o f
th e c a p ita l sto c k o f said F e d e ra l re se rv e b an k and be
released fro m its sto c k su b sc rip tio n n o t p re v io u sly called .
I n e ith e r ca se th e sh a re s su rren d ere d sh all be can celled
an d th e m e m b er b a n k sh all re ce iv e in p a y m e n t th e re fo r,
u n d e r re g u la tio n s to be p re scrib ed b y th e F e d e ra l R e ­
se rv e B o a rd , a sum eq u a l to its ca sh -p aid su b sc rip tio n s on
th e sh a re s su rren d ere d and o n e -h a lf o f one p e r cen tu m a
m o n th fro m th e period o f th e la s t d iv id e n d , n o t to exceed
th e b ook v a lu e th e re o f, less a n y lia b ilit y o f su ch m em b er
b a n k to th e F e d e ra l re se rv e b an k .
S e c . 6.

I f a n y m e m b er b a n k sh a ll be d e cla red in so l­

v e n t and a re c e iv e r a p p o in ted th e re fo r, th e sto ck held
b y it in said F e d e ra l re se rv e b a n k sh a ll be ca n ce lle d , w ith ­
o u t im p a irm e n t o f its lia b ility , and

all c a sh -p aid su b ­

scrip tio n s on said sto c k , w ith o n e -h a lf o f one p e r cen tu m
p e r m o n th from th e p erio d o f la s t d iv id e n d , n o t to exceed
th e b ook v a lu e th e re o f, sh a ll be first a p p lied to all d e b ts
o f th e in so lv e n t m e m b er b a n k to th e F e d e ra l re se rv e
b a n k , and th e b ala n ce, i f a n y , sh a ll be p a id to th e re­
c e iv e r

o f th e




in so lv e n t

bank.

W henever

th e

c a p ita l




352

AN ADVENTURE IN CONSTRUCTIVE FINANCE

sto ck o f a F e d e ra l re se rv e b a n k is red u ced , e ith e r on
acco u n t o f a re d u ctio n in c a p ita l sto c k o f a n y m em b er
b a n k o r o f th e liq u id a tio n o r in s o lv e n c y o f su ch b a n k ,
th e b o ard o f d irec to rs sh a ll ca u se to be ex e cu ted a cer­
tific a te to th e C o m p tro lle r o f th e C u rre n c y sh o w in g su ch
re d u ctio n o f c a p ita l sto c k and th e a m o u n t re p aid to such
b an k .
DIVISION OF EARNINGS
A s amended b y act approved M arch 3, 19 19 .
S ec.

7.

A ft e r

all

n e c e ssa ry

exp en ses

of a

F e d e ra l

re se rv e b a n k h a v e been p aid o r p ro v id ed fo r, th e sto c k ­
h old ers sh all be e n title d to re ce iv e an a n n u a l d ivid e n d
o f six p e r cen tu m on th e p a id -in c a p ita l sto c k , w h ich
d iv id e n d sh all be c u m u la tiv e .

A ft e r th e a fo re sa id d iv i­

dend cla im s h a v e been fu lly m e t, th e n et ea rn in g s sh all
be p a id to th e U n ite d S ta te s as a fra n c h ise t a x ex c e p t
th a t th e w h ole o f such n et e a rn in g s, in c lu d in g th ose fo r
th e y e a r en d in g D e c e m b e r th irty -firs t, n in eteen h u n d red
and eigh teen , sh a ll be p a id in to a su rp lu s fu n d u n til it
sh all a m o u n t to one h u n d red p e r cen tu m o f th e su bscrib ed
c a p ita l sto ck o f such b a n k , and th a t th e re a fte r ten per
cen tu m o f such n et ea rn in g s sh a ll be p a id in to th e su rp lu s.
T h e net e a rn in g s d e riv e d b y th e U n ite d S ta te s from
F e d e ra l

re se rv e

banks

sh a ll,

in

th e

d iscretio n

o f th e

S e c re ta ry , be u sed to su p p lem e n t th e go ld re se rve held
a g a in st o u ts ta n d in g

U n ited

S ta te s

n o tes,

o r sh all

be

a p p lied to th e re d u ctio n o f th e o u tsta n d in g bonded in ­
d e b ted n e ss

of

th e U n ite d

S ta te s

u n d e r re g u la tio n s to

be p re scrib ed b y th e S e c r e ta r y o f th e T r e a s u r y . Sh ou ld
a F e d e ra l re se rv e b a n k be d isso lv ed o r go in to liq u id a tio n ,
a n y su rp lu s re m a in in g , a fte r th e p a y m e n t o f all d e b ts,
d iv id e n d re q u irem e n ts as h ere in b e fo re p ro v id e d , and the
p a r v a lu e o f th e sto ck , sh all be p aid to and becom e th e

p ro p e rty o f th e U n ite d S ta te s and sh a ll be s im ila rly a p p lied .
F e d e ra l re se rv e b a n k s, in c lu d in g th e c a p ita l sto c k and
su rp lu s th ere in , and th e in com e d e riv e d th e re fro m sh a ll
be e x e m p t fro m F e d e ra l, S t a t e , an d lo ca l ta x a tio n , e x c e p t
ta x e s u p o n re a l e sta te .
Sec. 8.

S e c tio n

fifty -o n e

h u n d red

an d

fifty -fo u r,

U n ite d S ta te s R e v is e d S t a t u t e s , is h e re b v am en d ed to read
as fo llo w s:
A n y b a n k in c o rp o ra te d b y sp ec ia l la w o f a n y S t a t e
o r o f th e U n ite d S ta te s o r o rga n iz ed u n d e r th e g e n era l
la w s o f a n y S t a t e o r o f th e U n ite d S ta te s and h a v in g an
u n im p a ire d c a p ita l su fficien t to e n title it to becom e a
n a tio n a l b a n k in g a sso c ia tio n u n d e r th e p ro v isio n s o f th e
e x istin g la w s m a y , b y th e v o te o f th e sh a re h o ld e rs o w n in g
n o t less th a n fifty -o n e p e r ce n tu m o f th e c a p ita l sto ck o f
such

b a n k o r b a n k in g

a sso c ia tio n , w ith

th e

a p p ro v a l

o f th e C o m p tro lle r o f th e C u rre n c y be c o n v e rte d in to a
n a tio n a l b a n k in g a sso c ia tio n , w ith a n y n am e a p p ro v e d
b y th e C o m p tro lle r o f th e C u r r e n c y :

Provided, however, T h a t said c o n ve rsio n sh a ll n o t be in
co n tra v e n tio n o f th e S t a t e la w .

In such case th e a rtic le s

o f a sso c iatio n an d o rg a n iz a tio n c e rtific a te m a y be e x e ­
cu ted b y a m a jo r it y o f th e d ire c to rs o f th e b a n k o r b a n k ­
in g

in stitu tio n ,

and

th e

c e rtific a te

sh a ll

d e cla re

th a t

th e ow n ers o f fifty -o n e p e r cen tu m o f th e c a p ita l sto ck
h a v e au th o riz ed th e d ire c to rs to m a k e such c e rtific a te
and to ch a n ge o r c o n v e rt th e b a n k o r b a n k in g in stitu tio n
in to a n a tio n a l a sso c iatio n .

A m a jo r it y o f th e d ire c to rs,

a fte r e x e c u tin g th e a rtic le s o f a sso c ia tio n and th e o rg a n i­
zatio n c e rtific a te , sh all h a v e p o w e r to ex e cu te a ll o th e r
p a p ers and to do w h a te v e r m a y be re q u ired to m a k e its
o rg a n iz a tio n p e rfe c t and co m p le te as a n a tio n a l a sso c ia ­
tio n .

T h e sh a re s o f a n y such b a n k m a y co n tin u e to be

fo r th e sam e a m o u n t each as th e y w ere befo re th e con-







354

AN a d v e n t u r e in c o n s t r u c t i v e f i n a n c e

v e rsio n , and th e d irec to rs m a y co n tin u e to be d irec to rs
o f th e a sso c iatio n u n til o th e rs are elected o r ap p o in ted in
a cco rd a n ce w ith th e p ro v isio n s o f th e s ta tu te s o f th e
U n ite d

S ta te s .

W h en

th e

C o m p tro lle r

h as

g iv e n

to

su ch b a n k o r b a n k in g a sso c iatio n a c e rtific a te t h a t th e
p ro v isio n s o f th is A c t h a v e been co m p lied w ith , such
b a n k o r b a n k in g a sso c iatio n , and a ll its sto ck h o ld ers,
officers, and em p lo y e es, sh all h a v e th e sam e p ow ers and
p riv ile g e s, and sh all be su b je c t to th e sam e d u tie s, lia b il­
itie s, and re g u la tio n s, in all re sp e cts, as sh a ll h a v e been
p rescrib ed b y th e F e d e ra l R e s e r v e A c t an d b y th e n a tio n a l
b a n k in g

A ct

fo r

a sso c iatio n s

o rig in a lly

o rga n iz ed

as

n a tio n a l b a n k in g a sso c ia tio n s.

STATE BANKS AS MEMBERS
A s amended b y act approved Ju n e 2 1 , 19 17 Sec.

9.

(4° S ta t., 2 3 2 , chap. 32 .)

A n y b a n k in c o rp o ra te d b y sp ec ia l la w o f a n y

S t a t e , o r o rga n iz ed u n d e r th e g e n e ra l la w s o f a n y S ta te
o r o f th e U n ite d S ta te s , d e sirin g to b ecom e a m em b er
o f th e F e d e ra l R e s e rv e S y s te m , m a y m a k e a p p lic a tio n
to th e

F e d e ra l R e s e r v e

B o a rd , u n d e r su ch

ru les and

re g u la tio n s as it m a y p re scrib e , fo r th e rig h t to su b scrib e
to th e sto ck o f th e F e d e ra l re se rv e b a n k o rgan ized w ith in
th e d istric t in w h ich th e a p p ly in g b a n k is lo c a te d .

S u ch

a p p lic a tio n sh a ll be fo r th e sam e a m o u n t o f sto c k th a t
th e a p p ly in g b a n k w o u ld be re q u ired to su b sc rib e to as
a n a tio n a l b a n k .

T h e F e d e ra l R e s e r v e B o a r d , su b je c t

to such co n d itio n s as it m a y p re sc rib e , m a y p e rm it th e
a p p ly in g b a n k to b ecom e a s to c k h o ld e r o f su ch F e d e ra l re­
se rv e b a n k .
In a c tin g u p o n su ch a p p lic a tio n s th e F e d e ra l R e s e r v e
B o a rd sh a ll co n sid er th e fin a n c ia l co n d itio n o f th e a p p ly ­
in g b a n k , th e g e n e ra l c h a ra c te r o f its m a n a g e m e n t, and

APPENDIX B

355

w h e th e r o r n o t th e c o rp o ra te p ow ers exercised a re con­
siste n t w ith th e p u rp o ses o f th is a ct.
W h e n e v e r th e F e d e ra l R e s e r v e B o a rd sh a ll p e rm it th e
a p p ly in g b a n k to becom e a sto ck h o ld e r in th e F e d e ra l
re se rv e b a n k o f th e d istr ic t its sto ck su b sc rip tio n sh all
be p a y a b le on ca ll o f th e F e d e ra l R e s e rv e B o a rd , and
sto c k issu ed to it sh a ll be h eld s u b je c t to th e p ro visio n s
o f th is act.
A ll b a n k s a d m itte d to m em b ersh ip u n d e r a u th o rity o f
th is section sh a ll be re q u ired to c o m p ly w ith th e re se rve
and c a p ita l re q u ire m e n ts o f th is a c t and to con form to
th ose p ro v isio n s o f la w im p osed on n a tio n a l b a n k s w h ich
p ro h ib it such b a n k s fro m len d in g on o r p u rc h a sin g th eir
ow n sto ck , w h ich re la te to th e w ith d ra w a l o r im p a irm e n t
o f th e ir c a p ita l sto c k , and w h ich re la te s to th e p a y m e n t
o f u n earn ed

d iv id e n d s.

Su ch

banks

and

th e o fficers,

a g e n ts, and em p lo y e es th e re o f shall also be su b je c t to th e
p ro v isio n s o f and to th e p e n alties p rescrib ed b y sectio n
fifty -tw o h u n d red and nine o f th e R e v is e d S ta tu te s , and
sh a ll be req u ired to m a k e re p o rts o f co n d itio n and o f th e
p a y m e n t o f d iv id e n d s to th e F e d e ra l re se rv e b a n k o f
w h ich th e y becom e a m em b er.

N o t less th a n th re e o f

such re p o rts sh all be m a d e a n n u a lly on ca ll o f the F e d e ra l
re se rv e b a n k on d a te s to be fixed b y th e F e d e ra l R e s e r v e
B o a rd .

F a ilu r e to m a k e such re p o rts w ith in ten d a y s

a fte r th e d a te th e y are ca lle d fo r sh all su b je c t th e o ffe n d ­
in g b a n k to a p e n a lty o f # 10 0 a d a y fo r each d a y t h a t it
fa ils to tra n s m it su ch re p o rt; such p e n a lty to be co llected
b y th e F e d e ra l re se rv e b a n k b y su it o r o th erw ise.
A s a co n d itio n o f m e m b ersh ip su ch b an k s sh a ll lik ew ise
be s u b je c t to e x a m in a tio n s m ad e b y d irec tio n o f th e F e d ­
e ra l R e s e r v e B o a rd o r o f th e F e d e ra l re se rv e b a n k b y
ex a m in e rs selected o r a p p ro v e d b y th e F e d e ra l R e s e r v e
B o a rd .







356

AN ADVENTURE IN CONSTRUCTIVE FINANCE

W h e n e v e r th e d irec to rs o f th e F e d e ra l rese rve b an k
sh all a p p ro v e th e e x a m in a tio n s m ad e b y th e S ta te a u th o r­
itie s, such e x a m in a tio n s and th e re p o rts th e re o f m a y be
acce p ted

in

lieu

o f e x a m in a tio n s

m ad e

by

e x a m in ers

selected o r a p p ro v e d b y th e F e d e ra l R e s e r v e B o a r d : Pro­

vided, however, T h a t w h en it deem s it n e c e ssa ry th e b o ard
m a y o rd e r sp ec ia l e x a m in a tio n s b y ex a m in ers o f its ow n
selection and sh all in all cases a p p ro v e th e form o f th e
re p o rt.

T h e exp en ses o f all e x a m in a tio n s, o th e r th a n

th ose m ad e b y S t a t e a u th o ritie s, sh all be assessed a g a in st
and p aid b y th e b a n k s ex a m in ed .
I f a t a n y tim e it sh a ll a p p e a r to th e F e d e ra l R e s e r v e
B o a rd th a t a m em b er b a n k h as faile d to c o m p ly w ith th e
p ro v isio n s o f th is sectio n o r th e re g u la tio n s o f th e F e d e ra l
R e s e r v e B o a rd m a d e p u rsu a n t th e re to , it sh all be w ith in
th e p o w er o f th e b o ard a fte r h e a rin g to re q u ire such b a n k
to su rren d er its sto ck in th e F e d e ra l re se rv e b a n k and
to fo rfe it all rig h ts and p riv ile g e s o f m e m b ersh ip .
F e d e ra l R e s e r v e

The

B o a rd m a y re sto re m e m b ersh ip u pon

d u e p ro o f o f co m p lian ce w ith th e co n d itio n s im p osed b y
th is sectio n .
A n y S t a t e b a n k o r tru s t c o m p a n y d e sirin g to w ith d ra w
fro m m em b ersh ip in a F e d e ra l re se rv e b a n k m a y d o so,
a fte r six m o n th s’ w ritte n n o tice sh a ll h a v e been filed w ith
th e F e d e ra l R e s e r v e B o a rd , upon th e su rre n d e r an d c a n ­
ce lla tio n o f all o f its h old in gs o f c a p ita l sto ck in th e F e d ­
e ra l re se rv e b a n k : Provided, however, T h a t no F e d e ra l
re se rv e b a n k sh a ll, e x c e p t u n d e r e x p re ss a u th o r ity o f th e
F e d e ra l R e s e r v e B o a rd , ca n ce l w ith in th e sam e c a le n d a r
y e a r m ore th a n tw e n ty -fiv e p e r cen tu m

o f its c a p ita l

sto ck fo r th e p u rp o se o f effe c tin g v o lu n ta r y w ith d ra w a ls
d u rin g th a t y e a r .

A ll su ch a p p lic a tio n s sh all be d e a lt

w ith in th e o rd e r in w h ich th e y are filed w ith th e b o ard .
W h e n e v e r a m em b er b a n k sh all su rren d er its sto ck h o ld ­

APPENDIX B

357

in gs in a f e d e r a l re se rv e b a n k , o r sh all be ord ered to do
so b y th e F e d e ra l R e s e r v e B o a rd , u n d e r a u th o rity o f la w ,
all o f its rig h ts and p riv ile g e s as a m em b er b a n k sh a ll
th ere u p o n ce ase and d e term in e, and a fte r du e p ro v isio n
h a s been m a d e fo r a n y in d eb ted n ess du e o r to becom e du e
to th e F e d e ra l re se rv e b an k it sh a ll be en title d to a re fu n d
o f its cash p aid su b sc rip tio n w ith in te re st a t th e ra te o f
o n e -h a lf o f one p e r cen tu m p e r m o n th from d a te o f la s t
d iv id e n d , i f ea rn e d , th e a m o u n t refu n d ed in no e v e n t to
exceed th e b ook v a lu e o f th e sto c k a t th a t tim e , and sh all
lik e w ise be en title d to re p a y m e n t o f d e p o sits and o f a n y
o th e r b ala n ce du e fro m th e F e d e ra l re se rv e b an k .
N o a p p ly in g b a n k sh all be a d m itte d to m e m b ersh ip in
a F e d e ra l re se rv e b a n k u n less it possesses a p a id -u p , u n im ­
p a ired c a p ita l su fficien t to e n title it to becom e a n a tio n a l
b a n k in g a sso c iatio n in th e p lace w h ere it is situ a te d u n d er
th e p ro v isio n s o f th e n a tio n a l-b a n k a ct.
B a n k s b ecom in g m em b ers o f th e F e d e ra l R e s e r v e S y s ­
tem u n d e r a u th o r ity o f th is sectio n sh all be s u b je c t to
th e p ro v isio n s o f th is sectio n and to th ose o f th is a c t
w h ich re la te sp e c ific a lly to m e m b e r b a n k s, b u t sh a ll n o t
be su b je c t to e x a m in a tio n u n d e r th e p ro v isio n s o f th e
first tw o p a ra g ra p h s o f sectio n fifty -tw o h u n d red
fo r t y o f th e R e v is e d
tw e n ty -o n e o f th is a c t .1

S t a tu te s as am en d ed

by

and

section

S u b je c t to th e p ro v isio n s o f th is

a c t and to th e re g u la tio n s o f th e b o ard m a d e p u rs u a n t
th e re to , a n y b a n k becom in g a m e m b er o f th e F e d e ra l
R e s e r v e S y ste m sh all re tain its fu ll c h a rte r and s ta tu to r y
rig h ts as a S ta te b an k o r tr u s t c o m p a n y , and m a y con ­
tin u e to ex e rcise all c o rp o ra te p o w e rs g ra n te d it b y th e
S t a t e in w h ich it w a s c re a te d , and sh a ll be en title d to all
p riv ile g e s o f m e m b er b a n k s ; Provided , however, T h a t no

1A m e n d in g se c tio n 2 1




o f th is a c t.




358

AN ADVENTURE IN CONSTRUCTIVE FINANCE

F e d e ra l re se rv e b a n k sh a ll be p e rm itte d to d isco u n t fo r
a n y S ta te b a n k o r tru s t c o m p a n y n o tes, d r a fts , o r b ills o f
ex c h a n g e o f a n y one b o rro w er w h o is lia b le fo r borrow ed
m o n e y to su ch S ta te b a n k o r tru s t c o m p a n y in an am o u n t
g re a te r th a n ten p er cen tu m o f th e c a p ita l and su rp lu s o f
su ch S ta te b a n k o r tr u s t c o m p a n y , b u t th e d isco u n t o f
b ills o f ex c h a n g e d ra w n a g a in st a c tu a lly e x istin g v a lu e
and th e d isc o u n t o f co m m ercia l o r b u sin ess p a p e r a c tu a lly
o w n ed b y th e person n e g o tia tin g th e sam e sh all n o t be
co n sid ered as b o rrow ed m o n e y w ith in th e m e an in g o f th is
se c tio n .1 T h e F e d e ra l re se rve b an k , as a co n d itio n o f
th e d isc o u n t o f n o tes, d r a fts , and bills o f ex c h a n g e fo r
su ch S ta te b a n k o r tru s t c o m p a n y , sh all req u ire a ce rtifi­
c a te o r g u a r a n t y to th e effect th a t th e b o rro w er is n o t
lia b le to such b a n k in excess o f th e am o u n t p ro vid ed b y
th is sectio n , and w ill n o t be p e rm itte d to becom e lia b le
in excess o f th is a m o u n t w h ile such n o tes, d r a fts , o r b ills
o f ex c h a n g e are u n d er d isc o u n t w ith th e F e d e ra l re se rve
bank.
I t sh a ll be u n la w fu l fo r a n y o fficer, c le rk , o r a g en t o f
a n y b a n k a d m itte d to m em b ersh ip u n d e r a u th o rity o f
th is sectio n to c e r tify a n y ch ec k d ra w n u pon su ch b a n k
u n less th e person o r c o m p a n y d ra w in g th e ch ec k h as on
d e p o sit th e re w ith a t th e tim e such ch eck is certified an
a m o u n t o f m o n e y e q u a l to th e a m o u n t specified in su ch
ch eck .

A n y ch eck so certified b y d u ly au th o riz ed o fficers

sh a ll be a good and v a lid o b lig a tio n a g a in st su ch b a n k ,
b u t th e a c t o f a n y su ch officer, cle rk , o r a g e n t in v io la tio n
o f th is section m a y s u b je c t such b a n k to a fo rfe itu re
o f its m e m b ersh ip in th e F e d e ra l R e s e r v e S y s te m upon
h e a rin g b y th e F e d e ra l R e s e r v e B o a rd .

1A m e n d e d b y s e c tio n I I ( m ) , a s a m e n d e d M a r c h

3. I9 I9 -

S e e p o s t. » .

FEDERAL RESERVE BOARD
As amended by act approved Mar. 3, 1919
S e c . 10 . A F e d e ra l R e s e r v e B o a rd is h e re b y c rea ted
w h ich sh all co n sist o f seven m em b ers, in clu d in g th e S e c ­

r e ta r y o f th e T r e a s u r y and th e C o m p tro lle r o f th e C u r ­
re n c y , w h o sh a ll be m e m b ers e x officio, and fiv e m em b ers
ap p o in ted b y th e P re sid e n t o f th e U n ite d S ta te s , b y and
w ith th e a d v ic e and c o n se n t o f th e S e n a te .
th e

fiv e

a p p o in tiv e

m e m b ers o f th e

In selectin g

F e d e ra l

R eserve

B o a rd , n o t m o re th a n one o f w h om sh all be selected from
a n y one F e d e ra l re se rv e d istr ic t, th e P re sid e n t sh all h a v e
d u e re g a rd to a fa ir re p rese n tatio n o f th e d iffere n t co m ­
m e rcia l,

in d u s tria l,

c o u n try .

The

fiv e

and

g e o g ra p h ic a l

m e m b ers

o f th e

d iv isio n s o f th e
F e d e ra l

R eserve

B o a rd a p p o in te d b y th e P re sid e n t and con firm ed as a fo re ­
said sh all d e v o te th e ir e n tire tim e to th e b u sin ess o f th e
F e d e ra l R e s e r v e B o a rd and sh a ll each re ceive an a n n u a l
s a la r y o f $ 12 ,0 0 0 , p a y a b le m o n th ly to g e th e r w ith a c tu a l
n e c e ssa ry tra v e llin g exp en ses, and th e C o m p tro lle r o f th e
C u rre n c y , as e x officio m e m b er o f th e F e d e ra l R e s e r v e
B o a rd , sh a ll, in a d d itio n to th e s a la r y n o w p aid h im as
C o m p tro lle r o f th e C u rre n c y , re ceive th e sum o f $ 7 ,0 0 0
a n n u a lly fo r h is se rv ice s as a m e m b er o f said b o ard .
T h e S e c r e ta r y o f th e T r e a s u r y and th e C o m p tro lle r o f
th e C u rre n c y sh all be in e lig ib le d u rin g th e tim e th e y a re
in office and fo r tw o y e a r s th e re a fte r to h old a n y office,
p o sitio n , o r e m p lo y m e n t

in

any

m e m b er

b an k .

The

a p p o in tiv e m em b ers o f th e F e d e ra l R e s e r v e B o a rd sh a ll
be in e lig ib le d u rin g th e tim e th e y are in office and fo r
tw o y e a rs th e re a fte r to hold a n y office, p o sitio n , o r em ­
p lo y m e n t in a n y m e m b er b a n k , e x c e p t th a t th is re stric ­
tio n sh all not a p p ly to a m e m b er w h o h as se rv e d th e fu ll




t




360

AN ADVENTURE IN CONSTRUCTIVE FINANCE

te rm fo r w h ich he w a s ap p o in ted .

O f th e fiv e m em b ers

th u s a p p o in ted b y th e P re sid e n t a t le a s t tw o sh all be
person s ex p e rien ced in b a n k in g o r fin an ce.

O ne sh all

be d e sig n a ted b y th e P re sid e n t to se rv e fo r tw o , one fo r
fo u r, one fo r six , one fo r e ig h t, and one fo r ten y e a r s , and
th e re a fte r each m e m b er so a p p o in te d sh a ll serv e fo r a
term o f ten y e a rs u n less soon er re m o ved fo r ca u se b y the
P re sid e n t.

O f th e fiv e person s th u s a p p o in te d , one sh all

be d e sig n a ted b y th e P re sid e n t as g o v e rn o r and one as
v ic e

g o v e rn o r

of

th e

F e d e ra l

R e serv e

B o a rd .

The

g o v e rn o r o f th e F e d e ra l R e s e r v e B o a r d , su b je c t to its
su p e rv isio n , sh a ll be th e a c tiv e e x e c u tiv e officer.

The

S e c re ta ry o f th e T r e a s u r y m a y assig n offices in th e D e ­
p a rtm e n t o f th e T r e a s u r y fo r th e u se o f th e F e d e ra l
R e s e r v e B o a rd .

E a c h m e m b er o f th e F e d e ra l R e s e rv e

B o a rd sh all w ith in fifte en d a y s a fte r n o tice o f a p p o in t­
m e n t m a k e and su b scrib e to th e o ath o f office.
T h e F e d e ra l R e s e rv e B o a rd sh all h a v e powder to le v y
s e m ia n n u a lly u pon th e F e d e ra l re se rv e b an k s, in p ro p o r­
tion to th e ir c a p ita l sto c k an d su rp lu s, an a sse ssm en t
su fficien t to p a y its e stim a te d exp en ses and th e sa la rie s o f
its m em b ers and e m p lo y e es fo r th e h a lf y e a r su cceed in g
th e le v y in g o f such a sse ssm en t, to g e th e r w ith a n y d e ficit
c a rrie d fo rw a rd from th e p re ce d in g h a lf y e a r .
T h e first m eetin g o f th e F e d e ra l R e s e r v e B o a rd sh all
be h eld in W a sh in g to n , D is t r ic t o f C o lu m b ia , as soon as
m a y be a fte r th e p a ssa g e o f th is A c t , a t a d a te to be fixed
by

th e

R e s e rv e

B ank

O rg a n iz a tio n

C o m m itte e .

The

S e c re ta ry o f th e T r e a s u r y sh all be e x officio ch a irm a n o f
th e F e d e ra l R e s e rv e B o a rd .

N o m e m b er o f th e F e d e ra l

R e s e r v e B o a rd sh all be an o fficer o r d ire c to r o f a n y b an k ,
b a n k in g in stitu tio n , tru s t co m p a n y , o r F e d e ra l rese rve
b a n k n or hold sto ck in a n y b a n k , b an k in g in stitu tio n , o r
tru s t c o m p a n y ; and before en te rin g upon h is d u tie s as a

APPENDIX B

261

member of the Federal Reserve Board he shall certify
under oath to the Secretary of the Treasury that he
has complied with this requirement. Whenever a va­
cancy shall occur, other than by expiration of term,
among the five members of the Federal Reserve Board
appointed by the President, as above provided, a successor
shall be appointed by the President, with the advice and
consent of the Senate, to fill such vacancy, and when
appointed he shall hold office for the unexpired term of
the member whose place he is selected to fill.
The President shall have power to fill all vacancies
that may happen on the Federal Reserve Board during
the lecess of the Senate, by granting commissions which
shall expire thirty days after the next session of the
Senate convenes.
Nothing in this Act contained shall be construed as
taking away any powers heretofore vested by law in the
Secretary of the Treasury which relate to the supervision,
management, and control of the Treasury Department
and bureaus under such department, and wherever any
power vested by this Act in the Federal Reserve Board
or the Federal reserve agent appears to conflict with the
powers of the Secretary of the Treasury, such powers
shall be exercised subject to the supervision and control
of the Secretary.
The Federal Reserve Board shall annually make a full
report of its operations to the Speaker of the House of
Representatives, who shall cause the same to be printed
for the information of the Congress.
Section three hundred and twenty-four of the Revised
Statutes of the United States shall be amended so as to
read as follows: There shall be in the Department of the
Treasury a bureau charged with the execution of all laws
passed by Congress relating to the issue and regulation







362

AN ADVENTURE IN CONSTRUCTIVE FINANCE

o f n a tio n a l c u rre n c y secured b y U n ite d S ta te s bonds and,
u n d e r th e g e n era l su p e rv isio n o f th e F e d e ra l R e s e rv e
B o a r d , o f all F e d e ra l re se rv e n o tes, th e c h ie f officer o f
w h ich b u reau sh all be called th e C o m p tro lle r o f th e C u r ­
re n c y and sh all p erfo rm h is d u tie s u n d er th e g e n era l d i­
re ctio n s o f th e S e c r e ta r y o f th e T r e a s u r y .
A s amended b y act approved Sept. 7, 19 1 6 (39 S ta t., 7 5 2 , chap. 4 6 1 ) ; act
approved Sept. 26, 1 9 1 8 ; act approved M ar. 3 , 19 19 .
S ec . 11.

T h e F e d e ra l R e s e r v e B o a rd sh a ll be a u th o r­

ized and e m p o w e re d :
(a) T o ex a m in e a t its d isc retio n th e a cco u n ts, books,
an d a ffa irs o f each F e d e ra l re se rv e b a n k and o f each
m e m b er b a n k and to re q u ire su ch sta te m e n ts and re p o rts
as it m a y deem n e c e ssa ry .

T h e said b o ard sh all p u b lish

on ce each w e e k a s ta te m e n t sh o w in g th e co n d itio n o f
each F e d e ra l re se rv e b a n k and a co n so lid a ted sta te m e n t
fo r a ll F e d e ra l

re se rv e

b an k s.

Su ch

s ta te m e n ts sh all

sh o w in d e ta il th e a sse ts and lia b ilitie s o f th e

F e d e ra l

re se rv e b a n k s, sin gle and co m b in ed , and sh a ll fu rn ish
fu ll in fo rm a tio n re g a rd in g th e c h a ra c te r o f th e m o n e y
h eld as re se rv e and th e a m o u n t, n a tu re , an d m a tu ritie s
o f th e p a p e r and o th e r in v e stm e n ts ow n ed o r h eld b y
F e d e r a l re se rv e b an k s.
(b) T o p e rm it, o r, on th e a ffirm a tiv e v o te o f a t le a st
fiv e m em b ers o f th e R e s e rv e B o a rd to re q u ire F e d e ra l
re se rv e b a n k s to re d isco u n t th e d isco u n ted p a p e r o f o th e r
F e d e ra l re se rve b a n k s a t ra te s o f in te re st to be fixed b y
th e F e d e ra l R e s e r v e B o a rd .
(c) T o su sp end fo r a period n o t ex c eed in g t h ir t y d a y s ,
an d from tim e to tim e to ren ew such su sp en sion fo r pe­
rio d s n o t exceed in g fifteen d a y s , a n y re se rv e re q u irem e n ts
sp ecified in th is A c t : Provided, T h a t it sh all e sta b lish a
g ra d u a te d ta x upon the a m o u n ts b y w h ich th e re se rv e

APPENDIX B

363

re q u irem e n ts o f th is A c t m a y be p e rm itte d to fa ll below
th e lev e l h e re in a fte r sp e c ifie d : And provided further, T h a t
w h en th e gold re se rv e h eld a g a in st F e d e ra l re se rv e n otes
fa lls below fo r ty p e r ce n tu m , th e F e d e ra l R e s e r v e B o a rd
sh all esta b lish a g ra d u a te d t a x o f n o t m ore th a n one p er
cen tu m p er an nu m u pon such d e ficie n cy u n til th e re se rve s
fa ll to th irty -tw o and o n e -h a lf p e r ce n tu m , and w h en said
re se rv e fa lls b elo w th ir ty -tw o and o n e -h a lf p e r ce n tu m ,
a t a x a t th e ra te in c re a sin g ly o f n o t less th a n one and
o n e -h a lf p er cen tu m p e r an nu m upon each tw o and oneh a lf p er cen tu m o r fra c tio n th e re o f th a t such re se rve falls
b elo w

th ir ty -tw o

and

o n e -h a lf p e r ce n tu m .

The

ta x

sh a ll be p aid b y th e re se rv e b a n k , b u t th e re se rv e b an k
sh all ad d an a m o u n t e q u a l to said t a x to th e ra te s o f
in te re st and d isc o u n t fixed b y th e F e d e ra l R e s e rv e B o a rd .
(d) T o

su p e rv ise

and

re g u la te

th ro u g h

th e

bu reau

u n d e r th e ch a rg e o f th e C o m p tro lle r o f th e C u rre n c y th e
issu e and re tire m e n t o f F e d e ra l re se rv e n o tes, and to
p re scrib e ru les and re g u la tio n s u n d e r w h ich such n o tes
m a y be d e livere d b y th e C o m p tro lle r to th e F e d e ra l
re se rv e a g en ts a p p ly in g th ere fo r.
(e)

l o ad d to th e n u m b er o f cities classified as re se rve

and ce n tra l re se rv e cities u n d e r e x istin g la w in w h ich
n a tio n a l b a n k in g asso c iatio n s are su b je c t to th e re se rv e
re q u ire m e n ts set fo rth in section tw e n ty o f th is A c t ; o r
to re c la s s ify e x istin g re se rv e and ce n tra l re se rv e cities o r
to te rm in a te th e ir d e sig n a tio n as su ch .
(f) T o su sp en d o r re m o v e a n y officer o r d ire c to r o f a n y
F e d e ra l re se rv e b a n k , th e ca u se o f such re m o v a l to be fo rth ­
w ith co m m u n ica ted in w ritin g

b y th e F e d e ra l R e s e r v e

B o a rd to th e rem o ved officers o r d ire c to r and to said b an k .
(g) T o re q u ire th e w r itin g o ff o f d o u b tfu l o r w o rth le ss
a sse ts u p o n th e b o ok s and b ala n ce sh eets o f F e d e ra l re­
se rv e b a n k s.




___




364

AN ADVENTURE IN CONSTRUCTIVE FINANCE

(h) T o su sp en d , fo r th e v io la tio n o f a n y o f th e p ro v i­
sions o f th is A c t , th e o p e ra tio n s o f a n y F e d e ra l re se rv e
b a n k , to ta k e possession th e re o f, a d m in iste r th e sam e d u r­
in g th e period o f su sp en sio n , a n d , w h en d eem ed a d v is a b le ,
to liq u id a te o r reorgan ize such b an k .
(i) T o req u ire bonds o f F e d e ra l re se rv e a g e n ts, to m a k e
re g u la tio n s fo r th e sa fe g u a rd in g o f all c o lla te ra l, b o n d s,
F e d e ra l re se rv e n o tes, m o n e y , o r p ro p e rty o f a n y k in d
d e p o sited in th e h an d s o f such a g en ts, and said b o ard
sh a ll p erfo rm th e d u tie s, fu n c tio n s, o r se rv ice s sp ecified
in th is A c t, and m a k e all ru les and re g u la tio n s n e c e ssa ry
to e n a b le said b o ard e ffe c tiv e ly to p erfo rm th e sam e.
(j) T o ex e rcise g e n e ra l su p e rv isio n o v e r said F e d e ra l
re se rv e b an k s.
(k) T o

g ra n t

by

sp ecia l

p e rm it to

n a tio n a l

banks

a p p ly in g th ere fo r, w h en n o t in c o n tra v e n tio n o f S t a t e or
lo ca l la w , th e rig h t to a ct as tru ste e , ex e c u to r, a d m in is­
tr a to r , re g is tra r o f sto ck s and b o n d s, g u a rd ia n o f e sta te s,
assign ee, re c e iv e r, co m m ittee o f e sta te s o f lu n a tic s, o r in
a n y o th e r fid u c ia ry c a p a c ity in w h ich S t a t e b a n k s, tru s t
co m p an ie s, o r o th e r c o rp o ra tio n s w h ich com e in to com ­
p e titio n w ith n a tio n a l b an k s are p e rm itte d to a c t u n d e r
th e la w s o f th e S t a t e in w h ich th e n a tio n a l b a n k is lo ca ted .
W h e n e v e r th e la w s o f su ch S t a t e a u th o riz e o r p e rm it
th e ex e rcise o f a n y o r all o f th e fo reg o in g p o w ers b y S ta te
b a n k s,

tru s t

co m p an ie s,

or

o th e r

c o rp o ra tio n s

w h ich

co m p ete w ith n a tio n a l b a n k s, th e g ra n tin g to and th e
ex e rcise o f such p o w ers b y n a tio n a l b a n k s sh a ll not be
d eem ed to be in co n tra v e n tio n o f S t a t e o r lo ca l la w w ith in
th e m e an in g o f th is A c t.
N a tio n a l b a n k s e x e rcisin g a n y o r all o f th e p o w ers en u ­
m e rate d in th is su b se ctio n sh a ll seg reg a te all a sse ts held
in a n y fid u c ia ry c a p a c ity fro m th e g e n e ra l a sse ts o f th e
b a n k and sh a ll k eep a s e p a ra te set o f books and reco rd s

APPENDIX B

265

showing in proper detail all transactions engaged in under
authority of this subsection. Such books and records
shall be open to inspection by the State authorities to the
same extent as the books and records of corporations
organized under State law which exercise fiduciary pow­
ers, but nothing in this Act shall be construed as author­
izing the State authorities to examine the books, records,
and assets of the national bank which are not held in
trust under authority of this subsection.
No national bank shall receive in its trust department
deposits of current funds subject to check or the deposit
of checks, drafts, bills of exchange, or other items for col­
lection or exchange purposes. Funds deposited or held in
trust by the bank awaiting investment shall be carried in
a separate account and shall not be used by the
bank in the conduct of its business unless it shall first
set aside in the trust department United States bonds
or other securities approved by the Federal Reserve
Board.
In the event of the failure of such bank the owners of
the funds held in trust for investment shall have a lien
on the bonds or other securities so set apart in addition to
their claim against the estate of the bank.
Whenever the laws of a State require corporations act­
ing in a fiduciary capacity, to deposit securities with the
State authorities for the protection of private or court
trusts, national banks so acting shall be required to make
similar deposits and securities so deposited shall be held
for the protection of private or court trusts, as provided
by the State law.
National banks in such cases shall not be required to
execute the bond usually required of individuals if State
corporations under similar circumstances are exempt from
this requirement.




AN ADVENTURE IN CONSTRUCTIVE FINANCE
N a tio n a l b a n k s sh all h a v e p o w er to ex e cu te such bond
w h en so req u ired b y th e la w s o f th e S ta te .
In a n y case in w h ich th e law s o f a S ta te re q u ire th a t a
c o rp o ratio n a c tin g as tru ste e , e x e cu to r, a d m in istra to r, or
in a n y c a p a c ity specified in th is sectio n , sh all ta k e an
o a th o r m a k e an a ffid a v it, th e p re sid e n t, v ic e p re sid e n t,
ca sh ier, o r tr u s t officer o f su ch n a tio n a l b an k m a y ta k e
th e n e c e ssa ry o a th o r e x e c u te th e n e c e ssa ry a ffid a v it.
I t sh all be u n la w fu l fo r a n y n a tio n a l b a n k in g asso ciatio n
to lend a n y officer, d ire c to r, o r e m p lo y e e a n y fu n d s held
in

tru s t u n d e r th e

p o w ers co n ferred

b y th is section .

A n y officer, d ire c to r, o r e m p lo y e e m a k in g such lo an , o r to
w h o m such lo an is m a d e , m a y be fined n o t m o re th an
$.5,000, o r im p riso n ed n o t m o re th a n fiv e y e a rs , o r m a y
be both fined and im p riso n e d , in th e d iscretio n o f the
co u rt.
In p a ssin g u pon a p p lic a tio n s fo r p erm issio n to exercise
th e p o w ers e n u m e ra ted in th is su b se ctio n , th e F e d e ra l
R e s e r v e B o a rd m a y ta k e in to co n sid era tio n th e a m o u n t
o f c a p ita l and su rp lu s o f th e a p p ly in g b a n k , w h e th e r or
n o t su ch c a p ita l and su rp lu s is su fficien t u n d e r th e cir­
c u m sta n ce s o f th e ca se, th e needs o f th e c o m m u n ity to be
se rv e d , and a n y o th e r fa c ts and circu m sta n ce s th a t seem
to it p ro p e r, an d m a y g ra n t o r re fu se th e a p p lica tio n
a c c o r d in g ly : Provided, T h a t no p e rm it sh all be issu ed to
a n y n a tio n a l b a n k in g a sso c iatio n h a v in g a c a p ita l and
su rp lu s less th a n th e c a p ita l and su rp lu s re q u ired

by

S t a t e la w o f S t a t e b a n k s, tr u s t co m p an ie s, and co rp o ra ­
tio n s e x e rc isin g su ch po w ers.
( 1)
T o e m p lo y su ch a tto rn e y s ,

e x p e rts,

a ssista n ts,

c le rk s, o r o th e r em p lo y e e s as m a y be deem ed n e c e ssa ry
to co n d u ct th e b usin ess o f th e b o ard . A ll sa la rie s and
fees sh a ll be fixed in a d v a n c e b y said b o ard and sh all be
p a id in th e sam e m a n n e r as th e sa la rie s o f th e m em b ers

iL. ¥



T

APPENDIX B

367

o f said b oard . A ll su ch a tto rn e y s , e x p e rts, a ssista n ts,
cle rk s, and o th e r em p lo y e es sh all be a p p o in ted w ith o u t
re g a rd to th e p ro visio n s o f th e A c t o f Ja n u a r y six tee n th ,
eigh teen h u n d red and e ig h ty -th re e (vo lu m e tw e n ty -tw o ,
U n ited S ta te s S ta tu te s a t L a r g e , p age fo u r h u n d red and
th ree ), and am en d m en ts th ere to , o r a n y ru le o r re g u la tio n
m ade

in

p u rsu an c e

th e re o f:

Provided, T h a t

n o th in g

herein sh all p re v e n t th e P re sid e n t from p lac in g said em ­
p lo yees in th e classified serv ice.
(m)

U p on th e a ffirm a tiv e v o te o f n o t less th an five o f

its m em b ers, th e F e d e ra l R e s e rv e B o a rd shall h a v e pow er
to p e rm it F e d e ra l

re se rve

b an k s to d isco u n t fo r a n y

m e m b er b a n k n o tes, d r a fts , o r bills o f exch an ge b ea rin g
th e sig n a tu re o r en d o rsem en t o f a n y one b o rro w er in
excess o f th e a m o u n t p e rm itte d b y section nine and
section th irtee n o f th is A c t , b u t in no case to exceed
tw e n ty p e r cen tu m o f th e m e m b er b a n k ’ s c a p ita l and
s u rp lu s : Provided, however, T h a t all su ch n o tes, d r a fts ,
o r b ills o f e x c h a n g e d isco u n te d fo r a n y m e m b er b an k in
excess o f th e a m o u n t p e rm itte d u n d e r su ch sectio n s sh all
be secured b y n o t less th an a lik e fac e a m o u n t o f bonds
o r n o tes o f th e U n ite d S ta te s issu ed since A p ril tw e n ty fo u rth , n in eteen h u n d red and seve n tee n , o r c e rtific a te s
o f in d eb ted n ess o f th e U n ite d S t a t e s : Provided further,
T h a t th e p ro v isio n s o f th is su bsectio n (m ) sh all n o t be
o p e r a tiv e a fte r D e c e m b e r th irty -firs t, nin eteen h u n d red
and tw e n ty .
FEDERAL ADVISORY COUNCIL
S ec.

12 .

T h e re is h e re b y c rea ted a F e d e ra l A d v is o r y

C o u n c il, w h ich sh a ll co n sist o f as m a n y m em b ers as th ere
are F e d e ra l re se rv e d istric ts.

E a c h F e d e ra l re se rve b a n k

b y its b o ard o f d ire c to rs sh a ll a n n u a lly select from its
ow n F e d e ra l re se rv e d istric t one m e m b er o f said cou n cil,







368

AN

ADVENTURE

IN

C O N STR U C TIV E

FIN A N C E

w h o sh all re ce iv e su ch co m p en satio n and a llo w a n ce s as
m a y be fixed b y h is b o ard o f d irec to rs s u b je c t to th e
a p p ro v a l o f th e F e d e ra l R e s e rv e B o a rd . T h e m e etin g s
o f said a d v is o ry co u n cil sh all be h eld a t W a sh in g to n ,
D is tr ic t o f C o lu m b ia , a t le a st fo u r tim e s each y e a r , and
o fte n e r i f ca lle d b y th e F e d e ra l R e s e rv e B o a rd .

The

co u n cil m a y in a d d itio n to th e m eetin g s a b o v e p ro v id ed
fo r h old such o th e r m eetin g s in W a sh in g to n , D is tr ic t o f
C o lu m b ia , o r elsew h ere, as it m a y deem n e c e ssa ry , m a y
select its ow n officers and a d o p t its ow n m eth o d s o f p ro ­
ce d u re, and a m a jo r ity o f its m em b ers sh all c o n stitu te a
q u oru m

fo r th e tra n sa c tio n o f b u sin ess.

V a c a n c ie s in

th e cou n cil sh all be filled b y th e re sp e c tiv e re se rve b a n k s,
and m em b ers selected to fill v a c a n c ie s sh all se rv e fo r th e
u n ex p ire d term .
T h e F e d e ra l A d v is o r y C o u n c il sh all h a v e p o w e r, b y
it s e lf or th ro u g h its o fficers, ( 1) to co n fer d ire c tly w ith th e
F e d e ra l R e s e rv e B o a rd on g e n era l b usin ess co n d itio n s;
(2) to m a k e o ra l o r w ritte n re p re se n ta tio n s con cern in g
m a tte rs w ith in th e ju risd ic tio n o f said b o a rd ; (3) to call
fo r in fo rm a tio n and to m a k e re co m m e n d a tio n s in re ga rd
to d isco u n t ra te s, red isco u n t b u sin ess, note issu es, rese rve
co n d itio n s in th e v a rio u s d istric ts, th e p u rc h a se and sale
o f gold

or

secu rities

by

re se rve

b a n k s,

o p e n -m a rk e t

o p eratio n s b y said b an k s, and th e g en eral a ffairs o f th e
re se rve b an k in g sy ste m .
POWERS OF F E D E R A L R E S E R V E B ANKS

As amended by act approved Mar. 3, 19x3 (38 Stat., 958, chap. 93);
act approved Sept. 7, 1916 (39 Stat., 752, chap. 461); act approved
June 21, 1917 (40 Stat., 232, chap. 32).
Sec. 1 3 . A n y F e d e ra l re se rve b an k m a y re ceive from
a n y o f its m em b er b a n k s, and from th e U n ited S ta te s ,1
U Jn d e r a u t h o r it y o f W a r F in a n c e A c t , a p p r o v e d A p r . 5 , 1 9 1 8 , as am e n d e d b y a c t o f
M a r . 3 , 1 9 1 9 , m a y re c e iv e d e p o s its fro m W a r F in a n c e C o r p o r a tio n .

A P PEN D IX

. 369

B

d e p o sits o f c u rren t fu n d s in la w fu l m o n e y, n a tio n a l-b a n k
n o tes, F e d e ra l re se rv e n o tes, o r ch eck s, and d r a fts , p a y ­
a b le upon p re se n ta tio n , and also, fo r co llectio n , m a tu rin g
n o tes and b ills; o r, so le ly fo r p u rp o ses o f ex ch a n ge o r o f
co llectio n , m a y re ceive fro m o th e r F e d e ra l re se rv e b an k s
d e p o sits o f c u rren t fu n d s in la w fu l m o n e y, n a tio n a l-b a n k
n o tes, o r ch eck s u pon o th e r F e d e ra l re se rv e b a n k s, and
ch ec k s and d r a fts , p a y a b le u pon p re se n ta tio n w ith in its
d istric t, and m a tu rin g n o tes and b ills p a y a b le w ith in its
d is tr ic t; o r, so le ly fo r th e p u rp o ses o f ex ch a n ge o r o f
co llectio n , m a y re ce iv e from a n y n o n m em b er b an k o r tru st
com pany

d e p o sits o f cu rre n t

fu n d s

in

la w fu l m o n e y,

n a tio n a l-b a n k n o tes, F e d e ra l re se rv e n o tes, ch eck s and
d r a fts p a y a b le u pon p re se n ta tio n , o r m a tu rin g n otes and
b ills : Provided, S u ch n o n m em b er b a n k o r tru s t c o m p a n y
m a in ta in s w ith th e F e d e ra l re se rv e b a n k o f its d istric t a
b ala n ce su fficien t to o ffset th e ite m s in tra n s it held fo r its
acco u n t b y th e F e d e ra l re se rv e b a n k : Provided, fu rth e r,
T h a t n o th in g in th is o r a n y o th e r section o f th is a c t sh all
be co n stru ed as p ro h ib itin g a m e m b er o r n on m em ber
b a n k fro m m a k in g re a so n a b le c h a rg e s, to be d eterm in ed
and re g u la te d b y th e F e d e ra l R e s e r v e B o a rd , b u t in no
case to exceed 1 0 cen ts p e r # 10 0 o r fra c tio n th ere o f, based
on th e to ta l o f ch eck s and d r a fts p resen ted a t a n y one
tim e , fo r co llectio n o r p a y m e n t o f ch eck s and d r a fts and
rem ission th e re fo r b y e x c h a n g e o r o th e rw ise ; b u t no such
ch a rg es sh all be m ad e a g a in st th e F e d e ra l re se rv e b an k s.
U p on th e in d o rse m e n t o f a n y o f its m em b er b a n k s,
w h ich sh all be deem ed a w a iv e r o f d e m a n d , n o tice and
p ro te st b y such b a n k as to its ow n in d orsem en t e x c lu ­
s iv e ly , a n y F e d e ra l re se rv e b a n k m a y d isc o u n t n o tes,
d r a fts , and b ills o f ex c h a n g e a risin g o u t o f a c tu a l com ­
m e rcia l tra n s a c tio n s; th a t is, n o tes, d r a fts , and b ills o f
ex c h a n g e

issu ed




o r d raw n

fo r a g ric u ltu ra l, in d u stria l,




370

AN

ADVENTURE

IN

C O N STR U C TIV E

FIN A N C E

o r co m m ercia l p u rp o ses, o r th e proceed s o f w h ich h a v e
been u sed , o r are to be u sed , fo r such p u rp o ses, th e F e d e ra l
R e s e r v e B o a rd to h a v e th e rig h t to d eterm in e o r define
th e c h a ra c te r o f th e p a p e r th u s elig ib le fo r d isc o u n t,
w ith in th e m e an in g o f th is A c t.

N o th in g in th is A c t

co n tain ed sh all be co n stru ed to p ro h ib it such n o tes, d ra fts ,
and bills o f ex c h a n g e, secured b y sta p le a g ric u ltu ra l p ro d ­
u cts, o r o th e r go o d s, w a re s, o r m erch an d ise from being
elig ib le fo r such d isc o u n t; b u t such d efin ition sh all not
in clu d e n o tes, d r a fts , o r bills c o v e rin g m e re ly in v e stm e n ts
o r issu ed o r d raw n fo r th e p u rp o se o f c a rry in g o r tra d in g
in sto ck s, bon ds, o r o th e r in v e stm e n t secu rities, ex c ep t
bonds and n otes o f th e G o v e rn m e n t o f th e U n ite d S ta te s .1
N o te s, d r a fts , and bills a d m itte d to d isc o u n t u n d er th e
term s o f th is p a ra g ra p h m u st h a v e a m a tu r ity a t th e tim e
o f d isc o u n t o f n o t m o re th an n in e ty d a y s , e x c lu siv e o f
d a y s o f g r a c e : Provided, T h a t n o tes, d r a fts , and

bills

d raw n o r issu ed fo r a g ric u ltu ra l p u rp o ses o r b ased on live
sto ck and h a v in g a m a tu r ity n o t ex ceed in g six m on th s,
e x c lu siv e o f d a y s o f g ra c e , m a y be d isco u n ted in an am o u n t
to be lim ite d to a p e rce n tag e o f th e asse ts o f th e F e d e ra l
re se rv e b a n k , to be a sc erta in e d and fixed b y th e F e d e ra l
R e s e rv e B o a rd .
T h e a g g re g a te o f such n o tes, d r a fts , and bills bearin g
the sig n a tu re o r in d orsem en t o f a n y one b o rro w er, w h eth er
a p erson , co m p a n y , firm , o r co rp o ra tio n , red iscou n ted
fo r a n y one b a n k sh all a t no tim e exceed ten p e r cen tu m
o f th e u n im p a ire d c a p ita l and su rp lu s o f said b a n k ; b u t
th is re strictio n sh all n o t a p p ly to th e d isco u n t o f bills o f
ex ch a n ge d ra w n in good fa ith a g a in st a c tu a lly ex istin g
v a lu e s .*2
A n y F e d e ra l re se rv e b a n k m a y d isco u n t accep tan ces
•O r b o n d s o f th e W a r F in a n c e C o r p o r a tio n .
2A in e n d e d b y se c tio n n

( m ), as a m e n d e d M a r c h

3, 1 9 1 9 .

S e e a n te , p. 3 6 7 .

A P PE N D IX

B

371

o f the kin d s h e re in a fte r d e scrib e d , w h ich h a v e a m a tu rity
a t th e tim e o f d isco u n t o f n o t m ore th an th ree m o n th s’
sig h t, e x c lu siv e o f d a y s o f g ra c e , and w h ich are indorsed
b y a t le a st one m e m b er b an k .
A n y m e m b er b a n k m a y a cce p t d r a fts o r b ills o f ex ­
ch an ge d raw n upon it h a v in g n o t m o re th an six m o n th s’
sig h t to ru n , e x c lu siv e o f d a y s o f g ra c e , w h ich gro w
o u t o f tra n sa c tio n s

in v o lv in g

th e

im p o rta tio n

o r ex­

p o rta tio n o f g o o d s; o r w h ich g ro w o u t o f tra n sa c tio n s
in v o lv in g

th e

d o m estic

sh ip m en t

of

good s

p ro vid ed

sh ip p in g d o cu m en ts c o n v e y in g o r secu rin g title are a t­
ta ch ed a t th e tim e o f a c c e p ta n c e ; o r w h ich are secured
a t th e tim e o f a c ce p ta n ce b y a w a re h o u se re ceip t o r o th e r
such d o c u m en t c o n v e y in g o r secu rin g title co ve rin g
re a d ily m a rk e ta b le stap le s. N o m em b er b an k sh all
a c c e p t, w h e th e r in a foreign o r d o m estic tra n sa c tio n , for
a n y one p erson , co m p a n y , firm , o r co rp o ratio n to an
a m o u n t eq u a l a t a n y tim e in th e a g g re g a te to m ore th an
ten p er cen tu m o f its p a id -u p and u n im p aired c a p ita l
sto ck and su rp lu s, u n less th e b an k is secured eith e r b y
a tta c h e d d o cu m en ts o r b y som e o th e r a ctu a l se c u rity
g ro w in g o u t o f th e sam e tra n sa c tio n as th e a c c e p ta n c e ;
and no b an k sh all a cce p t such bills to an am o u n t eq u a l
a t a n y tim e in th e a g g re g a te to m ore th an o n e -h a lf o f
its p a id -u p

and u n im p a ire d c a p ita l sto ck and su rp lu s:
R e s e rv e B o a rd ,

Provided, however, T h a t th e F e d e ra l

u n d e r such g e n era l re g u la tio n s as it m a y p re scrib e , w h ich
sh all a p p ly to all b an k s a lik e re g a rd less o f the am o u n t
o f c a p ita l sto ck and su rp lu s, m a y a u th o riz e a n y m em b er
b a n k to a cce p t such b ills to an a m o u n t n o t exceed in g
a t a n y tim e in th e a g g re g a te one h u n d red p e r cen tu m o f
its p a id -u p and u n im p a ire d c a p ita l sto ck and su rp lu s:

Provided further, T h a t

th e

a g g re g a te

of

a cce p ta n ces

gro w in g o u t o f d o m estic tra n sa c tio n s sh all in no e v e n t







AN ADVENTURE IN CONSTRUCTIVE FINANCE
exceed fift y p er cen tu m o f such c a p ita l sto ck and su rp lu s.
A n y F e d e ra l re se rv e b a n k m a y m a k e a d v a n c e s to its
m em b er b a n k s on th e ir p ro m isso ry n otes fo r a period
n o t ex ceed in g fifteen d a y s a t ra te s to be esta b lish ed b y
su ch F e d e ra l re se rv e b a n k s, s u b je c t to th e re v ie w and
d e te rm in a tio n o f th e F e d e ra l R e s e r v e B o a rd , p ro vid ed
su ch p ro m isso ry n otes are secured b y such n o tes, d ra fts ,
b ills o f ex ch a n ge, o r b a n k e rs’ a cce p ta n ces as are eligible
fo r re d isco u n t o r fo r p u rc h a se b y F e d e ra l re se rve b an k s
u n d e r th e p ro visio n s o f th is A c t , o r b y th e d e p o sit or
p led ge o f bonds o r n o tes o f th e U n ite d S ta te s .1
Sectio n fifty -tw o h u n d red and tw o o f th e R e v is e d S t a t ­
u tes o f th e U n ite d S ta te s is h e re b y am end ed so as to read
as fo llo w s: “ N o n a tio n a l b an k in g asso ciatio n sh all a t a n y
tim e be in d eb ted , o r in a n y w a y lia b le to an a m o u n t exceed ­
in g th e a m o u n t o f its c a p ita l sto ck a t such tim e a c tu a lly
p aid in and re m ain in g u n d im in ish ed b y losses o r oth erw ise,
e x c e p t on acco u n t o f d em an d s o f th e n a tu re fo llo w in g :
F ir s t. N o te s o f circu latio n .
Secon d . M o n e y s d ep o sited w ith o r collected b y th e
asso ciatio n .
T h ird .

B ills o f ex ch a n ge or d r a fts d raw n a g a in st m o n ey

a c tu a lly on d e p o sit to th e cre d it o f th e asso c iatio n , o r due
th ere to .
F o u rth . L ia b ilitie s to th e sto ck h o ld ers o f th e asso cia­
tio n fo r d ivid e n d s and re se rve profits.
F ifth . L ia b ilitie s in cu rred u n d er th e p ro visio n s o f the
F e d e ra l R e s e rv e A c t.
S ix th . L ia b ilitie s in cu rred u n d er th e p ro visio n s o f th e
W a r F in a n c e C o rp o ra tio n A c t .2
*Or b y b o n d s o f W a r F in a n c e C o r p o r a t io n .
* T h is s u b - p a r a g r a p h an d th e o n e fo llo w in g w e re ad d e d to se c tio n 5 2 0 2 , R e v is e d S t a t ­
u te s , b y th e W a r F in a n c e C o r p o r a t io n A c t , a p p ro v e d A p r . 5 , 1 9 1 8 , an d b y th e a c t o f O ct.
2 2 , 1 9 1 9 . re s p e c tiv e ly .

A P PE N D IX

B

373

S e v e n th . L ia b ilitie s c rea ted b y th e in d o rsem en t o f ac­
cep ted b ills o f ex c h a n g e p a y a b le a b ro a d a c tu a lly ow ned
b y th e in d o rsin g b a n k and d isco u nted a t hom e o r ab ro a d .
T h e d isco u n t and re d isco u n t and th e p u rch a se and sale
b y a n y F e d e ra l re se rv e b a n k o f a n y b ills re c e iv a b le and
o f d o m estic and foreign b ills o f ex c h a n g e , and o f a c c e p t­
an ces a u th o rized b y th is A c t , sh all be su b je c t to such
re strictio n s, lim ita tio n s, and re g u la tio n s as m a y be im ­
posed b y th e F e d e ra l R e s e r v e B o a rd .
T h a t in a d d itio n to th e p o w ers n o w v e ste d b y la w in
n a tio n a l b a n k in g asso c iatio n s organ ized u n d er th e law s
o f th e U n ite d S ta te s a n y su ch a sso ciatio n lo ca ted and
d o in g b usin ess in a n y p lac e th e p o p u latio n o f w h ich does
n o t exceed fiv e th o u sa n d in h a b ita n ts, as show n b y th e
la s t p reced in g d ecen n ial cen su s, m a y , u n d e r such ru les
an d re g u la tio n s as m a y be p rescrib ed b y th e C o m p tro lle r
o f the^ C u rre n c y , a c t as th e a g en t fo r a n y fire, life, o r
o th e r in su ran c e c o m p a n y au th o riz ed b y th e a u th o ritie s
o f th e S ta te in w h ich said b a n k is lo ca ted to do business
in said S ta te , b y so licitin g an d sellin g in su ran ce and col­
le c tin g p rem iu m s on p olicies issu ed b y such c o m p a n y ;
and m a y re ceiv e fo r se rv ic e s so ren d ered such fees or
co m m issio n s as m a y be agreed u pon betw een th e said
a sso c iatio n and th e in su ran ce c o m p a n y fo r w h ich it m a y
a c t as a g e n t; and m a y also a c t as th e b ro k er o r agen t
fo r o th e rs in m a k in g o r p ro c u rin g lo an s on real e sta te
lo ca ted w ith in one h u n d red m iles o f th e p lace in w h ich
said b an k m a y be lo ca te d , re c e iv in g fo r such serv ice s a
reaso n ab le fee o r co m m issio n : Provided, however, T h a t
no such b an k sh all in a n y ca se g u a ra n te e eith e r th e p rin ­
cip al o r in te rest o f a n y such lo an s o r assu m e o r g u a ra n te e
th e p a y m e n t o f a n y p rem iu m on in su ran c e p olicies issu ed
th ro u g h its a g e n c y b y its p rin c ip a l: A nd provided further,
T h a t th e b an k sh all n o t g u a ra n te e th e tru th o f a n y sta te -







AN ADVENTURE i n c o n s t r u c t i v e f i n a n c e

374

m e n t m ad e b y an a ssu red in filin g his ap p lica tio n for
in su ra n c e .
A n y m e m b er b a n k m a y a cce p t d r a fts o r b ills o f exch an ge
d raw n

u pon

it h a v in g

n o t m ore th a n

th ree

m o n th s’

sig h t to ru n , e x c lu siv e o f d a y s o f g ra c e , d raw n u n d er regu ­
la tio n s to be p re scrib ed b y th e F e d e ra l R e s e rv e B o a rd b y
b a n k s o r b a n k e rs in fo reig n co u n tries o r dep en d en cies
o r in su la r possession s o f th e U n ite d S ta te s fo r th e p u r­
pose o f fu rn ish in g d o lla r ex c h a n g e as req u ired b y th e
u sag es o f tra d e in th e re sp e c tiv e co u n tries, d epend encies,
or

in su la r

p ossession s.

Such

d r a fts

or

b ills

m ay

be

a cq u ire d b y F e d e ra l re se rv e b a n k s in such am o u n ts and
s u b je c t to su ch re g u la tio n s, re stric tio n s, and lim ita tio n s
as m a y be p re scrib ed b y th e F e d e ra l R e s e rv e B o a r d :

Provided, however, T h a t no m e m b er b a n k sh all a cce p t
such d r a fts o r b ills o f ex c h a n g e refe rred to th is p a ra g ra p h
fo r a n y one b an k to an a m o u n t ex c eed in g in th e a g g re g a te
te n p er cen tu m o f th e p a id -u p and u n im p a ire d c a p ita l
and su rp lu s o f th e a c c e p tin g b a n k u n less th e d r a ft o r bill o f
ex c h a n g e is acco m p an ie d b y d o c u m en ts c o n v e y in g o r se­
cu rin g title o r b y som e o th e r a d e q u a te s e c u r ity : Provided
further, T h a t no m e m b er b a n k sh all a cce p t such d r a fts or
b ills in an a m o u n t ex c eed in g a t a n y tim e the a g g re g a te o f
o n e -h a lf o f its p a id -u p and u n im p a ire d c a p ita l and su rp lu s.
o p e n -m a r k e t

o p e r a t io n s

As amended by act approved Sept. 7, 1916 (39 Stat., 752, chap. 461);
act approved June 21, 1917 (40 Stat., 232, chap. 32); act approved
Apr. 13, 1920.
Sec.

14 .

A n y F e d e ra l re se rv e b a n k m a y , u n d e r rules

and re g u la tio n s p rescrib ed b y th e F e d e ra l R e s e rv e B o a rd ,
p u rch a se and sell in th e open m a rk e t, a t h om e o r a b ro a d ,
e ith e r fro m o r to d o m estic o r fo reign b a n k s, firm s, co r­
p o ra tio n s, o r in d iv id u a ls, c a b le tra n s fe rs and b a n k e rs’

APPENDIX B

375

a cce p ta n ces and bills o f ex c h a n g e o f th e kin d s and m a tu ri­
ties b y th is A c t m ad e elig ib le fo r re d isco u n t, w ith o r w ith ­
o u t th e in d o rse m e n t o f a m em b er b an k .
E v e r y F e d e ra l re se rv e b an k sh all h a v e p o w e r:
(a) T o deal in go ld coin and bullion a t h om e o r a b ro a d ,
to m a k e lo an s th ereon , ex c h a n g e F e d e ra l re se rv e n otes fo r
go ld , gold coin, o r go ld c e rtific a te s, and to co n tra c t fo r
lo an s o f go ld coin o r bullion , g iv in g th e re fo r, w h en necess a r y , a cce p ta b le se c u rity , in c lu d in g th e h y p o th e c a tio n o f
U n ite d S ta te s bonds o r o th e r sec u rities w h ich F e d e ra l
re se rve b an k s are au th o riz ed to h o ld ;
(b) T o b u y and sell, a t h om e o r a b ro a d , bonds and n otes
o f th e U n ited S ta te s , and b ills, n o tes, re v e n u e bonds, and
w a rra n ts w ith a m a tu r ity from d a te o f p u rc h a se o f not
ex ceed in g six m o n th s, issu ed in a n tic ip a tio n o f the collec­
tion o f ta x e s o r in a n tic ip a tio n o f th e re ceip t o f assu red
reven u es b y a n y S ta te , c o u n ty , d istr ic t, p o litic a l s u b d iv i­
sion, o r m u n ic ip a lity in th e c o n tin e n ta l U n ite d S ta te s , in ­
clu d in g irrig a tio n , d ra in a g e , and re cla m a tio n d istric ts, such
p u rc h a se s to be m ad e in a cco rd a n ce w ith ru les and re g u la ­
tio n s p rescrib ed b y th e F e d e ra l R e s e r v e B o a r d ;
(c) T o p u rch ase from m em b er b a n k s and to sell, w ith
o r w ith o u t its in d orsem en t, bills o f e x c h a n g e a risin g o u t
o f co m m ercial tra n sa c tio n s, as h erein b efo re d e fin ed ;
(d) T o e sta b lish from tim e to tim e , su b je c t to re v ie w
and d e term in atio n o f th e F e d e ra l R e s e r v e B o a rd , ra tes
o f d isco u n t to be ch arged b y th e F e d e ra l re se rv e b a n k
fo r each class o f p a p e r, w h ich sh all be fixed w ith a v ie w
o f acco m m o d a tin g co m m erce and b u sin ess and w h ich ,
su b je c t to th e a p p ro v a l, re v ie w , and d e te rm in a tio n o f
th e F e d e ra l R e s e rv e B o a rd , m a y be g ra d u a te d o r p ro ­
gressed on th e b asis o f th e a m o u n t o f th e a d v a n c e s and
d isco u n t a cco m m o d a tio n s ex te n d ed b y th e F e d e ra l re­
se rv e b a n k to th e b o rro w in g b an k .







376

AN ADVENTURE IN CONSTRUCTIVE FINANCE

(e) T o esta b lish a cco u n ts w ith o th e r F e d e ra l re se rv e
b an k s fo r ex ch a n ge p u rp o ses a n d , w ith th e co n sent o r
upon th e o rd e r and d irec tio n o f th e F e d e ra l R e s e rv e
B o a rd and u n d e r re g u la tio n s to be p re scrib ed b y said
b o ard , to open and m a in ta in a cco u n ts in foreign co u n ­
trie s, a p p o in t c o rresp o n d e n ts, and e sta b lish agen cies in
su ch co u n tries w h e re so e v e r it m a y be deem ed b est fo r
th e pu rpose o f p u rc h a sin g , sellin g, and co llectin g b ills o f
ex c h a n g e, and to b u y and sell, w ith o r w ith o u t its in d orse­
m en t, th ro u g h su ch co rresp o n d e n ts o r agen cies, b ills o f
ex ch a n ge (or a cce p ta n ces) a risin g o u t o f a c tu a l co m m er­
cial tra n sa c tio n s w h ich h a v e n o t m ore th an n in e ty d a y s
to ru n , e x c lu siv e o f d a y s o f g ra c e , and w h ich b e a r th e
sig n a tu re o f tw o o r m ore resp on sib le p a rtie s, an d , w ith
th e co n sen t o f th e F e d e ra l R e s e r v e B o a rd , to open and
m a in ta in b a n k in g acco u n ts fo r such fo reign co rresp o n d ­
en ts o r agen cies. W h e n e v e r a n y such a cco u n t h as been
opened o r a g e n c y o r co rresp o n d e n t h as been ap p o in ted
b y a F e d e ra l re se rv e b a n k , w ith th e co n sen t o f o r u n d er
th e o rd er and d irectio n o f th e F e d e ra l R e s e r v e B o a rd ,
a n y o th e r F e d e ra l re se rv e b a n k m a y , w ith th e co n sent
and a p p ro v a l o f th e F e d e ra l R e s e r v e B o a rd , be p e rm itte d
to c a r r y on o r co n d u ct, th ro u g h

th e

F e d e ra l re se rv e

b an k o p en in g such acco u n t o r a p p o in tin g such a g e n c y
o r co rresp o n d e n t,

any

tra n sa c tio n

a u th o riz ed

by

th is

section u n d e r ru les an d re g u la tio n s to be p rescrib ed b y
th e b o ard .
GOVERN M EN T DEPOSITS

S ec.

15 .1

T h e m o n e ys held in th e g en eral fu n d o f th e

T r e a s u r y , e x c e p t th e fiv e p er cen tu m fu n d fo r th e re­
d e m p tio n o f o u tsta n d in g n a tio n a l-b a n k n otes

and the

fu n d s p ro v id ed in th is A c t fo r th e red em p tio n o f F e d e ra l
‘ T h is se c tio n in e ffe c t a m e n d e d b y A p p r o p r ia tio n A c t o f 19 2 0 , a p p ro v e d M a y 29 , 19 2 0 .

APPENDIX B

377

re se rv e n otes m a y , upon th e d irec tio n o f th e S e c re ta ry
o f th e T r e a s u r y , be d e p o sited in F e d e ra l re se rv e b a n k s,
w h ich b a n k s, w h en req u ired b y th e S e c re ta ry o f th e
T r e a s u r y , sh all a c t as fiscal a g e n ts o f th e U n ite d S t a t e s ,1
and th e re ven u es o f th e G o v e rn m e n t o r a n y p a rt th e re o f
m a y be d ep o sited in such b an k s, and d isb u rsem en ts m a y
be m ad e b y ch eck s d raw n a g a in st su ch d ep o sits.
N o p u b lic fu n d s o f th e P h ilip p in e Is la n d s , o r o f the
p o sta l sa v in g s, o r a n y G o v e rn m e n t fu n d s, sh all be depos­
ited in th e co n tin e n ta l U n ite d S ta te s in a n y b an k not
belo n gin g to th e sy ste m e sta b lish ed b y th is A c t :2 Pro­
vided, however, T h a t n o th in g in th is A c t sh all be con stru ed
to d e n y th e rig h t o f th e S e c re ta ry o f th e T r e a s u r y to use
m em b er b an k s as d ep o sito ries.
NOTE ISSU E S

As amended by act approved Sept. 7, 1916 (39 Stat., 752, chap. 461);
act approved June 21, 1917 (40 Stat., 232, chap. 32). Act approved
Sept. 26, 1918.
Sec. 16 . F e d e ra l re se rve n o tes, to be issu ed a t the d is­
cretio n o f th e F e d e ra l R e s e rv e B o a rd fo r th e pu rpose o f
m a k in g a d v a n c e s to F e d e ra l re se rv e b an k s th ro u g h the
F e d e ra l re se rve agen ts as h e re in a fte r set fo rth and fo r no
o th e r p u rp o se, are h e re b y au th o riz ed .

T h e said n otes

sh all be o b lig atio n s o f th e U n ite d S ta te s and sh all be re­
ce iv a b le b y all n a tio n a l and m e m b er b an k s and F e d e ra l
re se rve b an k s and fo r all ta x e s, cu sto m s, and o th e r p u b lic
dues.

T h e y sh all be redeem ed in go ld on d em an d a t th e

•U n d e r W a r F in a n c e C o r p o r a t io n A c t , a p p r o v e d A p r . 5 , 1 9 1 8 , as am e n d e d b y A c t o f
M a r . 3 , 1 9 1 9 , F e d e r a l R e s e r v e B a n k s m a y a ls o a c t a s fis ca l a g e n ts o f th e W a r F in a n c e
C o r p o r a tio n .
H in d e r se c tio n 7 o f th e a c t a p p r o v e d A p r . 2 4 , 1 9 1 7 , se c tio n 8 o f th e a c t a p p ro v e d
S e p t . 2 4 , 1 9 1 7 , an d s e c tio n 8 o f t h e a c t a p p r o v e d A p r . 4 , 1 9 1 8 , th e p ro c e e d s o f s a le o f
L i b e r t y b o n d s o f th e firs t, s e c o n d , an d th ird is su e s m a y be d e p o s ite d in n o n m e m b e r
b a n k s . T h e a c t o f M a y 1 8 , 1 9 1 6 , a m e n d in g th e P o s t a l S a v in g s A c t , a u th o riz e s th e d e ­
p o s it o f p o s ta l s a v in g s fu n d s in n o n m e m b e r b a n k s .







378

AN ADVENTURE IN CONSTRUCTIVE FINANCE

T r e a s u r y D e p a rtm e n t o f th e U n ite d S ta te s , in th e c ity o f
W a sh in g to n , D is t r ic t o f C o lu m b ia , o r in go ld o r la w fu l
m o n ey a t a n y F e d e ra l re se rv e b an k .
A n y F e d e ra l re se rv e b a n k m a y m a k e a p p lic a tio n to th e
lo ca l F e d e ra l re se rv e a g e n t fo r such a m o u n t o f th e F e d e ra l
re se rv e n otes h ere in b e fo re p ro v id e d fo r as it m a y req u ire.
Su ch a p p lic a tio n sh a ll be a cco m p an ie d w ith a te n d e r to
th e lo cal F e d e ra l re se rv e a g e n t o f co lla te ra l in a m o u n t
eq u a l to th e sum o f th e F e d e ra l re se rv e n o tes th u s a p p lied
fo r and issu ed p u rsu a n t to such a p p lic a tio n .

T h e col­

la te ra l s e c u rity th u s o ffered sh a ll be n o tes, d r a fts , b ills o f
ex ch a n ge, o r a cce p ta n ce s a cq u ire d u n d e r th e p ro v isio n s
o f section th irtee n o f th is a c t, o r b ills o f ex c h a n g e in d orsed
b y a m em b er b a n k o f a n y F e d e ra l re se rv e d istric t and
p u rch ased u n d e r th e p ro v isio n s o f sectio n fo u rte en o f th is
a c t, o r b a n k e rs’ a cce p ta n ce s p u rc h a se d u n d e r th e pro­
visio n s o f said sectio n fo u rte e n , o r go ld o r gold ce rtifi­
c a te s ; b u t in no e v e n t sh a ll su ch c o lla te ra l s e c u r ity ,
w h eth er g o ld , go ld c e rtific a te s, o r elig ib le p a p e r, be less
th a n th e a m o u n t o f F e d e r a l re se rv e n o tes ap p lied fo r .1
T h e F e d e ra l re se rv e a g e n t sh a ll each d a y n o tify th e F e d ­
eral R e s e rv e B o a rd o f all issu es an d w ithd ra-w als o f F e d ­
eral re se rve n otes to and b y th e F e d e ra l re se rv e b a n k to
w h ich he is a ccred ited . T h e said F e d e ra l R e s e r v e B o a rd
m a y a t a n y tim e ca ll u pon a F e d e ra l re se rv e b a n k fo r
a d d itio n al s e c u r ity to p ro te c t th e F e d e ra l re se rv e n o tes
issued to it.
E v e r y F e d e ra l re se rv e b a n k sh a ll m a in ta in re se rv e s in
gold o r la w fu l m o n e y o f n o t less th a n th ir ty -fiv e p er
cen tu m a g a in st its d e p o sits an d re se rv e s in go ld o f n o t
less th a n fo r t y p e r cen tu m a g a in st its F e d e r a l re se rv e
R J n d e r s e c tio n 1 3

o f W a r F in a n c e C o r p o r a t io n A c t , a p p r o v e d A p r . 5 , 1 9 1 8 , n o te s

sec u re d b y W a r F in a n c e C o r p o r a t io n b o n d s m a y b e u se d t o t h e s a m e e x te n t , a s co l­
la t e r a l, as n o te s se cu re d b y U n it e d S t a t e s b o n d s.

APPENDIX B

379

n o tes in a c tu a l c irc u la tio n : Provided, however, T h a t w h en
th e F e d e ra l re se rv e a g e n t h old s go ld o r go ld c e rtific a te s as
c o lla te ra l fo r F e d e ra l re se rv e n o tes issu ed to th e b a n k
su ch go ld o r go ld c e rtific a te s sh a ll be co u n ted as p a rt o f
th e go ld re se rv e w h ich su ch b a n k is re q u ired to m a in ta in
a g a in st its F e d e ra l re se rv e n o tes in a c tu a l circu latio n .
N o te s so p a id o u t sh a ll b ea r u pon th e ir fac es a d istin c tiv e
le tte r and serial n u m b er w h ich sh all be assign ed b y th e
F e d e ra l R e s e r v e

B o a rd to each F e d e ra l re se rv e b an k .

W h e n e v e r F e d e ra l re se rv e n otes issu ed th ro u g h one F e d ­
e ra l re se rv e b a n k sh all be re ce iv e d b y a n o th e r F e d e ra l
re se rv e b a n k , th e y sh a ll be p ro m p tly retu rn ed fo r cred it
o r re d em p tio n to th e F e d e ra l re se rv e b a n k th ro u g h w h ich
th e y w e re o rig in a lly issu ed o r, u pon d irectio n o f such
F e d e r a l re se rv e b a n k , th e y sh a ll be fo rw a rd e d d ire c t to
th e T r e a s u r e r o f th e U n ite d S ta te s to be re tired . N o
F e d e r a l re se rv e b a n k sh a ll p a y o u t n o tes issu ed th ro u g h
a n o th e r u n d e r p e n a lty o f a t a x o f ten p e r cen tu m upon
th e fa c e v a lu e o f n o tes so p a id o u t. N o te s presen ted for
re d em p tio n a t th e T r e a s u r y o f th e U n ite d S ta te s sh all be
p a id o u t o f th e re d em p tio n fu n d an d re tu rn ed to the
F e d e ra l re se rv e b a n k s th ro u g h w h ich th e y w e re o rig in a lly
issu e d , and th e re u p o n su ch F e d e ra l re se rv e b a n k sh a ll,
u p o n d em an d o f th e S e c r e ta r y o f th e T r e a s u r y , re im b u rse
su ch re d em p tio n fu n d in la w fu l m o n e y o r, i f such F e d e ra l
re se rv e n o tes h a v e been redeem ed b y th e T re a s u re r in
g o ld o r go ld c e rtific a te s, th en su ch fu n d s sh all be reim ­
b u rsed to th e e x te n t d eem ed n e c e ssa ry b y th e S e c re ta ry
o f th e T r e a s u r y in go ld o r go ld c e rtific a te s, and such
F e d e ra l re se rv e b a n k sh a ll, so lo n g as a n y o f its F e d e ra l
re se rv e n o tes re m ain o u tsta n d in g , m a in ta in w ith th e
T r e a s u r e r in go ld an a m o u n t su fficien t in th e ju d g m e n t
o f th e S e c r e ta r y to p ro v id e fo r all re d em p tio n s to be m a d e
b y th e T re a s u re r.




F e d e ra l re se rv e n o tes re ceived b y th e




380

AN ADVENTURE IN CONSTRUCTIVE FINANCE

T re a s u re r o th e rw ise th a n

fo r re d em p tio n m a y

be e x ­

ch an ged fo r go ld o u t o f th e re d em p tio n fu n d h e re in a fte r
p ro vid ed and re tu rn e d to th e re se rv e b a n k th ro u g h w h ic h
th e y w ere o rig in a lly issu ed , o r th e y m a y be re tu rn ed to
such b an k fo r th e c re d it o f th e U n ite d S ta te s . F e d e ra l
re se rv e n o tes u n fit fo r c irc u la tio n sh a ll be re tu rn ed b y
th e F e d e ra l re se rv e a g e n ts to th e C o m p tro lle r o f th e
C u rre n c y fo r c a n c e lla tio n and d e stru c tio n .
T h e F e d e ra l R e s e r v e B o a rd sh a ll re q u ire ea ch F e d e ra l
re se rv e b a n k to m a in ta in on d e p o sit in th e T r e a s u r y o f
th e U n ite d S ta te s a sum in go ld su fficien t in th e ju d g m e n t
o f th e S e c re ta ry o f th e T r e a s u r y fo r th e re d em p tio n o f
th e F e d e ra l re se rv e n o tes issu ed to su ch b a n k , b u t in
no e v e n t less th a n fiv e p e r ce n tu m o f th e to ta l a m o u n t
o f n otes issu ed less th e a m o u n t o f g o ld o r go ld c e rtific a te s
held b y th e F e d e ra l re se rve a g e n t as c o lla te ra l s e c u r ity ;
b u t such d e p o sit o f go ld sh a ll be co u n ted and in clu d ed
as p a rt o f th e fo r t y p er ce n tu m re se rv e h ere in b e fo re
req u ired .

T h e b o ard sh all h a v e th e rig h t, a c tin g th ro u g h

th e F e d e ra l re se rv e a g e n t, to g r a n t in w h o le o r in p a rt,
o r to re je c t e n tire ly th e a p p lic a tio n o f a n y F e d e ra l re­
serv e b a n k fo r F e d e ra l re se rv e n o te s ; b u t to th e e x te n t
th a t such a p p lic a tio n m a y be g ra n te d th e F e d e ra l R e ­
serv e B o a rd sh a ll, th ro u g h its lo ca l F e d e ra l re se rv e a g en t,
s u p p ly F e d e ra l re se rv e n otes to th e b a n k s so a p p ly in g ,
and such b an k sh all be ch a rg ed w ith th e a m o u n t o f
n otes issu ed to it and sh all p a y su ch ra te o f in te re st as
m a y be esta b lish e d b y th e F e d e ra l R e s e r v e B o a rd on o n ly
t h a t am o u n t o f su ch n o tes w h ich e q u a ls th e to ta l a m o u n t
o f its o u tsta n d in g F e d e ra l re se rv e n o tes less th e a m o u n t
o f gold o r go ld ce rtifica te s held b y th e F e d e ra l re se rve
agen t as co lla te ra l se c u rity . F e d e ra l re se rv e n o tes issu ed
to a n y such b an k sh a ll, u pon d e liv e ry , to g e th e r w ith such
n otes o f such F e d e ra l rese rve b an k as m a y be issu ed u n d er

APPENDIX B

381

sectio n eigh teen o f th is a c t u pon se c u r ity o f U n ite d S ta te s
tw o p e r c e n tu m G o v e rn m e n t b o n d s, becom e a first and
p a ra m o u n t lien on a ll th e a sse ts o f such b an k .
A n y F e d e ra l re se rv e b a n k m a y a t
its lia b ilit y fo r o u ts ta n d in g F e d e ra l
d e p o sitin g w ith th e F e d e ra l re se rv e
re se rv e n o tes, g o ld , go ld c e rtific a te s,
o f th e U n ite d S ta te s .

a n y tim e redu ce
re se rv e n o tes b y
a g e n t its F e d e ra l
o r la w fu l m o n e y

F e d e ra l re se rv e n o tes so d ep o sited

sh a ll n o t be re issu e d , e x c e p t u p o n co m p lian c e w ith th e
co n d itio n s o f an o rig in a l issu e.
T h e F e d e ra l re se rv e a g e n t sh a ll h old such g o ld , gold
c e rtific a te s, o r la w fu l m o n e y a v a ila b le e x c lu s iv e ly fo r
e x c h a n g e fo r th e o u ts ta n d in g F e d e ra l re se rv e n o tes w h en
o ffered b y th e re se rv e b a n k o f w h ich he is a d irecto r.
U p o n th e re q u e st o f th e S e c r e ta r y o f th e T r e a s u r y th e
F e d e ra l R e s e r v e B o a rd sh all re q u ire th e F e d e ra l re se rve
a g e n t to tra n s m it to th e T r e a s u r e r o f th e U n ite d S ta te s
so m u ch o f th e go ld held b y h im as co lla te ra l se c u r ity fo r
F e d e ra l re se rv e n o tes as m a y be re q u ired fo r th e e x c lu siv e
p u rp o se o f th e re d em p tio n o f su ch F e d e ra l re se rve n otes,
b u t such go ld w h en d e p o sited w ith th e T r e a s u r e r sh all
be co u n ted and co n sid ered as i f co lla te ra l s e c u rity on de­
p o sit w ith th e F e d e ra l re se rv e agen t.
A n y F e d e ra l re se rv e b an k m a y a t its d iscretion w ith ­
d r a w co lla te ra l d ep o sited w ith th e lo cal F e d e ra l re se rve
a g e n t fo r th e p ro te ctio n o f its F e d e ra l re se rve n otes
issu ed to it and sh all a t th e sam e tim e su b stitu te th e re fo r
o th e r c o lla te ra l o f e q u a l am o u n t w ith th e a p p ro v a l o f
th e F e d e ra l re se rv e a g en t u n d e r re g u la tio n s to be p re­
scribed b y th e F e d e ra l R e s e r v e B o a rd . A n y F e d e ra l
re se rv e b a n k m a y re tire a n y o f its F e d e ra l re se rv e n otes
b y d e p o sitin g th em w ith th e F e d e ra l re se rv e a g e n t o r
w ith th e T re a s u re r o f th e U n ite d S ta te s , and such F e d e ra l
re se rv e b a n k sh all th ereu p o n be en title d to re ceive b ack







382

AN ADVENTURE IN CONSTRUCTIVE FINANCE

th e c o lla te ra l d e p o sited w ith th e F e d e ra l re se rv e agen t
fo r th e s e c u r ity o f such n o tes. F e d e ra l re se rv e b an k s
sh all n o t be req u ired to m a in ta in th e re se rve or the re­
d em p tio n fu n d h ereto fo re p ro vid ed fo r a g a in st F e d e ra l
re se rv e n o tes w h ich h a v e been re tired .

F e d e ra l rese rve

n otes so d ep o sited sh all n o t be reissu ed e x c e p t u pon com ­
p lian ce w ith th e co n d itio n s o f an o rig in a l issue.
A ll F e d e ra l re se rve n o tes and all go ld , go ld c e rtific a te s,
and la w fu l m o n e y issu ed to o r d ep o sited w ith a n y F e d ­
eral re se rve a g en t u n d e r th e p ro visio n s o f th e F e d e ra l
re se rve a ct sh all h e re a fte r be held fo r su ch a g en t, u n d er
such ru les and re g u la tio n s as th e F e d e ra l R e s e r v e B o a rd
m a y p re scrib e, in th e jo in t c u s to d y o f h im se lf and th e
F e d e ra l re se rve b a n k to w h ich he is a ccred ited .
a g en t and such

Su ch

F e d e ra l re se rve b a n k sh all be jo in t ly

liab le fo r th e safe-k e ep in g o f such F e d e ra l re se rv e n o tes,
go ld ,

go ld

c e rtific a te s,

and

la w fu l

m o n e y.

N o th in g

h erein co n ta in ed , h o w e v e r, sh all be co n stru ed to p ro ­
h ib it a F e d e ra l re se rv e a g e n t from d e p o sitin g go ld o r
gold c e rtific a te s w ith th e F e d e ra l R e s e r v e B o a rd , to be
held b y such b o ard su b je c t to h is o rd er, o r w ith th e
T r e a s u r e r o f th e U n ite d S ta te s fo r th e p u rp o ses a u th o r­
ized b y la w .
In o rd e r to fu rn ish

su ita b le n o tes fo r circ u la tio n

as

F e d e ra l re se rv e n o tes, th e C o m p tro lle r o f th e C u rre n c y
sh a ll, u n d e r th e d irectio n o f th e S e c r e ta r y o f th e T r e a s u r y ,
cau se p la te s and d ies to be e n g ra v e d in th e b est m a n n e r
to g u a rd a g a in st co u n te rfe its and fra u d u le n t a lte ra tio n s,
and sh all h a v e p rin te d th ere fro m

and n u m b ered su ch

q u a n titie s o f such n o tes o f th e d e n o m in a tio n s o f $ 5 , $ 1 0 ,
$ 2 0 , $ 5 0 , $ 1 0 0 , $5 0 0 , $ 10 0 0 , $ 5 0 0 0 , $ 10 ,0 0 0 as m a y be
req u ired

to

s u p p ly

th e

F e d e ra l

re se rve

b a n k s.

Such

n otes sh all be in form and te n o r as d irected b y th e S e c ­
r e ta r y o f th e T r e a s u r y u n d e r th e p ro visio n s o f th is A c t

APPENDIX B

383

and sh a ll b e a r th e d istin c tiv e n u m b ers o f th e seve ra l
F e d e ra l re se rv e b an k s th ro u g h w h ich th e y are issu ed.
W h en such n otes h a v e been p re p a re d , th e y sh all be
d ep o sited in th e T r e a s u r y , o r in th e su b tre a su ry o r m in t
o f th e U n ite d S ta te s n e a re st th e p lace o f b u sin ess o f each
F e d e ra l re se rve b a n k and sh all be held fo r th e use o f such
b a n k su b je c t to th e o rd er o f th e C o m p tro lle r o f th e C u r ­
re n c y fo r th e ir d e liv e ry , as p ro vid ed b y th is A c t.
T h e p la te s and dies to be p ro cu red b y th e C o m p tro lle r
o f th e C u rre n c y fo r th e p rin tin g o f such circ u la tin g n o tes
sh all re m ain u n d e r h is co n tro l and d irectio n , and th e
exp en ses n e c e ssa rily in cu rred in ex e cu tin g th e la w s re­
la tin g to th e p ro c u rin g o f such n o tes, and all o th e r e x ­
penses in c id e n tal to th e ir issu e and re tirem en t, sh all be
p aid

by

th e

F e d e ra l

re se rve

b an k s,

and

th e

F e d e ra l

R e s e r v e B o a rd sh all in clu d e in its e stim a te o f exp en ses
le v ie d a g a in st th e F e d e ra l re se rv e b a n k s a su fficien t
a m o u n t to c o v e r th e exp en ses herein p ro v id ed for.
T h e e x a m in a tio n o f p la te s, dies, bed pieces, and so
fo rth , and re g u la tio n s re la tin g to such ex a m in a tio n o f
p la te s , d ies, and so fo rth , o f n a tio n a l-b a n k n o tes p ro vid ed
fo r in section fifty -o n e h u n d red and s e v e n ty -fo u r R e v is e d
S ta tu te s ,

is

h e re b y

exten d ed

to

in clu d e

n o tes

herein

p ro v id e d for.
A n y a p p ro p ria tio n h ere to fo re m a d e o u t o f th e g e n era l
fu n d s o f th e T r e a s u r y fo r e n g ra v in g p la te s and d ies, the
p u rc h a se o f d istin c tiv e p a p er, o r to c o v e r a n y o th e r ex­
pen se in co n n ectio n w ith th e p rin tin g o f n a tio n a l-b a n k
n o tes o r n o tes p ro v id ed fo r b y th e A c t o f M a y th irtie th ,
n in eteen h un d red and e ig h t, an d a n y d istin c tiv e p a p e r
th a t m a y be on h an d a t th e tim e o f th e p a ssa g e o f th is
A c t m a y be used in th e d isc retio n o f th e S e c r e ta r y fo r th e
p u rp o ses o f th is A c t , and shou ld th e a p p ro p ria tio n s h ere­
to fo re m ad e be in su fficien t to m eet th e re q u irem e n ts o f







384

AN ADVENTURE IN CONSTRUCTIVE FINANCE

th is A c t in a d d itio n to c irc u la tin g n o tes p ro v id e d fo r b y
e x istin g la w , th e S e c r e ta r y is h e re b y a u th o riz ed to use
so m u ch o f a n y fu n d s in th e T r e a s u r y n o t o th e rw ise a p ­
p ro p ria te d fo r th e p u rp o se o f fu rn ish in g th e n o tes a fo re ­
s a id : Provided, however, T h a t n o th in g in th is sectio n con ­
ta in ed sh all be co n stru ed as e x e m p tin g n a tio n a l b an k s
o r F e d e ra l re se rv e b a n k s fro m th e ir lia b ilit y to re im b u rse
th e U n ite d S ta te s fo r a n y exp en ses in cu rred in p rin tin g
and issu in g c irc u la tin g n otes.
E v e r y F e d e ra l re se rv e b a n k sh a ll re ceive on d e p o sit a t
p a r from m e m b er b a n k s o r from F e d e ra l re se rv e b a n k s
ch eck s and d r a fts d raw n u pon a n y o f its d e p o sito rs, and
w h en re m itte d b y a F e d e ra l re se rv e b a n k , ch eck s and
d r a fts d raw n b y a n y d e p o sito r in a n y o th e r F e d e ra l
re se rv e b a n k o r m e m b er b a n k u pon fu n d s to th e cre d it
o f said d e p o sito r in said re se rv e b a n k o r m e m b er b a n k .
N o th in g herein co n ta in ed sh all be co n stru ed as p ro h ib itin g
a m em b er b a n k from c h a rg in g its a c tu a l ex p e n se in cu rred
in co llec tin g and re m ittin g fu n d s, o r fo r ex c h a n g e sold
to its p a tro n s. T h e F e d e ra l R e s e r v e B o a rd sh a ll, b y
ru le, fix th e ch a rg es to be collected b y th e m em b er b a n k s
from its p a tro n s w h ose ch eck s are cleared th ro u g h th e
F e d e ra l re se rve b a n k and th e ch a rg e w h ich m a y be im ­
posed fo r th e se rv ic e o f cle a rin g o r co llectio n rendered
b y th e F e d e ra l re se rv e b an k .
T h e F e d e ra l R e s e r v e B o a rd sh all m a k e and p ro m u lg a te
fro m tim e to tim e re g u la tio n s g o v e rn in g th e tra n s fe r o f
fu n d s and ch a rg es th e re fo r a m o n g F e d e ra l re se rve b an k s
and th eir b ran ch e s, and m a y at its d isc retio n exercise
the fu n c tio n s o f a cle arin g h ou se fo r such F e d e ra l re se rve
b an k s, o r m a y d e sign a te a F e d e ra l re se rve b an k to e x ­
ercise such fu n ctio n s, and m a y also re q u ire each such
b a n k to exercise th e fu n ctio n s o f a cle arin g house fo r its
m em b er b an k s.

APPENDIX B
T h a t th e S e c r e ta r y o f th e T r e a s u r y is h e re b y a u th o riz ed
an d d irec ted to re ceive d ep o sits o f go ld coin o r o f gold
c e rtific a te s w ith th e T r e a s u r e r o r a n y a ss is ta n t tre a su re r
o f th e U n ite d S ta te s w h en ten d ere d b y a n y F e d e ra l
re se rv e b a n k o r F e d e ra l re se rv e a g en t fo r cre d it to its or
h is acco u n t w ith th e F e d e ra l R e s e r v e B o a rd . T h e S e c ­
r e t a r y sh a ll p re scrib e b y re g u la tio n th e fo rm o f re ceip t
to be issu ed b y th e T re a s u re r o r A s s is ta n t T r e a s u r e r to
th e F e d e ra l re se rv e b a n k o r F e d e ra l re se rv e a g en t m a k in g
th e d e p o sit, and a d u p lic a te o f such re ce ip t sh a ll be d e­
liv e re d to th e F e d e ra l R e s e r v e B o a rd b y th e T re a s u re r
a t W a sh in g to n u p o n p ro p e r a d v ic e s fro m a n y a ssista n t
tre a s u re r th a t su ch d e p o sit h as been m a d e .

D e p o sits so

m a d e sh a ll be h eld s u b je c t to th e o rd ers o f th e F e d e ra l
R e s e r v e B o a rd an d sh a ll be p a y a b le in go ld coin o r gold
c e rtific a te s on th e o rd e r o f th e F e d e ra l R e s e r v e B o a rd to
a n y F e d e ra l re se rv e b a n k o r F e d e ra l re se rv e a g en t a t th e
T r e a s u r y o r a t th e S u b tre a s u ry o f th e U n ite d

S ta te s

n e a re st th e p lace o f b u sin ess o f su ch F e d e ra l re se rve
b a n k o r such F e d e ra l re se rv e a g e n t: Provided, however,
T h a t a n y ex p e n se in cu rred in sh ip p in g go ld to o r from
th e T r e a s u r y o r su b tre a su rie s in o rd er to m a k e such
p a y m e n ts , o r as a re su lt o f m a k in g such p a y m e n ts, sh all
be p a id b y th e F e d e ra l R e s e r v e B o a rd and assessed a g a in st
th e F e d e ra l re se rv e b an k s. T h e o rd e r used b y th e F e d ­
e ra l R e s e r v e B o a rd in m a k in g su ch p a y m e n ts sh all be
sign ed b y th e g o v e rn o r o r v ic e g o v e rn o r, o r such o th e r
officers o r m em b ers as th e b o ard m a y b y re g u la tio n
p re scrib e. T h e form o f such o rd e r sh all be a p p ro v e d b y
th e S e c re ta ry o f th e T r e a s u r y .
T h e exp en ses n e c e ssa rily in cu rred in c a rry in g o u t th ese
p ro v isio n s, in c lu d in g th e co st o f th e c e rtific a te s o r re­
ce ip ts issu ed fo r d e p o sits re ceived , and a ll expenses
in c id e n t to th e h a n d lin g o f such d e p o sits sh all be paid







386

AN ADVENTURE IN CONSTRUCTIVE FINANCE

b y th e F e d e ra l R e s e rv e B o a rd an d in clu d ed in its assess­
m en ts a g a in st th e se v e ra l F e d e ra l re se rv e b an k s.
G o ld d e p o sits sta n d in g to th e c re d it o f a n y F e d e ra l
re se rv e b a n k w ith th e F e d e ra l R e s e r v e B o a rd sh a ll, a t
th e o p tio n o f said b a n k , be co u n ted as p a rt o f th e la w fu l
re se rv e w h ich it is req u ired to m a in ta in a g a in st o u t­
s ta n d in g F e d e ra l re se rv e n o tes, o r as a p a rt o f th e re se rve
it is req u ired to m a in ta in a g a in st d e p o sits.
N o th in g in th is section sh all be co n stru ed as a m en d in g
section six o f th e a ct o f M a r c h fo u rte e n th , n in eteen h u n ­
d red , as a m en d ed b y th e a cts o f M a r c h fo u rth , n in eteen
h u n d red and seve n , M a r c h seco n d , n in eteen h u n d red and
ele v e n , an d Ju n e tw e lfth , n in eteen h u n d red an d six te e n ,
n o r sh all th e p ro v isio n s o f th is sectio n be co n stru ed to
a p p ly to th e d e p o sits m ad e o r to th e re ceip ts o r ce rtifi­
c a te s issu ed u n d er th ose a c ts.

As amended by act approved June 21, 1917 (40 Stat., 232, chap. 32).
Sec. 17. So m u ch o f th e p ro v isio n s o f section fifty -o n e
h u n d red and fifty -n in e o f th e R e v is e d S ta tu te s o f th e
U n ite d S ta te s , and section fo u r o f th e a c t o f Ju n e tw e n ­
tie th , eigh teen h u n d red and s e v e n ty -fo u r, an d sectio n
e ig h t o f th e a c t o f J u l y tw e lfth , eigh teen h u n d red and
e ig h ty -tw o , and o f a n y o th e r p ro v isio n s o f e x istin g s t a t ­
u tes as req u ire th a t b efore a n y n a tio n a l b a n k in g asso­
ciatio n sh all be a u th o riz ed to com m en ce b a n k in g b u sin ess
it sh a ll tra n s fe r and d e liv e r to th e T r e a s u r e r o f th e U n ite d
S ta te s a sta te d a m o u n t o f U n ite d S ta te s re gistere d bon ds,
and so m u ch o f th ose p ro v isio n s o r o f a n y o th e r p ro v isio n s
o f e x istin g s ta tu te s as re q u ire a n y n a tio n a l b a n k in g a s­
so ciatio n n o w o r h e re a fte r o rg a n iz ed to m a in ta in a m in i­
m um d e p o sit o f such b on ds w ith th e 1 re a su re r is h e re b y
repealed.

APPENDIX B

3*7

REFU N D IN G BONDS

S ec. 18. After two years from the passage of this Act,
and at any time during a period of twenty years there­
after, any member bank desiring to retire the whole or any
part of its circulating notes, may file with the Treasurer
of the United States an application to sell for its account,
at par and accrued interest, United States bonds securing
circulation to be retired.
The Treasurer shall, at the end of each quarterly period,
furnish the Federal Reserve Board with a list of such
applications, and the Federal Reserve Board may, in its
discretion, require the Federal reserve banks to purchase
such bonds from the banks whose applications have been
filed with the Treasurer at least ten days before the end
of any quarterly period at which the Federal Reserve
Board may direct the purchase to be made: P rovided,
That Federal reserve banks shall not be permitted to
purchase an amount to exceed $25,000,000 of such bonds
in any one year, and which amount shall include bonds
acquired under section four of this Act by the Federal re­
serve bank.
P rovided fa rth er, That the Federal Reserve Board shall
allot to each Federal reserve bank such proportion of
such bonds as the capital and surplus of such bank shall
bear to the aggregate capital and surplus of all the Fed­
eral reserve banks.
Upon notice from the Treasurer of the amount of bonds
so sold for its account, each member bank shall duly
assign and transfer, in writing, such bonds to the Federal
reserve bank purchasing the same, and such Federal re­
serve bank shall, thereupon, deposit lawful money with
the Treasurer of the United States for the purchase price







388

AN ADVENTURE IN CONSTRUCTIVE FINANCE

o f such bon ds, an d th e T re a s u re r sh all p a y to th e m em ­
b er b a n k sellin g such bonds a n y b a la n ce du e a fte r d e d u c t­
in g a su fficien t su m

to redeem

its o u tsta n d in g n o tes

secu red b y su ch b o n d s, w h ich n otes sh a ll be ca n ce lle d and
p e rm a n e n tly re tire d w h en redeem ed.
T h e F e d e ra l re se rv e b a n k s p u rc h a sin g such b on ds sh a ll
be p e rm itte d to ta k e o u t an a m o u n t o f c irc u la tin g n o tes
eq u a l to th e p a r v a lu e o f su ch bonds.
U p o n th e d e p o sit w ith th e T re a s u re r o f th e U n ite d
S ta te s o f bonds so p u rc h a se d , o r a n y bonds w ith th e cir­
c u la tin g p riv ile g e a cq u ire d u n d e r section fo u r o f th is A c t ,
a n y F e d e ra l re se rv e b a n k m a k in g such d e p o sit in th e
m a n n er p ro v id e d b y e x istin g la w , sh all be e n title d to
re ceive from th e C o m p tro lle r o f th e C u rre n c y circ u la tin g
n o tes in b la n k , re gistere d an d co u n te rsign ed as p ro v id ed
b y la w , eq u al in a m o u n t to th e p a r v a lu e o f th e bonds
so d e p o site d .1 S u ch n otes sh all be th e o b lig a tio n s o f th e
F e d e ra l re se rve b an k p ro c u rin g th e sam e, and sh all be in
fo rm p rescrib ed b y th e S e c r e ta r y o f th e T r e a s u r y , and
to th e sam e ten o r and effect as n a tio n a l-b a n k n o tes n o w
p ro v id e d b y law .

T h e y sh all be issu ed and redeem ed

u n d e r th e sam e te rm s and co n d itio n s as n a tio n a l-b a n k
n o tes ex c ep t th a t th e y sh all n o t be lim ite d to th e am o u n t
o f th e c a p ita l sto ck o f th e F e d e ra l re se rv e b a n k issu in g
th em .
s
U p on a p p lica tio n o f a n y F e d e ra l re se rv e b a n k , a p ­
p ro ve d b y th e F e d e ra l R e s e r v e B o a rd , th e S e c re ta ry o f th e
I r e a s u r y m a y issu e, in ex c h a n g e fo r U n ite d S ta te s tw o
p e r cen tu m go ld bonds b e a rin g th e circu latio n p riv ile g e ,
u t a g a in st w h ich no circu latio n is o u tsta n d in g , oney e a r gold n o tes o f th e U n ite d S ta te s w ith o u t th e circu la n o te ^ h T a n y d ! ^
^
I 9 t 8 ’ f ^d e ra l reserVE b a n k s m a y ; ssu e F e d e r a l r e s e rv e b a n k
c e r tific a te s o f
H T n a t ,0 n s ’ in c >u d in e $ i an d $2, a g a in s t th e s e c u r it y o f U n ite d S t a t e s
c e r tific a te s o f in d e b te d n e s s to th e e x te n t p e rm itte d b y t h a t a c t.

APPENDIX B

389

tio n p riv ile g e , to an a m o u n t n o t to exceed o n e -h a lf o f th e
tw o p e r ce n tu m bonds so ten d ere d fo r e x c h a n g e , a n d
t h ir t y - y e a r th ree p e r cen tu m

go ld

bonds w ith o u t th e

c irc u la tio n p riv ile g e fo r th e re m a in d e r o f th e tw o p e r
ce n tu m b on ds so te n d e re d : Provided, T h a t a t th e tim e o f
su ch e x c h a n g e th e F e d e ra l re se rv e b a n k o b ta in in g su ch
o n e -y e a r go ld n o tes sh a ll e n te r in to an o b lig a tio n w ith
th e S e c r e ta r y o f th e T r e a s u r y b in d in g it s e lf to p u rc h a se
fro m th e U n ite d S ta te s fo r go ld a t th e m a t u r it y o f su ch
o n e -y e a r n o tes, an a m o u n t e q u a l to th ose d e liv e re d in e x ­
c h a n g e fo r su ch b o n d s, i f so re q u e sted b y th e S e c re ta ry ,
a n d a t each m a t u r it y o f o n e -y e a r n o tes so p u rc h a se d b y
su ch F e d e ra l re se rv e b a n k , to p u rc h a se fro m th e U n ite d
S ta te s such an a m o u n t o f o n e -y e a r n otes as th e S e c re ta ry
m a y te n d e r to such b a n k , n o t to exceed th e a m o u n t issu ed
to su ch b a n k in th e first in sta n c e , in ex c h a n g e fo r th e tw o
p e r c e n tu m U n ite d S ta te s go ld b o n d s; said o b lig a tio n to
p u rc h a se a t m a t u r it y such n o tes sh all co n tin u e in fo rce
fo r a p erio d n o t to exceed t h ir t y y e a rs .
F o r th e p u rp o se o f m a k in g th e ex c h a n g e h erein pro­
v id e d fo r, th e S e c r e ta r y o f th e T r e a s u r y is au th o riz ed to
issu e a t p a r T r e a s u r y n o tes in cou pon o r re g istere d fo rm
a s h e m a y p re scrib e in d e n o m in atio n s o f one h u n d red
d o lla rs, o r a n y m u ltip le th ere o f, b ea rin g in te re st a t th e
r a te o f th ree p e r c e n tu m p e r an nu m , p a y a b le q u a r te rly ,
su ch T r e a s u r y n o tes to be p a y a b le n o t m ore th a n one
y e a r fro m th e d a te o f th e ir issu e in go ld coin o f th e p re sen t
s ta n d a rd v a lu e , a n d to be e x e m p t as to p rin c ip a l and
in te re st fro m th e p a y m e n t o f all ta x e s and d u tie s o f th e
U n ite d S ta te s e x c e p t as p ro v id e d b y th is A c t, as w e ll as
fro m ta x e s in a n y form b y o r u n d e r S ta te , m u n ic ip a l, o r
lo ca l a u th o ritie s. A n d fo r th e sam e p u rp o se, th e S ec re­
t a r y is a u th o riz e d and em p o w ered to issu e U n ite d S ta te s
go ld b on ds a t p a r, b ea rin g th ree p e r ce n tu m in te re st







390

AN ADVENTURE IN CONSTRUCTIVE FINANCE

p a y a b le t h ir t y y e a rs fro m d a te o f issu e, such bonds to be
o f th e sam e g e n era l te n o r and e ffec t and to be issued
u n d e r th e sam e g e n e ra l term s and co n d itio n s as th e
U n ite d S ta te s th ree p e r cen tu m bonds w ith o u t th e c ir­
cu la tio n p riv ile g e n o w issu ed and o u tsta n d in g .
U p o n a p p lic a tio n o f a n y F e d e ra l re se rv e b a n k , a p ­
p ro v e d b y th e F e d e ra l R e s e r v e B o a rd , th e S e c r e ta r y m a y
issu e a t p a r su ch th ree p e r ce n tu m b on ds in ex c h a n g e fo r
th e o n e -y e a r go ld n o tes h erein p ro v id e d for.
BANK R ESER VES

by act approved Aug. 15, 19x4 (38 Sta t., 691, chap. 252);
act approved June 21, 19x7 (40 Stat., 232, chap. 32); act approved
Sept. "26, 1918.

A s amended

S e c . 19 .
D e m a n d d e p o sits w ith in th e m e an in g o f th is
A c t sh a ll co m p rise all d e p o sits p a y a b le w ith in th ir ty
d a y s , and tim e d e p o sits sh all co m p rise a ll d e p o sits p a y a ­
ble a fte r t h ir t y d a y s , a ll s a v in g s a cco u n ts an d ce rtifica te s

o f d ep o sit w h ich are s u b je c t to n o t less th a n t h ir t y d a y s ’
n o tice before p a y m e n t, an d all p o sta l s a v in g s d e p o sits.1
E v e r y b a n k , b a n k in g a sso c iatio n , o r tru s t c o m p a n y
w h ich is o r w h ich becom es a m e m b er o f a n y F e d e ra l
re se rve b a n k sh all e sta b lish and m a in ta in re se rv e b ala n ces
w ith its F e d e ra l re se rv e b a n k as fo llo w s:
(a) I f n o t in a re se rv e o r c e n tra l re se rv e c it y , as n ow
o r h e re a fte r defin ed, it sh all h old and m a in ta in w ith th e
F e d e ra l re se rv e b a n k o f its d istric t an a c tu a l n et b ala n ce
e q u a l to n o t less th a n seven p e r cen tu m o f th e a g g re g a te
a m o u n t o f its d em an d d e p o sits and th ree p e r ce n tu m o f
its tim e d ep o sits.
(b) I f in a re se rv e c it y , as n o w o r h e re a fte r d efin ed , it
shall h old and m a in ta in w ith th e F e d e ra l re se rv e b a n k o f
Government deposits other than postal savings deposits are not subject to reserve

rPni1in>ms.nt-o

APPENDIX B

391

its d istric t an a c tu a l n et b ala n ce eq u a l to n o t less th an
ten p e r cen tu m o f th e a g g re g a te a m o u n t o f its d em an d
d e p o sits and th ree p e r cen tu m o f its tim e d e p o s its : Pro­
vided, however, T h a t i f lo ca ted in th e o u tly in g d istric ts o f
a re se rv e c it y o r in te r rito ry ad d ed to su ch a c it y b y th e
e x te n sio n o f its co rp o ra te c h a rte r, it m a y , u pon th e
a ffirm a tiv e v o te o f fiv e m em b ers o f th e F e d e ra l R e s e rv e
B o a rd , hold and m a in ta in th e re se rv e b ala n ces specified
in p a ra g ra p h (a) h ereof.
(c)
I f in a c e n tra l re se rv e c it y , as n o w o r h e re a fte r
d efined, it sh all hold and m a in ta in w ith th e F e d e ra l re­
se rv e b a n k o f its d istric t an a c tu a l n et b ala n ce e q u a l to
n o t less th a n th irte e n p e r cen tu m o f th e a g g re g a te a m o u n t
o f its d em an d d e p o sits and th ree p e r cen tu m o f its tim e
d e p o sits: Provided, however, T h a t i f lo ca ted in th e o u t­
ly in g d istric ts o f a ce n tra l re se rv e c it y o r in te r r ito r y
ad d ed to such c it y b y th e ex te n tio n o f its c o rp o ra te
c h a rte r, it m a y , upon th e a ffirm a tiv e v o te o f fiv e m e m b ers
o f th e F e d e ra l R e s e rv e B o a rd , h old and m a in ta in th e
re se rv e
th ere o f.

b ala n ces

sp ecified

in

p a ra g ra p h s

(a) o r

(h)
V7

N o m e m b er b an k sh all k eep on d e p o sit w ith a n y S ta te
b a n k o r tru s t c o m p a n y w h ich is n o t a m e m b er b an k a
sum in excess o f ten p er cen tu m o f its ow n p a id -u p c a p i­
ta l and su rp lu s.

N o m e m b er b a n k sh a ll a c t as th e m e­

d iu m o r a g e n t o f a n o n m em b er b a n k in a p p ly in g fo r
o r re c e iv in g d isc o u n ts from a F e d e ra l re se rv e b a n k u n d e r
th e p ro v isio n s o f th is A c t , e x c e p t b y p erm issio n o f th e
F e d e ra l R e s e r v e B o a rd .
T h e re q u ired b a la n ce c a rrie d b y a m e m b er b a n k w ith
a F e d e ra l re se rv e b a n k m a y , u n d e r th e re g u la tio n s a n d
s u b je c t to su ch p e n alties as m a y be p re scrib ed b y th e
F e d e ra l R e s e r v e

B o a rd , be ch eck ed a g a in st an d w ith ­

d raw n b y such m em b er b a n k fo r th e p u rp o se o f m e etin g







392

AN ADVENTURE IN CONSTRUCTIVE FINANCE

e x istin g lia b ilitie s : Provided, however, T h a t no b a n k
sh all a t a n y tim e m a k e n ew lo a n s o r sh all p a y a n y d iv i­
den ds u n less an d u n til th e to ta l b a la n ce re q u ired b y la w
is fu lly re sto red .
In e stim a tin g th e b a la n ce s re q u ired b y th is A c t , th e
n et d ifferen ce o f a m o u n ts du e to and fro m o th e r b a n k s
sh a ll be ta k e n as th e b asis fo r a sc e rta in in g th e d ep o sits
a g a in st w h ic h re q u ired b a la n ce s w ith
b a n k s sh a ll be d e term in ed .

F e d e ra l re se rv e

N a tio n a l b a n k s, o r b a n k s o rga n iz ed u n d e r lo ca l la w s,
lo ca ted in A la s k a o r in a d e p e n d e n c y o r in su la r posses­
sion o r a n y p a rt o f th e U n ite d S ta te s o u tsid e th e co n ti­
n e n ta l U n ite d S ta te s m a y re m ain n o n m em b er b a n k s, and
sh a ll in th a t e v e n t m a in ta in re se rv e s and c o m p ly w ith
all th e co n d itio n s n o w p ro v id e d b y la w re g u la tin g th e m ;
o r said b a n k s m a y , w ith th e co n sen t o f th e R e s e rv e
B o a rd , becom e m em b er b a n k s o f a n y one o f th e re se rve
d istric ts, and sh all in t h a t e v e n t ta k e sto ck , m a in ta in
re se rv e s, and be s u b je c t to all th e o th e r p ro visio n s o f th is
A c t.
S e c . 20.
S o m u ch o f sectio n s tw o and th re e o f th e A c t
o f J u n e tw e n tie th , eigh teen h u n d red and se v e n ty -fo u r,

e n title d “ A n A c t fixin g th e a m o u n t o f U n ite d

S ta te s

n o tes, p ro v id in g fo r a re d istrib u tio n o f th e n a tio n a lb a n k c u rre n c y , and fo r o th e r p u rp o se s,” as p ro v id e s th a t
th e fu n d d e p o sited b y a n y n a tio n a l b a n k in g a sso c iatio n
w ith th e T re a s u re r o f th e U n ite d S ta te s fo r th e red em p ­
tio n o f its n o tes sh all be co u n ted as a p a rt o f its la w fu l
re se rve as p ro v id e d in th e A c t a fo re sa id , is h e re b y re­
p ealed . A n d fro m an d a fte r th e p a ssa g e o f th is A c t
such fu n d o f fiv e p e r cen tu m sh all in no case be cou n ted
b y a n y n a tio n a l b a n k in g a sso c iatio n as a p a rt o f its la w fu l
re serve.

APPENDIX B

393 *

B A N K EXAM IN ATIO N S

Sec. 21 . Sectio n fifty -tw o h u n d red and fo r ty , U n ite d
S ta te s R e v is e d S ta tu te s , is a m en d ed to read as fo llo w s:
T h e C o m p tro lle r o f th e C u rre n c y , w ith th e a p p ro v a l
o f th e S e c re ta ry o f th e T r e a s u r y , sh all a p p o in t e x a m in ­
ers w h o sh all ex a m in e e v e r y m em b er b a n k 1 a t le a st tw ice
in each c a le n d a r y e a r and o fte n e r i f co n sid ered n e c e s s a ry :

Provided, however, T h a t th e F e d e ra l R e s e rv e B o a rd m a y
a u th o riz e ex a m in a tio n

b y th e

S ta te

a u th o ritie s to

be

acce p ted in th e case o f S ta te b an k s and tru s t co m p an ies
and m a y a t a n y tim e d irec t th e h old in g o f a sp ecia l
e x a m in a tio n o f S ta te b an k s o r tru s t co m p an ies th a t are
sto ck h o ld ers in a n y F e d e ra l re se rve b an k . T h e e x a m ­
in er m a k in g th e e x a m in a tio n o f a n y n a tio n a l b a n k , or
o f a n y o th e r m em b er b an k , sh all h a v e p o w er to m a k e a
th o ro u g h ex a m in a tio n o f all th e a ffairs o f th e b a n k , and
and in d o in g so he shall h a v e p o w er to a d m in iste r o ath s
and to e x a m in e a n y o f th e officers and a gen ts th e re o f
u n d er o ath and sh all m ak e a full and d e taile d re p o rt o f the
con d ition o f said b an k to th e C o m p tro lle r o f th e C u rre n c y .
T h e F e d e ra l R e s e rv e B o a rd , upon th e reco m m en d a­
tion o f th e C o m p tro lle r o f the C u rre n c y , sh all fix the
sala ries o f all b an k e x a m in ers and m a k e re p o rt th e re o f
to C o n gress. T h e exp en se o f th e e x a m in a tio n s h erein
p ro v id ed fo r sh all be assessed b y th e C o m p tro lle r o f the
C u rre n c y

upon

th e

b an k s ex a m in ed

in

p ro p o rtio n

to

asse ts o r resou rces held b y th e b an k s upon th e d a te s o f
ex a m in a tio n o f th e v a rio u s b an k s.
In a d d itio n to th e e x a m in a tio n s m ad e and co n d u cted
b y th e C o m p tro lle r o f th e C u rre n c y , e v e r y F e d e ra l re­
serv e b an k m a y , w ith th e a p p ro v a l o f th e F e d e ra l re'E x c e p t b a n k s a d m itte d to m e m b e rs h ip in th e s y s te m u n d e r a u t h o r it y o f s e c tio n 9
o f th is a c t.

S e e se c tio n 9 o f th is a c t as a m e n d e d b y a c t a p p r o v e d J u n e




21 , 1 9 1 7 .




394

AN ADVENTURE IN CONSTRUCTIVE FINANCE

se rv e agen t o r th e F e d e ra l R e s e r v e B o a rd , p ro v id e for
sp ecial e x a m in a tio n o f m e m b er b a n k s w ith in its d istric t.
T h e exp en se o f such e x a m in a tio n s sh all be borne b y the
b a n k ex a m in ed . S u ch e x a m in a tio n s sh all be so co n d u cted
as to in fo rm th e F e d e ra l re se rv e b a n k o f th e con d itio n o f
its m em b er b a n k s and o f th e lines o f c re d it w h ich are
b ein g e x te n d ed b y th em . E v e r y F e d e ra l re se rve b a n k
sh all a t all tim e s fu rn ish to th e F e d e ra l R e s e rv e B o a rd
su ch in fo rm a tio n as m a y be d em an d ed co n cern in g th e
co n d itio n o f a n y m e m b er b a n k w ith in th e d istric t o f the
said F e d e ra l re se rv e b an k .
N o b a n k sh all be s u b je c t to a n y v is ita to r ia l pow ers
o th e r th a n such as are a u th o riz ed b y la w , o r v e ste d in
th e co u rts o f ju s tic e o r su ch as sh all be o r sh all h a v e been
ex e rcise d o r d irec ted b y C o n g re ss, o r b y e ith e r H ou se
th e re o f o r b y a n y c o m m ittee o f C o n g re ss o r o f eith e r
H o u se d u ly au th o riz ed .
T h e F e d e ra l R e s e rv e B o a rd sh a ll, a t le a st once each
y e a r, o rd er an e x a m in a tio n o f each F e d e ra l re se rve
b an k , and u pon jo in t a p p lic a tio n o f ten m em b er b a n k s the
F e d e ra l R e s e r v e B o a rd sh all o rd e r a sp ecial ex a m in a tio n
and re p o rt o f th e co n d itio n o f a n y F e d e ra l re se rve ban k .

As amended by act approved June 21, 1917 (40 Stat., 232, chap. 32);
act approved Sept. 26, 1918.
Sec. 22. (a) N o m e m b e r b a n k and no officer, d irecto r,
o r e m p lo y e e th e re o f sh all h e re a fte r m a k e a n y loan o r
g ra n t a n y g r a t u it y to a n y b a n k e x a m in e r. A n y b an k
officer, d ire c to r, o r em p lo y e e, v io la tin g th is p ro v isio n
sh all be d eem ed g u ilt y o f a m isd em e an o r and sh all be
im p risoned n o t ex ceed in g one y e a r o r fined n o t m ore
th an $ 5 ,0 0 0 , o r b o th ; and m a y be fined a fu r th e r sum
eq u a l to th e m o n e y so lo an ed o r g r a t u it y g iv e n .

APPENDIX B

395

A n y e x a m in e r a c c e p tin g a loan o r g r a t u it y from a n y
b an k ex a m in ed b y him o r fro m an officer, d ire c to r, o r
e m p lo ye e th e re o f sh all be deem ed g u ilt y o f a m isd e­
m e an o r and sh all be im p riso n ed one y e a r o r fined not
m ore th an $ 5 ,0 0 0 , o r b oth , and m a y be fined a fu rth e r
sum e q u a l to th e m o n e y so loan ed o r g r a t u it y g iv e n , and
sh all fo re v e r th e re a fte r be d isq u a lifie d from h old in g office
as a n a tio n a l b a n k ex a m in er.
(b) N o n a tio n a l b a n k e x a m in e r sh all p erfo rm a n y
o th e r se rv ic e fo r co m p en sa tio n w h ile h old in g such office
fo r a n y b a n k o r officer, d irec to r, o r em p lo y e e th ereof.
No

e x a m in e r,

p u b lic

or

p riv a te ,

sh all

d isclose

th e

n am es o f b o rro w ers o r th e co lla te ra l fo r loan s o f a m e m ­
ber b a n k to o th e r th a n th e p ro p e r officers o f such b an k
w ith o u t first h a v in g o b tain e d th e exp ress p erm ission in
w r itin g from th e C o m p tro lle r o f the C u rre n c y , o r from
th e b o ard o f d irec to rs o f su ch b a n k , e x c ep t w h en ord ered
to do so b y a co u rt o f c o m p ete n t ju risd ic tio n , o r b y
d irectio n o f th e C o n g re ss o f th e U n ite d S ta te s , o r o f
e ith e r H o u se th ere o f, o r a n y c o m m ittee o f C o n g ress, or
o f eith e r H o u se d u ly a u th o riz ed . A n y b an k e x a m in er
v io la tin g th e p ro v isio n s o f th is su b sectio n shall be im ­
p rison ed n o t m o re th a n one y e a r o r fined n ot m ore th an
$ 5 ,0 0 0 , o r both.
(c) E x c e p t as h erein p ro v id e d , a n y officer, d irecto r,
em p lo ye e, o r a tto rn e y o f a m e m b er b an k w h o s tip u la te s
fo r o r re ceives o r co n se n ts o r agrees to receive a n y fee,
co m m issio n , g if t , o r th in g o f v a lu e from a n y person, firm ,
o r co rp o ratio n , fo r p ro c u rin g o r en d ea v o rin g to procure
fo r such p erson , firm , o r co rp o ra tio n , o r fo r a n y o th e r
person , firm , o r co rp o ra tio n , a n y loan from o r th e p u r­
ch a se o r d isc o u n t o f a n y p a p e r, n o te, d ra ft, ch eck , or
bill o f ex c h a n g e b y su ch m e m b er b an k sh all be deem ed







AN ADVENTURE IN CONSTRUCTIVE FINANCE
g u ilty o f a m isd em e an o r an d sh all be im p riso n e d n o t
m ore th an one y e a r o r fined n o t m ore th a n $5,000, or
both.
(d)
A n y m e m b er b a n k m a y c o n tra c t fo r, o r p u rc h a se
fro m , a n y o f its d irec to rs o r from a n y firm o f w h ich a n y
o f its d irecto rs is a m e m b er, a n y sec u rities o r o th e r p ro p ­
e r ty , w h en (an d n o t o th e rw ise ) such p u rc h a se is m a d e
in th e re g u la r cou rse o f b u sin ess u pon term s n o t less
fa v o ra b le to th e b a n k th a n th ose o ffered to o th e rs, o r
w hen such p u rc h a se is a u th o riz ed b y a m a jo r it y o f th e
board o f d irec to rs n o t in te re ste d in th e sale o f su ch se­
cu rities o r p ro p e rty , such a u th o r ity to be ev id e n ced b y
th e a ffirm a tiv e v o te o r w ritte n a sse n t o f su ch d ire c to rs :

Provided, however, T h a t w h en a n y d ire c to r, o r firm o f
w h ich a n y d ire c to r is a m e m b er, a c tin g fo r o r on b e h a lf
o f oth ers, sells sec u rities o r o th e r p ro p e rty to a m e m b er
b an k , th e F e d e ra l R e s e r v e B o a rd b y re g u la tio n m a y ,
in a n y o r all cases, re q u ire a fu ll d isclo su re to be m a d e ,
on fo rm s to be p re scrib ed b y it, o f a ll co m m issio n s o r
o th e r co n sid era tio n s re c e iv e d , an d w h e n e v e r su ch d ire c to r
o r firm , a c tin g in h is o r its ow n b e h a lf, sells sec u rities
o r o th e r p ro p e rty to th e b a n k th e F e d e ra l R e s e r v e B o a rd ,
b y re g u la tio n , m a y re q u ire a fu ll d isclo su re o f all p ro fit
realized from su ch sale.
A n y m em b er b an k m a y sell sec u ritie s o r o th e r p ro p e rty
to a n y o f its d ire c to rs, o r to a firm o f w h ich a n y o f its
d irecto rs is a m e m b er, in th e re g u la r co u rse o f b u sin ess
on term s n o t m ore fa v o ra b le to such d ire c to r o r firm
th an th ose offered to o th e rs, o r w h en such sale is a u th o r­
ized b y a m a jo r ity o f th e b o ard o f d irec to rs o f a m em b er
b an k to
a sse n t:
section
m em ber

be ev id e n ced b y th e ir a ffirm a tiv e v o te o r w ritte n
n o th in g in th is su b ­
co n tain ed sh a ll be co n stru ed as a u th o riz in g
b an k s to p u rch a se o r sell secu rities o r o th e r prop-

Provided, however, T h a t

APPENDIX B

397

e r t y w h ich such b a n k s are n o t o th e rw ise a u th o rized b y
la w to p u rc h a se o r sell.
(e) N o m em b er b a n k sh all p a y to a n y d irec to r, officer,
a tto rn e y , o r e m p lo y e e a g re a te r ra te o f in te re st on th e
d e p o sits o f su ch d ire c to r, officer, a tto rn e y , o r em p lo y e e
th a n th a t p a id to o th e r d e p o sito rs on sim ila r d e p o sits
w ith such m e m b er b an k .
(f) I f th e d irec to rs o f officers o f a n y m e m b er b an k sh all
k n o w in g ly v io la te o r p e rm it a n y o f th e a g en ts, officers,
o r d irec to rs o f a n y m e m b er b a n k to v io la te a n y o f th e
p ro v isio n s o f th is section o r re g u la tio n s o f th e

b o ard

m a d e u n d e r a u th o rity th ere o f, e v e r y d ire c to r and officer
p a rtic ip a tin g in o r a sse n tin g to such v io la tio n sh all be
h eld lia b le in h is person al and in d iv id u a l c a p a c ity fo r all
d a m a g e s w h ich th e m em b er b a n k , its sh a re h o ld e rs, o r a n y
o th e r p erson s sh all h a v e su sta in e d in con sequ en ce o f such
v io la tio n .
S e c . 23.
T h e sto ck h o ld ers o f e v e r y n a tio n a l b a n k in g
a sso c iatio n sh all be h eld in d iv id u a lly resp on sib le fo r all
c o n tra c ts, d e b ts, and en g ag em e n ts o f such asso c iatio n ,
each to th e am o u n t o f his sto ck th ere in , a t th e p a r v a lu e
th e re o f in a d d itio n to th e a m o u n t in v e ste d in such sto ck .
T h e sto ck h o ld ers in a n y n a tio n a l b a n k in g asso ciatio n
w h o sh all h a v e tra n sfe rre d th e ir sh a re s o r re gistere d
th e tra n s fe r th e re o f w ith in s ix t y d a y s n e x t b efore the
d a te o f th e fa ilu re o f such a sso c iatio n to m eet its o b li­
g a tio n s, o r w ith k n o w led ge o f such im p en d in g failu re,
sh all be lia b le to th e sam e e x te n t as i f th e y h ad m ad e
no

such

tra n s fe r,

to

th e

e x te n t

th a t

th e

su b seq u en t

tra n sfe re e fa ils to m eet such lia b ilit y ; b u t th is p ro visio n
sh all not be co n stru ed to a ffec t in a n y w a y a n y recou rse
w h ich such sh areh o ld ers m ig h t o th e rw ise h a v e a g a in st
th ose in w h ose n am es su ch sh ares are registered a t th e
tim e o f such failu re.







AN AD VEN TU RE

LO AN S

IN C O N ST R U C T IV E

ON

FA RM

F IN A N C E

LA N D S

As amended by act approved Sept. 7, 1916 (39 Stat., 752, chap. 461).
S e c . 24.
A n y n a tio n a l b a n k in g a sso c iatio n n o t situ ­
a ted in a ce n tra l re se rv e c it y m a y m a k e lo an s secured

b y im p ro ved and u n en cu m b ered fa rm lan d situ a te d
w ith in its F e d e ra l re se rv e d istric t o r w ith in a ra d iu s o f
one h u n d red m iles o f th e p lace in w h ich such b an k is
lo ca ted , irre sp e c tiv e o f d istric t lin es, and m a y also m a k e
loan s secured b y im p ro v e d and u n en cu m b ered re al es­
ta te lo ca te d w ith in one h u n d red m iles o f th e p lace in
w h ich such b an k is lo c a te d , irre sp e c tiv e o f d istric t lin es;
b u t no lo an m a d e u pon th e se c u r ity o f su ch farm lan d
sh all be m a d e fo r a lo n ger tim e th an fiv e y e a r s , and no
loan m ad e u pon th e se c u r ity o f su ch re al e sta te as d is­
tin gu ish ed from fa rm lan d sh a ll be m a d e fo r a lo n ger
tim e th a n one y e a r n o r sh all th e a m o u n t o f a n y such
loan , w h e th e r u pon such fa rm lan d o r u pon such real
e sta te , exceed fift y p e r ce n tu m o f th e a c tu a l v a lu e o f
th e p ro p e rty offered as s e c u rity .

A n y such b a n k m a y

m a k e such lo an s, w h e th e r secured b y such fa rm lan d o r
such re al e sta te , in an a g g re g a te sum e q u a l to tw e n ty fiv e p er cen tu m o f its c a p ita l and su rp lu s o r to o n e-th ird
o f its tim e d ep o sits and such b a n k s m a y co n tin u e h ere­
a fte r as h eretofo re to re ceiv e tim e d e p o sits and to p a y
in te re st on th e sam e.
T h e F e d e ra l R e s e rv e B o a rd sh all h a v e p o w e r from
tim e to tim e to add to th e list o f cities in w h ich n a tio n a l
b a n k s sh all not be p e rm itte d to m a k e lo an s secu red u pon
real e sta te in th e m a n n er d e scrib e d in th is sectio n .

A P PE N D IX

F O R E IG N

B

399

B R A N C H ES

As amended by act approved Sept. 7, 1916 (39 Stat., 752, chap. 461);

act approved Sept. 17, 1919.
S e c . 25.
A n y n a tio n a l b a n k in g a sso ciatio n p ossessin g
a c a p ita l and su rp lu s o f $ 1,0 0 0 ,0 0 0 o r m ore m a y file a p p li­

c a tio n w ith th e F e d e ra l R e s e rv e B o a rd fo r perm ission to
ex e rcise , upon such co n d itio n s and u n d er such re g u la tio n s
as m a y be p re scrib ed b y th e said b o ard , eith e r o r both o f
th e fo llo w in g p o w e rs:
F ir s t . T o e sta b lish

b ran ch es in fo reign

co u n trie s or

d e p en d en cies o r in su la r p o ssession s o f th e U n ite d S ta te s
fo r th e fu rth e ra n c e o f th e foreign com m erce o f th e U n ite d
S ta te s , an d to a c t i f re q u ired to do so as fiscal a gen ts o f
th e U n ite d S ta te s .
S econ d . T o in v e st an a m o u n t n o t e x c eed in g in th e
a g g re g a te ten p er cen tu m o f its p a id -in c a p ita l sto ck and
su rp lu s in th e sto c k o f one o r m ore b a n k s o r co rp o ratio n s
c h a rte re d o r in c o rp o rate d u n d e r th e la w s o f th e U n ite d
S ta te s o r o f a n y S ta te th ere o f, and p rin c ip a lly en g ag ed in
in te rn a tio n a l o r fo reign b a n k in g , o r b a n k in g in a d e p en d ­
e n c y o r in su la r possession o f th e U n ite d S ta te s e ith e r
d ir e c tly o r th ro u g h th e a g e n c y , o w n e rsh ip , or co n tro l o f
lo ca l in stitu tio n s in foreign c o u n trie s, o r in such d ep en d ­
en cies o r in su la r possession s.
U n til J a n u a r y 1 , 1 9 2 1 , a n y n a tio n a l b a n k in g a sso c ia ­
tio n , w ith o u t re g a rd to th e a m o u n t o f its c a p ita l and
su rp lu s, m a y file a p p lic a tio n w ith th e F e d e ra l R e s e rv e
B o a rd fo r p erm issio n , u pon su ch co n d itio n s and u n d er
su ch re g u la tio n s as m a y be p re scrib ed b y said b o ard , to
in v e s t an a m o u n t n o t ex c eed in g in th e a g g re g a te fiv e p er
ce n tu m o f its p a id -in c a p ita l and su rp lu s in th e sto c k o f
one o r m ore co rp o ratio n s c h a rte re d o r in c o rp o ra te d u n d e r
th e la w s o f th e U n ite d S ta te s o r o f a n y S ta te th e re o f and







400

AN

ADVENTURE

IN

C O N STR U C TIV E

FIN A N C E

re ga rd less o f its lo c a tio n , p rin c ip a lly en g ag ed

in such

p h ases o f in te rn a tio n a l o r fo reign fin a n c ia l o p eratio n s as
m a y be n e c e ssa ry to fa c ilita te th e e x p o rt o f g o o d s, w a re s,
o r m e rch an d ise fro m th e U n ite d

S ta te s o r a n y o f its

depen d en cies o r in su la r po ssessio n s to a n y fo reign cou n ­
t r y : Provided, however, T h a t in no e v e n t sh a ll th e to ta l
in v e stm e n ts au th o riz ed b y th is section b y a n y one n a ­
tio n a l b a n k exceed ten p er cen tu m o f its c a p ita l and
su rp lu s.
Su ch a p p lica tio n sh all s p e c ify th e n am e and c a p ita l o f
th e b a n k in g a sso c iatio n filin g it, th e p ow ers a p p lied for,
and th e p lace or p laces w h ere th e b a n k in g o r fin a n c ia l
o p e ra tio n s p rop osed are to be ca rried on. T h e F e d e ra l
R e s e rv e B o a rd sh all h a v e p o w er to a p p ro v e o r to re je c t
such a p p lic a tio n in w h o le o r in p a rt i f fo r a n y reason th e
g ra n tin g o f such a p p lic a tio n is deem ed in e xp e d ie n t, and
sh all also h a v e p o w er from tim e to tim e to in crea se or
d ecrease th e n u m b er o f p laces w h ere such b a n k in g o p era ­
tio n s m a y be c a rrie d on.
E v e r y n a tio n a l b a n k in g a sso c iatio n o p e ra tin g foreign
b ran ch es shall be re q u ired to fu rn ish in fo rm a tio n con ­
cern in g th e co n d itio n o f such b ran ch es to th e C o m p tro lle r
o f th e C u rre n c y u pon d em an d , and e v e r y m em b er b an k
in v e stin g in th e c a p ita l sto ck o f b an k s o r co rp o ratio n s
d escrib ed a b o v e sh all be req u ired to fu rn ish in fo rm a tio n
co n cern in g th e co n d itio n o f such b an k s o r co rp o ratio n s
to th e F e d e ra l R e s e rv e B o a rd upon d em an d , and the
F e d e ra l R e s e rv e B o a rd m a y o rd er sp ecial ex a m in a tio n s
o f th e said b ran ch es, b an k s, o r co rp o ratio n s a t such tim e
o r tim es as it m a y deem best.
B e fo re a n y n a tio n a l b a n k sh all be p e rm itte d to pu rch ase
sto ck in a n y such co rp o ratio n th e said co rp o ratio n shall
en te r in to an a greem en t o r u n d e rta k in g w ith th e F e d e ra l
R e s e rv e B o a rd to re stric t its o p eratio n s o r co n d u ct its

A P PE N D IX

B

401

b usin ess in such m a n n e r o r u n d e r such lim ita tio n s and re ­
s tric tio n s as th e said b o ard m a y p re scrib e fo r th e p lace
o r p laces w h erein such b u sin ess is to be co n d u cted . I f at
a n y tim e th e F e d e ra l R e s e rv e B o a rd sh all a sc e rta in th a t
th e re g u la tio n s p re scrib ed b y it are n o t bein g com p lied
w ith , said b o ard is h e re b y au th o riz ed and em p o w ered to
in s titu te an in v e stig a tio n o f th e m a tte r and to send fo r
p erson s and p a p e rs, subpoena w itn esses, and a d m in iste r
o a th s in o rd e r to s a tis fy it s e lf as to th e a c tu a l n a tu re o f
th e tra n sa c tio n s refe rred to. S h o u ld such in v e stig a tio n
re su lt in e sta b lish in g th e fa ilu re o f th e co rp o ratio n in
q u estio n , o r o f th e n a tio n a l b a n k o r b an k s w h ich m a y be
sto ck h o ld ers th ere in , to c o m p ly w ith th e re g u la tio n s laid
dow n b y th e said F e d e ra l R e s e rv e B o a rd , such n a tio n a l
b a n k s m a y be re q u ired to disp ose o f sto ck h old in gs in th e
said c o rp o ratio n upon re aso n ab le n otice.
E v e r y such n a tio n a l b a n k in g a sso c iatio n sh all co n d u ct
th e a cco u n ts o f each fo reign b ran ch in d e p e n d e n tly o f th e
a cco u n ts o f o th e r foreign b ran ch es esta b lish ed b y it and
o f its hom e office, and sh all a t th e end o f each fiscal period
tra n s fe r to its g e n era l led g er th e p ro fit or loss accru ed at
each b ran ch as a se p a ra te item .
A n y d ire c to r o r o th e r officer, a g en t, o r em p lo y e e o f a n y
m e m b er b an k m a y , w ith th e a p p ro v a l o f th e F e d e ra l R e ­
se rv e B o a rd , be a d ire c to r o r o th e r officer, a g en t, o r em ­
p lo yee o f a n y such b a n k o r c o rp o ratio n a b o v e m en ­
tio n ed in th e c a p ita l sto ck o f w h ich such m e m b er b an k
sh all h a v e in v e ste d

as h ere in b e fo re

p ro v id e d , w ith o u t

b ein g s u b je c t to th e p ro v isio n s o f section eig h t o f th e
A c t a p p ro v e d O cto b er fifte e n th , n in eteen h u n d red and
fo u rteen , en title d

A n A c t to su p p lem e n t e x istin g law s

a g a in st u n la w fu l re stra in ts and m o n o p o lies, and fo r o th e r
p u rp o ses.” 1
t T h e C la y t o n A c t .







402

AN

B A N K IN G

ADVENTURE

IN

C O R P O R A T IO N S

C O N STR U CTIV E

A U T H O R IZ E D

B A N K IN G

Added by

A ct

of Dec.

TO

FIN A N C E

DO

F O R E IG N

B U S IN E S S

24, 19 19 .

S e c . 2 5 (a ).
C o rp o ra tio n s to be o rgan ized fo r th e
p u rp o se o f e n g a g in g in in te rn a tio n a l o r fo reign b an k in g
o r o th e r in te rn a tio n a l o r fo reig n fin an c ial o p e ra tio n s, or

in b a n k in g o r o th e r fin a n c ia l o p e ra tio n s in a d e p en d en c y
o r in su la r possession o f th e U n ite d S ta te s , e ith e r d ire c tly
or th ro u g h th e a g e n c y , o w n e rsh ip , o r co n tro l o f lo cal in ­
stitu tio n s in foreign co u n trie s, o r in such d ep en d en cies
o r in su la r possession s as p ro v id e d b y th is sectio n , and to
act w h en re q u ired b y th e S e c r e ta r y o f th e T r e a s u r y as
fiscal a g en ts o f th e U n ite d S ta te s m a y be fo rm ed b y a n y
n u m b er o f n a tu ra l person s, n o t less in a n y ca se th a n five.
Such person s sh a ll e n te r in to a rtic le s o f a sso ciatio n
w h ich sh all s p e c ify in g e n e ra l term s th e o b je c ts fo r w h ich
th e a sso c iatio n is fo rm ed and m a y co n ta in a n y o th e r p ro ­
visio n s n o t in c o n siste n t w ith la w w h ich th e a sso ciatio n
m a y see fit to a d o p t fo r th e re g u la tio n o f its b u sin ess and
th e co n d u ct o f its a ffa irs.
Su ch a rticle s o f a sso c iatio n sh all be sign ed b y all o f
th e persons in te n d in g to p a rtic ip a te in th e o rg a n iz a tio n
o f the c o rp o ratio n a n d , th e re a fte r, sh all be fo rw a rd e d to
the F e d e ra l R e s e rv e B o a rd and sh all be filed and p re­
serv ed in its office. T h e person s sig n in g th e said a rtic le s
of a sso c iatio n sh a ll u n d e r th e ir h an d s, m a k e an o rg a n ­
iz atio n c e rtific a te w h ich sh a ll sp e c ific a lly s t a t e :
F ir s t. T h e n am e assu m ed b y such c o rp o ra tio n , w h ich
sh all be su b je c t to th e a p p ro v a l o f th e F e d e ra l R e s e rv e
B o a rd .
Second . T h e p lace o r p lac es w h ere its o p e ra tio n s are
to be ca rried on.

A P PEN D IX

B

403

T h ir d . T h e p lace in th e U n ite d S ta te s w h ere its h om e
office is to be lo ca ted .
F o u rth . T h e a m o u n t o f its c a p ita l sto ck and th e n u m ­
b er o f sh a re s in to w h ich th e sam e sh all be d iv id e d .
F ift h . T h e n am es and p laces o f b u sin ess o r resid en ce
o f th e person s e x e c u tin g th e c e rtific a te and th e n u m b er
o f sh a re s to w h ich each h as su b scrib ed .
S ix th . T h e fa c t th a t th e c e rtific a te is m a d e to en a b le
th e p erson s su b sc rib in g th e sam e, and all o th e r person s,
firm s, co m p an ie s, and co rp o ra tio n s, w h o o r w h ich m a y
th e re a fte r su b sc rib e to o r p u rch a se sh ares o f th e c a p ita l
sto ck o f such c o rp o ratio n to a v a il th e m se lv e s o f th e a d ­
v a n ta g e s o f th is section .
T h e person s sign in g th e o rg a n iz a tio n c e rtific a te sh all
d u ly a ck n o w led g e th e ex e cu tio n th e re o f before a ju d g e
o f som e co u rt o f reco rd o r n o ta r y p u b lic, w h o sh a ll ce r­
t ify th e re to u n d e r th e seal o f such co u rt o r n o ta r y , and
th e re a fte r th e c e rtific a te sh all be fo rw a rd e d to th e F e d e ra l
R e s e r v e B o a rd to be filed and p re se rv e d in its office.
U p on d u ly m a k in g an d filin g a rtic le s o f a sso c ia tio n an d
an o rg a n iz a tio n c e rtific a te , and a fte r th e F e d e ra l R e s e rv e
B o a rd h as a p p ro v e d th e sam e and issu ed a p e rm it to
b egin b usin ess, th e a sso c iatio n sh all becom e and be a
b o d y c o rp o ra te , an d as such and in th e n am e d e sig n a ted
th erein sh all h a v e p o w e r to a d o p t and use a co rp o ra te
seal, w h ich m a y be ch a n ged a t th e p lea su re o f its b o ard o f
d ire c to rs; to h a v e su ccessio n fo r a period o f tw e n ty y e a rs
unless soon er d isso lv e d b y th e a c t o f th e sh a re h o ld e rs
o w n in g tw o -th ird s o f th e sto ck o r b y an A c t o f C o n g ress
o r unless its fran c h ise s becom e fo rfe ited b y som e v io la tio n
o f la w ; to m a k e c o n tra c ts ; to sue and be su ed , c o m p la in ,
and d efen d in a n y co u rt o f la w o r e q u it y ; to ele ct o r
a p p o in t d ire c to rs, all o f w h o m sh a ll be citize n s o f th e
U n ite d S t a t e s ; a n d , b y its b o ard o f d ire c to rs, to a p p o in t







4O4

AN ADVENTURE IN CONSTRUCTIVE FINANCE

such officers and e m p lo y e es as m a y be d eem ed p ro p er,
define th e ir a u th o rity and d u tie s, re q u ire b on ds o f th em ,
and fix th e p e n a lty th e re o f, d ism iss such o fficers o r em ­
p lo y ees, o r a n y th ere o f, a t p lea su re and a p p o in t o th ers
to fill th e ir p la c e s; to p re scrib e, b y its b o ard o f d ire c to rs,
b y -la w s n o t in c o n siste n t w ith la w o r w ith th e re g u la tio n s
o f th e F e d e ra l R e s e r v e B o a rd re g u la tin g th e m a n n e r in
'which its sto ck sh all be tra n sfe rre d , its d irec to rs elected
or a p p o in te d , its officers and e m p lo y e es a p p o in te d , its
p ro p e rty tra n sfe rre d , and th e p riv ile g e s g ra n te d to it
b y la w ex ercised and e n jo y e d .
E a c h c o rp o ratio n so o rga n iz ed sh a ll h a v e p o w er, u n d er
su ch ru les and re g u la tio n s as th e F e d e ra l R e s e r v e B o a rd
m a y p re sc rib e :
(a)
T o p u rc h a se , sell, d isc o u n t, a n d n e g o tia te , w ith
o r w ith o u t its in d o rse m e n t o r g u a r a n t y , n o tes, d ra fts ,
ch ec k s, bills o f ex c h a n g e, a c c e p ta n c e s, in c lu d in g b a n k e rs’
a cce p ta n ces, ca b le tra n sfe rs, and o th e r ev id e n ces o f
in d e b te d n e ss; to p u rc h a se an d sell, w ith o r w ith o u t its
in d o rse m e n t or g u a r a n ty , se c u ritie s, in c lu d in g th e o b ­
lig a tio n s o f the U n ite d S ta te s o r o f a n y S ta te th e re o f
b u t not in c lu d in g sh a re s o f sto ck in a n y co rp o ratio n
ex c e p t as herein p ro v id e d ; to a cce p t b ills o r d r a fts d raw n
upon it su b je c t to such lim ita tio n s and re stric tio n s as
the F e d e ra l R e s e r v e B o a rd m a y im p o se ; to issu e le tte rs
o f c re d it; to p u rc h a se and sell coin , b u llio n , an d e x c h a n g e ;
to b o rro w and to lend m o n e y ; to issu e d e b e n tu re s, bonds,
and p ro m isso ry n otes u n d er su ch g e n era l co n d itio n s as
to s e c u rity and su ch lim ita tio n s as th e F e d e ra l R e s e rv e
tffiard m a y p re scrib e, b u t in no e v e n t h a v in g lia b ilitie s
o u tsta n d in g th ereon a t a n y one tim e ex c eed in g ten tim es
its c a p ita l sto ck and su rp lu s; to re ce iv e d e p o sits o u tsid e
o.
U n ited S ta te s and to re ce iv e o n ly such d ep o sits
w t in the U n ited S ta te s as m a y be in c id e n ta l to o r fo r

APPENDIX B

405

th e p u rp o se o f c a rry in g o u t tra n sa c tio n s in foriegn cou n ­
trie s o r dep en d en cies o r in su la r p ossessions o f th e U n ite d
S t a t e s ; an d g e n e ra lly to exercise such p ow ers as are in c i­
d e n ta l to th e p ow ers co n ferred b y th is A c t o r as m a y be
u su a l, in th e d e te rm in a tio n o f th e F e d e ra l R e s e rv e B o a rd ,
in co n n ectio n w ith th e tra n sa c tio n o f th e b u sin ess o f
b a n k in g o r o th e r fin an c ial o p eratio n s in th e co u n trie s,
colon ies, d ep en d en cies, o r possessions in w h ich it sh all
tra n s a c t b usin ess an d n o t in co n siste n t w ith th e p o w ers
sp e c ific a lly g ra n te d h erein .

N o th in g co n tain ed in th is

sectio n sh all be co n stru ed to p ro h ib it th e F e d e ra l R e s e rv e
B o a rd , u n d e r its p o w e r to p re scrib e ru les and re g u la tio n s,
fro m lim itin g th e a g g re g a te am o u n t o f lia b ilitie s o f a n y
o r all classes in c u rred b y th e co rp o ratio n and o u tsta n d in g
a t a n y one tim e. W h e n e v e r a co rp o ratio n o rgan ized
u n d e r th is section re ceiv es d ep o sits in th e U n ite d S ta te s
a u th o riz ed b y th is section it sh all c a r r y rese rve s in su ch
am o u n ts as th e F e d e ra l R e s e r v e B o a rd m a y p re scrib e,
b u t in no e v e n t less th a n ten p e r cen tu m o f its d ep o sits.
(b) T o e sta b lish and m a in ta in fo r th e tra n sa c tio n o f
its b usin ess b ran ch e s o r agen cies in foreign co u n trie s,
th e ir d ep en d en cies o r colon ies, and in th e dep en d en cies
o r in su la r possession s o f th e U n ite d S ta te s, a t such p laces
as m a y be a p p ro v e d b y th e F e d e ra l R e s e rv e B o a rd and
u n d e r such ru les an d re g u la tio n s as it m a y p rescrib e, in­
clu d in g co u n trie s o r d ep en d en cies not specified in th e
o rig in al o rg a n iz a tio n ce rtific a te .
(c) W ith th e co n sen t o f th e F e d e ra l R e s e rv e B o a rd to
p u rc h a se an d h old sto ck o r o th e r ce rtifica tes o f o w n er­
sh ip in a n y o th e r co rp o ratio n o rgan ized u n d er th e p ro ­
v isio n s o f th is sectio n , o r u n d er th e law s o f a n y foreign
c o u n try o r a c o lo n y o r d e p en d en c y th ere o f, o r u n d er
th e la w s o f a n y S ta te , d e p en d en c y , or in su la r possession
o f th e U n ite d




S ta te s

b u t n o t en gaged

in th e g en eral




406

a n

a d v e n t u r e

in

c o n st r u c t iv e

f in a n c e

b usin ess o f b u y in g o r sellin g go o d s, w a re s, m e rch an d ise,
o r co m m o d ities in th e U n ite d S ta te s , and n o t tra n s a c tin g
a n y business in th e U n ite d S ta te s ex c e p t such as in the
ju d g m e n t o f th e F e d e ra l R e s e rv e B o a rd m a y be in ci­
to its in te rn a tio n a l o r fo reign b u sin e ss: Pro­
vided, however, T h a t , e x c e p t w ith th e a p p ro v a l o f th e
d e n ta l

F e d e ra l R e s e rv e B o a rd , no co rp o ratio n o rga n iz ed h ere­
u n d er sh all in v e st in a n y one c o rp o ratio n an a m o u n t in
excess o f ten p er cen tu m o f its ow n c a p ita l an d su rp lu s,
e x c e p t in a co rp o ratio n en g ag ed in th e b u sin ess o f b a n k ­
in g, w h en fifteen p er cen tu m o f its c a p ita l and su rp lu s m a y
be so in v e ste d . Provided further, T h a t no co rp o ratio n
o rgan ized h ere u n d er sh all p u rc h a se , o w n , o r h old sto ck
or c e rtific a te s o f o w n e rsh ip in a n y o th e r co rp o ratio n
o rga n iz ed h ere u n d er o r u n d e r th e la w s o f a n y S ta te
w h ich is in su b s ta n tia l co m p etitio n th e re w ith , o r w h ich
h old s sto ck o r c e rtific a te s o f o w n e rsh ip in co rp o ratio n s
w h ich are in su b s ta n tia l co m p e titio n w ith th e p u rc h a sin g
co rp o ratio n .
N o th in g co n ta in ed h erein sh all p re v e n t co rp o ratio n s
o rga n iz ed h ere u n d er fro m p u rc h a sin g and h o ld in g sto ck
in a n y co rp o ratio n w h ere su ch p u rc h a se sh all be n e c e ssa ry
to p re v e n t a loss u pon a d e b t p re v io u sly c o n tra c te d in
good fa ith ; and sto c k so p u rch a se d o r a cq u ire d in co r­
p o ra tio n s o rgan ized u n d e r th is section sh all w ith in six
m o n th s fro m such p u rch a se be sold o r disp osed o f a t
p u b lic o r p riv a te sale u nless th e tim e to so d isp ose o f
sam e is ex te n d ed b y th e F e d e ra l R e s e r v e B o a rd .
N o c o rp o ratio n o rgan ized u n d e r th is sectio n sh all
c a r r y on a n y p a rt o f its b u sin ess in th e U n ite d S ta te s
ex c e p t such as, in th e ju d g m e n t o f th e F e d e ra l R e s e rv e
B o a rd , sh all be in c id e n ta l to its in te rn a tio n a l o r fo reign
b u sin e ss: And provided further, T h a t e x c e p t su ch as is
in c id e n ta l and p re lim in a ry to its o rg a n iz a tio n no such

A P P E N D IX

B

407

c o rp o ratio n sh all exercise a n y o f th e p ow ers co n ferred
b y th is sectio n u n til it h as been d u ly au th o riz ed b y the
F e d e ra l R e s e rv e B o a rd to co m m ence b usin ess as a co r­
p o ra tio n o rga n iz ed u n d er th e p ro visio n s o f th is section .
N o c o rp o ratio n o rga n iz ed u n d er th is section sh all
en g ag e in com m erce o r tra d e in co m m o d ities e x c e p t as
s p e c ific a lly p ro v id e d in th is sectio n , n or sh all it eith e r
d ire c tly o r in d ire c tly co n tro l o r fix o r a tte m p t to co n tro l
o r fix th e p rice o f a n y such co m m o d ities. T h e c h a rte r
o f a n y c o rp o ratio n v io la tin g th is p ro visio n sh all be su b ­
je c t to

fo rfe itu re

in th is sectio n .

in th e

m a n n er h e re in a fte r p ro v id e d

I t sh all be u n la w fu l fo r a n y d irec to r,

o fficer, a g e n t, o r e m p lo y e e o f a n y su ch c o rp o ratio n to
use o r to co n sp ire to use th e c red it, th e fu n d s, o r th e
p o w e r o f th e co rp o ratio n to fix o r co n tro l th e p rice o f a n y
such co m m o d itie s, and a n y such person v io la tin g th is
p ro v isio n sh all be lia b le to a fine o f n ot less th a n $ 1 ,0 0 0
an d n o t ex c eed in g $ 5 ,0 0 0 o r im p riso n m en t n o t less th an
one y e a r a n d n o t ex c eed in g fiv e y e a r s , o r b o th , in th e
d isc retio n o f th e co u rt.
N o co rp o ratio n sh all be o rga n iz ed u n d e r th e p ro v isio n s
o f th is sectio n w ith a c a p ita l sto ck o f less th a n $ 2 ,0 0 0 ,0 0 0 ,
o n e -q u a rte r o f w h ich m u st be p aid in befo re th e co rp o ra ­
tio n m a y be au th o riz ed to begin b u sin ess, and th e re­
m a in d e r o f th e c a p ita l sto c k o f su ch c o rp o ra tio n sh a ll
be p aid in in sta llm e n ts o f a t le a st 1 0 p er ce n tu m on th e
w h o le a m o u n t to w h ich th e co rp o ratio n sh all be lim ite d
a s fre q u e n tly as one in sta llm e n t a t th e end o f each su c­
ceed in g tw o m o n th s fro m th e tim e o f th e co m m en ce­
m e n t o f its b u sin ess o p e ra tio n s u n til th e w h o le o f th e
c a p ita l sto c k sh a ll be p a id in. T h e c a p ita l sto c k o f a n y
su ch c o rp o ratio n m a y be in crea sed a t a n y tim e , w ith th e
a p p ro v a l o f th e F e d e ra l R e s e r v e B o a rd , b y a v o te o f
tw o -th ird s o f its sh a re h o ld e rs o r b y u n an im o u s co n sen t







408

a n

a d v e n t u r e

in

c o n st r u c t iv e

f in a n c e

in w ritin g o f th e sh areh o ld ers w ith o u t a m e etin g and
w ith o u t a fo rm a l v o te , b u t a n y such in crea se o f c a p ita l
sh all be fu lly p aid in w ith in n in e ty d a y s a fte r su ch a p ­
p ro v a l; and m a y be red u ced in lik e m a n n er, p ro v id e d
th a t in no e v e n t sh all it be less th a n £2,0 00 ,0 00 . N o
co rp o ratio n , ex c e p t as h erein p ro v id e d , sh all d u rin g th e
tim e it sh all co n tin u e its o p e ra tio n s w ith d ra w o r p e rm it
to be w ith d ra w n , eith e r in th e form o f d iv id e n d s o r
o th e rw ise , a n y p o rtio n o f its c a p ita l. A n y n a tio n a l
b a n k in g a sso c iatio n m a y in v e st in th e sto ck o f a n y co r­
p o ra tio n o rga n iz ed u n d e r th e p ro v isio n s o f th is sectio n ,
b u t th e a g g re g a te a m o u n t o f sto ck held m all co rp o ratio n s
en g ag ed in b u sin ess o f th e k in d d escrib ed in th is section
and in section 25 o f th e F e d e ra l R e s e r v e A c t as am en d ed
sh all n o t exceed ten p e r ce n tu m o f th e su b sc rib in g b a n k ’ s
c a p ita l an d su rp lu s.
A m a jo r ity o f th e sh a re s o f th e c a p ita l sto c k o f a n y
such c o rp o ratio n sh all a t all tim e s be held and ow n ed b y
citizen s o f th e U n ite d S ta te s , b y co rp o ratio n s th e con­
tro llin g in te re st in w h ich is ow n ed b y citizen s o f the
U n ite d S ta te s , ch a rte re d u n d e r th e la w s o f th e U n ite d
S ta te s o r o f a S ta te o f th e U n ite d S ta te s , o r b y firm s or
co m p an ie s, th e c o n tro llin g in te re st in w h ich is ow n ed b y
citizen s o f th e U n ite d S ta te s . T h e p ro v isio n s o f section
8 o f th e a c t a p p ro v e d O cto b e r 1 5 , 1 9 1 4 , e n title d “ A n
a ct to su p p lem e n t e x istin g la w s a g a in st u n la w fu l re­
s tra in ts

and

m o n o p o lies,

an d

fo r o th e r p u rp o se s,”

as

am en d ed b y th e a cts o f M a y 1 5 , 1 9 1 6 , and S e p te m b e r 7,
1 9 1 6 , sh all be co n stru ed to a p p ly to th e d ire c to rs, o th e r
officers, a g e n ts, o r e m p lo y e es o f c o rp o ra tio n s o rga n iz ed
u n d er th e p ro v isio n s o f th is se c tio n : Provided, however,
T h a t n o th in g h erein co n ta in ed sh a ll ( 1) p ro h ib it a n y
d irec to r o r o th e r officer* agen t o r em p lo y e e o f a n y m em b er
b an k , w h o h as p ro cu red th e a p p ro v a l o f th e F e d e ra l

APPENDIX B

4C9

R e s e r v e B o a rd fro m s e rv in g a t th e sam e tim e as a d irec to r
o r o th e r officer, a g en t o r e m p lo y e e o f a n y co rp o ra tio n
o rga n iz ed u n d er th e p ro v isio n s o f th is sectio n in w h o se
c a p ita l sto ck such m e m b er b a n k sh all h a v e in v e s te d ; o r
(2) p ro h ib it a n y d irec to r o r o th e r o fficer, a g e n t, o r em ­
p lo y ee o f a n y c o rp o ratio n o rgan ized u n d e r th e p ro­
v isio n s o f th is sectio n , w h o h as p ro cu red th e a p p ro v a l o f
th e F e d e ra l R e s e r v e B o a rd , fro m se rv in g a t th e sam e tim e
as a d irec to r o r o th e r officer, a gen t, o r em p lo y e e o f a n y
o th e r

c o rp o ratio n

m en tio n ed

in

c o rp o ra tio n

w h o se
sh all

c a p ita l
h ave

sto ck

in v e ste d

such

first-

u n d e r th e

p ro visio n s o f th is section.
N o m em b er o f th e F e d e ra l R e s e r v e B o a rd sh all be an
officer o r d irec to r o f a n y c o rp o ratio n o rga n iz ed u n d e r
th e p ro visio n s o f th is sectio n , o r o f a n y c o rp o ra tio n en ­
g a g e d in sim ila r b u sin ess o rgan ized u n d e r th e la w s o f
a n y S ta te , n o r h old sto c k in a n y such c o rp o ra tio n , and
b efo re en te rin g upon h is d u ties as a m em b er o f th e F e d ­
e ra l R e s e rv e B o a rd he sh a ll c e r tify u n d er o a th to th e
S e c re ta ry o f th e T r e a s u r y th a t he h as co m p lied w ith th is
re q u irem e n t.
S h a reh o ld ers in a n y c o rp o ratio n o rga n iz ed u n d e r th e
p ro visio n s o f th is sectio n sh all be lia b le fo r th e a m o u n t
o f th e ir u n p aid sto ck su b sc rip tio n s. N o such c o rp o ra ­
tio n sh all becom e a m em b er o f a n y F e d e ra l re se rv e b a n k .
S h o u ld a n y c o rp o ratio n o rga n iz ed h ere u n d er v io la te
o r fa il to c o m p ly w ith a n y o f th e p ro v isio n s o f th is sec­
tio n , all o f its rig h ts, p riv ile g e s, and fran c h ise s d e riv e d
h erefro m m a y th e re b y be fo rfe ite d . B e fo re a n y su ch
c o rp o ratio n

sh all

be d e cla red

d isso lv e d , or its

rig h ts,

p riv ile g e s, and fran c h ise s fo rfe ite d , a n y n o n co m p lia n ce
w ith , o r v io la tio n o f such la w s sh a ll, h o w eve r, be d e te r­
m in ed and a d ju d g e d b y a co u rt o f th e U n ite d S ta te s o f
co m p ete n t ju ris d ic tio n , in a su it b ro u gh t fo r th a t p u rp o se







410

AN ADVENTURE IN CONSTRUCTIVE FINANCE

in th e d istric t o r te r r ito r y in w h ich th e h om e office o f
such c o rp o ra tio n is lo c a te d , w h ich su it sh all be b ro u g h t
b y th e U n ite d S ta te s a t th e in sta n c e o f th e F e d e ra l
R e s e r v e B o a rd o r th e A t t o r n e y G e n e ra l.

U p o n a d ju d i­

c a tio n o f su ch n o n co m p lia n ce o r v io la tio n , each d irec to r
an d o fficer w h o p a rtic ip a te d in, o r asse n ted to , th e illeg a l
a c t o r a c ts, sh all be lia b le in his p erson al o r in d iv id u a l
c a p a c ity fo r all d a m a g e s w h ich th e said c o rp o ratio n sh all
h a v e su sta in e d in co n seq u en ce th ere o f. N o d isso lu tio n
sh all ta k e a w a y o r im p a ir a n y re m e d y a g a in st th e co r­
p o ra tio n , its sto ck h o ld ers, o r officers fo r a n y lia b ilit y or
p e n a lty p re v io u sly in cu rred .
A n y such c o rp o ra tio n m a y g o in to v o lu n ta r y liq u i­
d a tio n and be closed b y a v o te o f its sh a re h o ld e rs o w n in g
tw o -th ird s o f its sto ck .
W h e n e v e r th e F e d e ra l R e s e r v e B o a rd sh all becom e
satisfie d o f th e in s o lv e n c y o f a n y su ch c o rp o ra tio n , it
m a y a p p o in t a re c e iv e r w h o sh all ta k e p o ssession o f all o f
th e p ro p e rty and a sse ts o f th e c o rp o ratio n and exercise
the sam e rig h ts, p riv ile g e s, p o w ers, an d a u th o rity w ith
re sp ect th e re to as are n o w ex e rcise d b y re c e iv e rs o f
n a tio n a l b a n k s ap p o in ted b y th e C o m p tro lle r o f th e
C u rre n c y o f th e U n ite d S t a t e s : Provided, however, T h a t
th e asse ts o f th e c o rp o ratio n s u b je c t to th e la w s o f o th e r
co u n trie s or ju ris d ic tio n s sh all be d e a lt w ith in a cco rd a n ce
w ith th e term s o f su ch law s.
E v e r y c o rp o ra tio n o rg a n iz ed u n d e r th e p ro v isio n s o f
th is sectio n sh all h old a m e e tin g o f its sto ck h o ld ers a n ­
n u a lly u pon a d a te fixed in its b y -la w s , su ch m e e tin g to
be held a t its h om e office in th e U n ite d S ta te s . E v e r y
such c o rp o ratio n sh all keep a t its h om e office b o ok s con­
ta in in g th e n am es o f all sto ck h o ld ers th e re o f, an d th e
n am es and a d d resses o f th e m e m b ers o f its b o ard o f d i­
recto rs, to g e th e r w ith copies o f all re p o rts m a d e b y it to

APPENDIX B

4II

th e F e d e ra l R e s e rv e B o a rd . E v e r y such co rp o ratio n shall
m a k e re p o rts to th e F e d e ra l R e s e rv e B o a rd a t such tim es
and in such fo rm as it m a y re q u ire ; and sh all be su b je c t
to ex a m in a tio n once a y e a r and a t such o th e r tim e s as
m a y be d eem ed n e c e ssa ry b y th e F e d e ra l R e s e rv e B o a rd
b y e x a m in ers a p p o in ted b y th e F e d e ra l R e s e rv e B o a rd ,
th e co st o f such e x a m in a tio n s, in c lu d in g th e co m p en sa ­
tio n o f th e ex a m in e rs, to be fixed b y th e F e d e ra l R e s e rv e
B o a rd and to be p a id b y th e c o rp o ra tio n ex a m in ed .
T h e d irec to rs o f a n y c o rp o ratio n o rga n iz ed u n d e r th e
p ro v isio n s o f th is section m a y , se m ia n n u a lly , d e cla re a
d iv id e n d o f so m u ch o f th e n et p ro fits o f th e c o rp o ra tio n
as th e y sh all ju d g e e x p e d ie n t; b u t each c o rp o ratio n sh a ll,
b efo re th e d e c la ra tio n o f a d iv id e n d , c a r r y o n e-ten th o f
its n et p ro fits o f th e p re ce d in g h a lf y e a r to its su rp lu s
fu n d u n til th e sam e sh a ll a m o u n t to tw e n ty per cen tu m
o f its c a p ita l sto ck .
A n y co rp o ratio n o rg a n iz ed u n d e r th e p ro v isio n s o f th is
sectio n sh a ll be su b je c t to t a x b y th e S t a t e w ith in w h ich
its h om e office is lo c a te d in th e sam e m a n n e r and to th e
sam e e x te n t as o th e r c o rp o ra tio n s o rga n iz ed u n d e r th e
la w s o f th a t S t a t e w h ich are tra n s a c tin g a s im ila r c h a r­
a c te r o f b u sin e ss.

T h e sh a re s o f sto ck in such co rp o ratio n

sh a ll also be s u b je c t to t a x as th e p erson al p ro p e rty o f
th e o w n ers o r h o ld ers th e re o f in th e sam e m a n n er and to
th e sam e e x te n t as th e sh a re s o f sto c k in sim ila r S ta te
c o rp o ra tio n s.
A n y co rp o ra tio n o rg a n iz e d u n d e r th e p ro v isio n s o f th is
sectio n m a y a t a n y tim e w ith in th e tw o y e a r s n e x t p re­
v io u s to th e d a te o f th e e x p ira tio n o f its c o rp o ra te e x ­
iste n c e , b y a v o te o f th e sh a re h o ld e rs o w n in g tw o -th ird s
o f its s to c k , a p p ly to th e F e d e ra l R e s e r v e B o a rd fo r its
a p p ro v a l to ex te n d th e p erio d o f its c o rp o ra te e x iste n c e
fo r a term o f n o t m ore th a n tw e n ty y e a r s , and u pon c e rti-







412

AN ADVENTURE IN CONSTRUCTIVE FINANCE

fied a p p ro v a l o f the F e d e ra l R e s e r v e B o a rd su ch c o rp o ra ­
tio n sh all h a v e its c o rp o ra te e x iste n c e fo r such ex te n d e d
period u nless soon er d isso lv e d b y th e a c t o f th e sh a re ­
h old ers o w n in g tw o -th ird s o f its sto c k , o r b y an A c t o f
C o n g ress o r u n less its fra n c h ise b ecom es fo rfe ite d b y som e
v io la tio n o f law .
A n y b an k o r b a n k in g in s titu tio n , p r in c ip a lly en g ag ed
in foreign b u sin ess, in c o rp o ra te d b y sp ec ia l la w o f a n y
S ta te o r o f th e U n ite d S ta te s o r o rg a n iz ed u n d e r th e g e n ­
eral law s o f a n y S t a t e o r o f th e U n ite d S ta te s , and h a v in g
an u n im p a ire d c a p ita l su fficien t to e n title it to becom e a
c o rp o ratio n u n d e r th e p ro v isio n s o f th is sectio n m a y , b y
th e v o te o f th e sh a re h o ld e rs o w n in g n o t less th a n tw o th ird s o f th e c a p ita l sto ck o f su ch b a n k o r b a n k in g a sso ­
c ia tio n , w ith th e a p p ro v a l o f th e F e d e ra l R e s e r v e B o a rd ,
be c o n v e rte d in to a F e d e ra l c o rp o ra tio n o f th e k in d
a u th o riz ed b y th is sectio n w ith a n y n am e a p p ro v e d b y th e
F e d e ra l R e s e r v e B o a r d : Provided, however, T h a t said con­
ve rsio n sh all n o t be in c o n tra v e n tio n o f th e S t a t e la w .
In such case th e a rtic le s o f a sso c ia tio n and o rg a n iz a tio n
c e rtific a te m a y be e x e cu ted b y a m a jo r it y o f th e d ire c to rs
o f the b an k o r b a n k in g in stitu tio n , and th e c e rtific a te
sh all d e cla re th a t th e o w n ers o f a t le a st tw o -th ird s o f th e
c a p ita l sto ck h a v e a u th o riz ed th e d ire c to rs to m a k e such
c e rtific a te and to ch a n ge o r c o n v e rt th e b a n k o r b a n k in g
in stitu tio n in to a F e d e ra l c o rp o ratio n . A m a jo r it y o f th e
d ire c to rs, a fte r e x e c u tin g th e a rtic le s o f a sso c ia tio n and
th e o rg a n iz a tio n c e rtific a te , sh all h a v e p o w e r to ex e cu te
all o th e r p a p e rs and to do w h a te v e r m a y be re q u ired to
m a k e its o rg a n iz a tio n p e rfe c t and co m p le te as a F e d e ra l
co rp o ratio n . T h e sh a re s o f a n y such c o rp o ra tio n m a y
co n tin u e to be fo r th e sam e a m o u n t each as th e y w ere
before th e co n ve rsio n , and th e d ire c to rs m a y co n tin u e
°

6 c*ire cto rs o f th e c o rp o ratio n u n til o th e rs are elected

APPENDIX B

413

o r a p p o in ted in a cco rd a n ce w ith th e p ro v isio n s o f th is
sectio n . W h en th e F e d e ra l R e s e r v e B o a rd h as g iv e n to
su ch c o rp o ratio n a c e rtific a te th a t th e p ro v isio n s o f th is
sectio n h a v e been co m p lied w ith , such co rp o ra tio n and
a ll its sto ck h o ld e rs, o fficers, an d e m p lo y e e s, sh a ll h a v e
th e sam e p o w ers and p riv ile g e s, and sh a ll be s u b je c t to
th e sam e d u tie s, lia b ilitie s , and re g u la tio n s, in all re sp ects,
as sh a ll h a v e been p re scrib ed b y th is sectio n fo r co rp o ­
ra tio n s o rig in a lly o rg a n iz e d h ereu n d er.
E v e r y officer, d ire c to r, c le rk , e m p lo y e e , o r a g e n t o f a n y
co rp o ra tio n o rg a n iz ed u n d e r th is sectio n w h o em bezzles,
a b s tra c ts , o r w illfu lly m isa p p lie s a n y o f th e m o n e y s, fu n d s,
c re d its, se c u ritie s, ev id e n ces o f in d eb ted n ess o r asse ts o f
a n y c h a ra c te r o f such c o rp o ra tio n ; o r w h o , w ith o u t a u ­
th o r ity from th e d ire c to rs, issu es o r p u ts fo rth a n y ce rtifi­
ca te o f d e p o sit, d ra w s a n y o rd e r o r bill o f ex c h a n g e, m a k es
a n y a cce p ta n ce , assig n s a n y n o te, bon d, d e b e n tu re , d r a ft,
bill o f ex c h a n g e , m o rtg a g e , ju d g m e n t, o r d e c re e ; o r w h o
m a k e s a n y false e n tr y in a n y book, re p o rt, o r s ta te m e n t
o f such c o rp o ratio n w ith in te n t, in e ith e r ca se, to in ju re
o r d e fra u d such c o rp o ra tio n o r a n y o th e r c o m p a n y , b o d y
p o litic o r c o rp o ra te , o r a n y in d iv id u a l person , o r to d e ce ive
a n y officer o f su ch c o rp o ra tio n , th e F e d e ra l R e s e rv e B o a rd ,
o r a n y a g en t o r e x a m in e r a p p o in te d to e x a m in e th e a ffa irs
o f a n y such c o rp o ra tio n ; and e v e r y re c e iv e r o f a n y su ch
c o rp o ra tio n and e v e r y cle rk o r em p lo y e e o f such re c e iv e r
w h o sh all em bezzle, a b s tr a c t, o r w illfu lly m is a p p ly or
w r o n g fu lly c o n v e rt to his ow n use a n y m o n e ys, fu n d s,
cre d its, o r a sse ts o f a n y c h a ra c te r w h ich m a y com e in to
h is possession o r u n d e r h is co n tro l in th e execu tio n o f his
tru s t o r th e p e rfo rm a n c e o f th e d u tie s o f h is e m p lo y m e n t;
and e v e r y such re c e iv e r o r c le rk o r e m p lo y e e o f such re­
c e iv e r w h o sh a ll, w ith in te n t to in ju re o r d e fra u d a n y p e r­
son, b o d y p o litic o r c o rp o ra te , o r to d e ce ive or m islead th e







414

AN ADVENTURE IN CONSTRUCTIVE FINANCE

F e d e ra l R e s e rv e B o a rd , o r a n y a g en t o r e x a m in e r a p ­
p o in ted to ex a m in e th e a ffa irs o f su ch re c e iv e r, sh all m a k e
a n y false e n tr y in a n y b o ok , re p o rt, o r reco rd o f a n y m a t­
te r con n ected w ith th e d u tie s o f such re c e iv e r; and e v e r y
person w h o w ith lik e in te n t aid s o r a b e ts a n y officer, d i­
re c to r, c le rk , e m p lo y e e , o r a g en t o f a n y c o rp o ratio n o r­
g a n iz ed u n d e r th is sectio n , o r re c e iv e r o r cle rk o r em p lo y e e
o f su ch re c e iv e r as a fo re sa id in a n y v io la tio n o f th is sec­
tio n , sh a ll upon co n v ic tio n th e re o f be im p riso n e d fo r n o t
less th a n tw o y e a rs n o r m o re th a n ten y e a rs , and m a y also
be fined n o t m ore th a n $ 5 ,0 0 0 , in th e d isc retio n o f th e
co u rt.
W h o e v e r b ein g co n n ected in a n y c a p a c ity w ith a n y co r­
p o ra tio n o rga n iz ed u n d e r th is sectio n re p rese n ts in a n y
w a y th a t th e U n ite d S ta te s is lia b le fo r th e p a y m e n t o f
a n y bond o r o th e r o b lig a tio n , o r th e in te re st th ere o n , is­
sued o r in cu rred b y a n y c o rp o ratio n o rgan ized h ereu n d er,
o r th a t th e U n ite d S ta te s in c u rs a n y lia b ilit y in re sp ect
o f a n y act or o m ission o f th e c o rp o ra tio n , sh a ll be p u n ­
ish ed b y a fine o f n o t m ore th a n $ 10 ,0 0 0 and b y im p riso n ­
m en t fo r not m ore th a n fiv e y e a rs .
S e c . 26.
A ll p ro v isio n s o f la w in c o n siste n t w ith o r
su p ersed ed b y a n y o f th e p ro v isio n s o f th is A c t are to th a t
e x te n t and to th a t e x te n t o n ly h e re b y re p e a le d : Providedy

N o th in g in th is A c t co n ta in ed sh all be co n stru ed to re p eal
th e p a r it y p ro v isio n o r p ro v isio n s co n ta in ed in an A c t
a p p ro v e d M a r c h fo u rte e n th , n in eteen h u n d red , e n title d
“ A n A c t to define and fix th e sta n d a rd o f v a lu e , to m a in ­
ta in th e p a r it y o f all fo rm s o f m o n e y issu ed o r coined b y
the U n ite d S ta te s , to refu n d th e p u b lic d e b t, and fo r o th e r
p u rp o se s,” and th e S e c r e ta r y o f th e T r e a s u r y m a y , fo r th e
p u rp o se o f m a in ta in in g such p a r it y and to stre n g th e n
th e gold re se rve , b o rro w go ld on th e se c u r ity o f U n ite d
S ta te s bonds a u th o rized b y section tw o o f th e A c t la s t

APPENDIX B

415

referred to o r fo r o n e -y e a r go ld n o tes b ea rin g in te re st a t a
ra te o f n o t to exceed th ree p er cen tu m p er a n n u m , o r sell
th e sam e i f n e c e ssa ry to o b ta in go ld . W h en th e fu n d s o f
th e T r e a s u r y on h an d ju s t ify , he m a y p u rc h a se and re tire
such o u tsta n d in g bonds and notes.

As amended by act approved Aug. 4, 1914 (38 Stat., 682, chap. 225).
S e c . 27.
T h e p ro v isio n s o f th e A c t o f M a y th irtie th ,
nin eteen h un d red and eig h t, a u th o riz in g n a tio n a l c u r­

re n c y a sso c iatio n s, th e issu e o f a d d itio n a l n a tio n a l-b a n k
c irc u la tio n , and c re a tin g a N a tio n a l M o n e ta r y C o m ­
m issio n , w h ich ex p ires b y lim ita tio n u n d e r th e term s o f
such A c t on th e th irtie th d a y o f J u n e , n in eteen h u n d red
and fo u rte en , are h e re b y exte n d ed to Ju n e th irtie th , n in e­
teen h un d red and fifteen , and sectio n s fifty -o n e h u n d red
and fifty -th re e , fifty -o n e h u n d red and se v e n ty -tw o , fifty one h un d red and n in ety -o n e , and fifty -tw o h u n d red and
fo u rte en o f th e R e v is e d S ta tu te s o f th e U n ited S ta te s ,
w h ich w ere am en d ed b y th e A c t o f M a y th irtie th , n ineteen
h u n d red and e ig h t, are h e re b y reen acted to read as such
sectio n s read p rio r to M a y th irtie th , nin eteen h u n d red and
eig h t, su b je c t to such am en d m en ts o r m o d ifica tio n s as are
p rescrib ed in th is A c t : Provided, however, T h a t sectio n
nine o f th e A c t first referred to in th is section is h e re b y
am en d ed so as to ch a n ge th e ta x ra te s fixed in said A c t
b y m a k in g th e p o rtio n a p p lic a b le th ere to read as fo llo w s:
N a tio n a l b a n k in g asso c iatio n s h a v in g c irc u la tin g n otes
secured o th e rw ise th an b y b on ds o f th e U n ite d S ta te s ,
sh a ll p a y fo r th e first th ree m o n th s a ta x a t th e ra te o f
th ree p e r cen tu m p e r an nu m u pon th e a v e ra g e a m o u n t o f
such o f th e ir n o tes in c ircu la tio n as are based upon the
d e p o sit o f such sec u rities, and a fte rw a rd s an a d d itio n a l
t a x ra te o f o n e -h a lf o f one p er cen tu m p er an nu m fo r each
m o n th u n til a t a x o f six p e r ce n tu m p e r an nu m is re ach e d ,







416

a n

a d v e n t u r e

in

c o n st r u c t iv e

f in a n c e

and th e re a fte r such t a x o f s ix p er cen tu m p e r an nu m
u pon th e a v e ra g e a m o u n t o f such n o te s: Provided further,
T h a t w h e n e v e r in h is ju d g m e n t he m a y deem it d e sira b le ,
th e S e c re ta ry o f th e T r e a s u r y sh a ll h a v e p o w e r to su sp en d
th e lim ita tio n s im p osed b y sectio n one and sectio n th re e
o f th e A c t refe rred to in th is sec tio n , w h ich p re scrib e
th a t such a d d itio n a l c irc u la tio n secu red o th e rw ise th a n b y
b on ds o f th e U n ite d S ta te s sh a ll be issu ed o n ly to N a ­
tio n a l b a n k s h a v in g c irc u la tin g n otes o u tsta n d in g secu red
b y th e d e p o sit o f bonds o f th e U n ite d S ta te s to an a m o u n t
n o t less th a n fo r ty p e r cen tu m o f th e c a p ita l sto ck o f such
b a n k s, and to su sp en d also th e co n d itio n s and lim ita tio n s
o f section fiv e o f said A c t e x c e p t th a t no b a n k sh a ll be
p e rm itte d to issu e c irc u la tin g n otes in excess o f one h u n ­
dred and tw e n ty -fiv e per cen tu m o f its u n im p a ire d
c a p ita l and su rp lu s. H e sh a ll re q u ire each b an k and
c u rre n c y a sso c iatio n to m a in ta in on d e p o sit in th e T r e a s ­
u r y o f th e U n ite d S ta te s a sum in gold su fficien t in h is
ju d g m e n t fo r th e re d em p tio n o f such n o tes, b u t in no
e v e n t less th a n fiv e p e r ce n tu m . H e m a y p e rm it N a ­
tio n a l b a n k s, d u rin g th e period fo r w h ich such p ro v isio n s
are su sp en d ed , to issu e a d d itio n a l c irc u la tio n u n d er
th e term s and co n d itio n s o f th e A c t referred to as h erein
a m en d ed : Provided further, T h a t th e S e c r e ta r y o f the
T r e a s u r y , in his d isc re tio n , is fu r th e r a u th o riz ed to exten d
th e ben efits o f th is A c t to all q u alifie d S t a t e b a n k s and
tru s t co m p an ie s, w h ich h a v e jo in e d th e F e d e ra l re se rv e
s y ste m , o r w h ich m a y c o n tra c t to jo in w ith in fifte en d a y s
a fte r th e p a ssa g e o f th is A c t.
S e c . 28.
S ec tio n fifty -o n e h u n d red and fo rty -th re e of
th e R e v is e d S ta tu te s is h e re b y a m en d ed and re en a cted
to read as fo llo w s: A n y a sso c iatio n fo rm ed u n d er th is
title m a y , b y th e v o te o f sh a re h o ld e rs o w n in g tw o -th ird s
o f its c a p ita l sto c k , red u ce its c a p ita l to a n y sum n o t

APPENDIX B

417

b elo w th e am o u n t req u ired b y th is title to a u th o rize the
fo rm a tio n o f a sso c ia tio n s; b u t no such red u ctio n sh all be
a llo w a b le w h ich w ill red u ce th e c a p ita l o f th e a sso ciatio n
b elo w th e a m o u n t re q u ired fo r its o u tsta n d in g c irc u la ­
tio n , n o r sh all a n y re d u ctio n be m ad e u n til th e am o u n t
o f th e proposed re d u ctio n h as been rep o rted to th e C o m p ­
tro lle r o f th e C u rre n c y and such red u ctio n h as been a p ­
p ro v e d b y th e said C o m p tro lle r o f th e C u rre n c y and b y
th e F e d e ra l R e s e rv e B o a rd , o r b y th e o rg a n iz atio n com ­
m itte e p en d in g th e o rg a n iz a tio n o f th e F e d e ra l R e s e rv e
B o a rd .
Sec.

29.

I f a n y cla u se , sen ten ce, p a ra g ra p h , o r p a rt o f

th is A c t sh all fo r a n y reason be a d ju d g e d b y a n y co u rt o f
c o m p ete n t ju risd ic tio n to be in v a lid , such ju d g m e n t sh all
n o t a ffec t, im p a ir, o r in v a lid a te th e re m ain d er o f th is A c t,
b u t sh all be confined in its o p eratio n to the cla u se , sen ­
ten ce, p a ra g ra p h , o r p a rt th e re o f d ire c tly in v o lv e d in the
c o n tro v e rs y in w h ich such ju d g m e n t sh all h a v e been
ren d ered .
S e c . 30.
T h e rig h t to am en d , a lte r, o r rep eal th is A c t
is h e re b y e x p re s sly re se rve d .




TH E

END




IN D E X
Abbot, Dr. [Outlook], describes debate
on Glass currency bill, 169.
Academy of Political Science, debate
on Glass currency bill, 176; Senator
Aldrich’s address attacking the
federal reserve bill, 243 et seq.
Aldrich, Senator Nelson W., denounces
federal reserve system, 242 et seq.; his
predictions have not materialized,248.
Aldrich Monetary Commission, reports
a central-bank bill, 67.
Aldrich plan, is favoured by House, 30;
is rejected by National Democratic
Convention, 71; is rejected by the
Progressive Convention, 72; is not
considered by the Congressional sub­
committee on currency reform, 85;
is not the foundation of the federal
reserve system, 239, 241, 248.
American Bank & Trust Co. v. Federal
Reserve Bank of Atlanta, determines
status o f par clearance, 305.
American Bankers’ Association attacks
currency bill, 164, 166; resemblance
of its bank device to Federal Reserve
Act, 240.
„
Ashurst, Senator Henry F „ accuses
Senate conferees of “ capitulating to
the House,” 219.
Atlanta Reserve Bank, expands credits
in 1920, 288.
Bank of England, receives credit from
federal reserve banks, 310.
Belgium, receives assistance from fed­
eral reserve system, 310.
Bristow, Senator Joseph L., accuses
M cAdoo and others of making legis­
lative decisions, 203; Senate conferee
on currency bill, 214.
Brown, William G., member of House
Banking and Currency Committee,
97
Bryan, Secretary William J., is opposed
to bank representation on Federal
Reserve Board, 112; favours govern­
ment issue, 123; is reported as op­
posed to federal reserve bill, 133;
his letter in support of federal reserve
bill, 138; his statement on federal
reserve bill, 142; opposes revival of
silver issue, 146.
Bulkley, R. J., member o f House Bank­




419

ing and Currency Committee, 97;
favours bank representation on
Federal Reserve Board, 114; defends
federal reserve bill, 140; debates on
Glass currency bill, 176, 177.
Byrnes, James F., declines service on
House Banking and Currency Com­
mittee, 98.
Chicago Reserve Bank, expands credits
in 1920, 288.
Clark, Champ, his aid in federal reserve
legislation, 131; enjoys the currency
bill battle, 143.
Consolidationists, attempt to limit
regional banks to three, 255; Federal
Reserve Board considers elimination
o f four regional banks, 257.
Crawford, Senate conferee on currency
bill, 214.
Currency reform, is rendered necessary
because of an inelastic currency and
a fictitious reserve system, 60; Vreeland-Aldrich Act an emergency
measure, 64; federal reserve legisla­
tion made possible by Wilson’s elec­
tion, 73; W ilson pleads for scientific
solution of the problem, 80; McAdoo
roposes to create a central bureau
ank in the Treasury, 100; draft
of bill presented to committee mem­
bers, 128; scheme of Congressional
opponents of federal reserve bill,
134 et seq.; Democratic caucus ap­
proves currency bill, 141; Vanderlip
presents central-bank scheme, 167;
secret sessions of Senate Democratic
caucus, 207; modified House bill is
passed by the Senate, 212; is sent to
conference, 213; House accepts con­
ference report, 216; Senate conferees
accused of “ capitulating to the
House,” 216; Senate accepts con­
ference report, 220.
Dallas Reserve Bank, expands credits
in 1920, 288.
Deflation, is opposed by Federal R e­
serve Board in 1920, 277 el seq.
Delano, F. A., member of Federal
Reserve Board committee on pro­
posed elimination of four regional
banks, 257; sends report to Glass, 259.




IN D E X
Depression o f 1921, causes contraction
of credit and currency, 283.
Doughton, Robert L., declines service
on House Banking and Currency
Committee, 98.
Eagle, Joe H., member o f House Bank­
ing and Currency Committee, 97.
Economic Club of N ew York City, de­
bate on Glass currency bill, 168.
Farmers & Merchants Bank v. Federal
Reserve Bank of Richmond, deter­
mines status o f par clearance, 305.
Federal Reserve Act, its constitution­
ality upheld, 255.
Federal Reserve Board, membership
not a political reward, 250; considers
elimination of four regional banks,
257; advises against deflation in 1920,
277 et seq.; publishes notes o f M ay,
1920, conference, 285; Division of
Foreign Exchange provides informa­
tion for war-time exchange opera­
tions, 295; gold export committee
controls specie movement, 296.
Federal reserve system, question of its
authorship relatively unimportant,
2; the most effective scheme o f na­
tional reserve banking ever devised,
2; its importance in the World War,
2, 291 et seq.; is credited to Wilson,
59; provides elastic currency, 62;
establishes regional reserve banks, 62;
enactment made possible by Wilson’s
election, 73; President-elect Wilson
suggests establishment of a central
federal reserve board, 82; provisions
for open market transactions by
regional banks and for establishment
of par collections approved by Presi­
dent-elect Wilson, 90; Wilson decides
against bank representation on
Federal Reserve Board, 113; Wilson
proposes Federal Advisory Council
of bankers, 116; bond-conversion
provision restored to bill, 117; bank­
ers’ reserve concession is dropped,
121; combines government issue and
bank issue, 125; Democratic caucus
approves currency bill, 141; redemp­
tion feature explained, 145; freely
debated in the House, 150 et seq.; its
passage, 155; Root attacks “ fiat
money” and “ inflationary facilities”
of currency bill, 198; bill is con­
demned by many bankers and busi­
ness men, 237; is founded upon
banking experience and study of
readjustment methods, 239; is based
on organization and practices of
clearing houses, 240; is denounced by
Senator Aldrich, 242 el seq.; Repub­
lican origin and advocacy of its
principles questioned, 252; not im­
paired by administrative mistakes,
255; proposal to eliminate four

regional banks is dropped, 269;
improvident inflation of regional
bank credits in 1920, 289; integrates
the Government’s transactions with
country’s credit system, 292; renders
unnecessary large shipments of
specie, 292, 298; maintains stabiliza­
tion o f foreign countries and transfers
gold to their credit, 295; prevents
inflation in 1920, 297; clears checks
at par, 299; prevents inflation by
withholding foreign gold from circu­
lation, 306; improves credit analysis
and commercial paper, 308; assists
farmers, 309; helps in post-war
restoration of foreign currencies, 310;
facilitates foreign business, 311;
United States Chamber of Com­
merce’s summary o f its benefits to
business, 313.
Fess, Simeon D., offers federal reserve
bill amendment defending gold stan­
dard, 153.
“ Fiatism, ” not an element o f federal
reserve notes, 201.
“ Float,” its abolition aimed at by
federal reserve system, 301.
Forgan, James B., rejects proposal to
create a central bureau bank in the
Treasury, 102; apologizes to Glass
for speech, 180.
Fowler bank bill, its zone system is
similar to that of Federal Reserve
Act, 240.
France, maintains stabilization by
federal reserve aid, 295.
Gage, Secretary, condemns VreelandAldrich Act, 65.
Gallinger, Senator Jacob H., endorses
Root’s attack on Glass currency
bill, 198.
Germany, receives assistance from
Federal Reserve Board, 311.
Glass, Carter, his letter to David Law ­
rence on House’s contributions to
federal reserve legislation, 6; criti­
cizes Vreeland-Aldrich Act, 64; dis­
cusses federal reserve legislation with
President-elect Wilson, 81, 90; letter
to President-elect Wilson reporting
progress of subcommittee, 87; appeals
to A. Barton Hepburn for review of
proposal to create a central bureau
bank in the Treasury, 102; com­
mends E. D. Hulbert for statement
of economic and political aspects of
proposal to create a central bureau
bank in the Treasury, 109; favours
minority representation of banks on
Federal Reserve Board, 112. 113; is
exasperated at Wexler’s refusal to
support federal reserve bill, 120; ar­
gues against government issue, 124;
reads Bryan’s letter in support of
federal reserve bill, 138; flays oppos­
ing scheme, 140; explains redemption

INDEX
feature of federal reserve bill, 145;
his appreciation of Bryan’s aid,
161; debates on currency bill, 168;
letter accepting James B. Forgan’s
apology, 181; questions Federal R e­
serve Board’s power to reduce num­
ber of regional banks, 260-269.
Gold settlement fund, renders unnec­
essary large shipments of specie and
accumulation of funds, 293, 298.
Gold standard, is defended by Fess
amendment to federal reserve bill,
153.
.
.
.
Great Britain, maintains stabilization
by federal reserve aid, 295; borrows
silver for Indian trade, 296; return
to gold standard rendered possible
by federal reserve credits, 310.
Gregory, Thomas W ., advises Federal
Reserve Board against proposed
elimination o f four regional banks,
269.
Harding, William P . G., member of
Federal Reserve Board committee on
proposed elimination o f four regional
banks, 257; advises against drastic
deflation, 278.
Hayes, Everis A., suggests savings
department provision in federal
reserve bill, 149; urges that currency
bill be sent to conference, 213; House
conferee, 213.
,, , ,
,
Henry, Robert L „ is opposed to federal
reserve bill, 131, 133, 140; assails
Wilson’s advocacy o f federal reserve
bill, 137.
,
Hepburn, A. Barton, objects to pro­
posal to create a central bureau bank
in the Treasury, 102; debates on
Glass currency bill, 178.
Hitchcock, Senator Gilbert M ., ques­
tions Dr. Willis on development of
Glass currency bill, 188; leads Senate
fight against Glass currency bill, 207;
his eleven amendments, 208.

Hitchcock currency bill, is supported
by Republican Senators, 197.
Hollis, Henry F., Senate conferee on
Currency bill, 214.
House, Colonel E. M „ his Diary does
not claim his paternity of Federal
Reserve Act, 19; favours central bank
scheme, 30, 31, 46; his participation
in preparation of Federal Reserve
A ct denied, 50 et seq.; hears explana­
tion of Glass currency bill, 52; rec­
ommends to Wilson proposal! to
create a central bureau bank in the
Treasury, 106; fails to secure Senator
Reed’s support of Glass currency bill,
196- see also Intimate Papers of Colo­
nel House.
Houston, David F., his proclamation on
increase of commercial loans in 1920,
289
Hulbert, E. D., rejects proposal to




421

create a central bureau bank in the
Treasury, 102.
Indianapolis Monetary Commission of
1898, resemblance of its bank scheme
to Federal Reserve Act, 240.
Inflation, is prevented by federal reserve
system in 1920, 297; is prevented by
withholding foreign gold from circula­
tion, 306.
Intimate Papers of Colonel House,
House’s conversation with David
Lawrence and William W. Price
denied, 5 et seq.; theory of P h ilip
D ru as inspiration of federal reserve
legislation refuted, 16 el seq.; House’s
activity in currency legislation de­
nied, 20 et seq.; House’s conferences
with bankers experienced in legisla­
tion questioned, 26 el seq.; omission of
portion of letter favouring central
bank scheme explained, 30 et seq.; in­
accuracies o f Diary statement of
bank reform measure to be submitted
to Glass, 43; agreement o f House and
Glass on banking reform denied, 45
el seq.; omits letter to Wilson at­
tempting to wreck federal reserve
bill, 107; Republican origin and
advocacy of federal reserve principles
questioned, 252-254.
Italy, maintains stabilization by federal
reserve aid, 295.
Johnson, Joseph French, debates on
Glass currency bill, 168; congratu­
lates Glass on his debate with Vanderlip, 175.
Kansas C ity Reserve Bank, expands
credits in 1920, 288.
Korbly, Charles A., member o f House
Banking and Currency Committee,
97; defends federal reserve bill, 140;
House conferee on currency bill, 213.
La Follette, Senator Robert M., pro­
poses amendment forbidding Federal
Reserve officer to hold other banking
position, 203.
Laughlin, J. Lawrence, congratulates
Glass on passage of currency bill, 159.
Lawrence, David, has no first-hand
information on House’s contributions
to federal reserve legislation, 9.
Liberty loans, demonstrate efficiency
of federal reserve system, 291.
Lodge, Senator Henry C., opposes
currency bill as putting the govern­
ment in the banking business, 221;
praises Federal Reserve Act, 224.
McAdoo, Secretary William G., refers
all federal reserve inquiries to Glass,
95; advises revision of currency bill,
99; his proposal to create a central
bureau bank in the Treasury, 100;




422

INDEX

his aid in federal reserve legislation,
110, 131; congratulates Glass on
passage o f currency bill, 156; con­
gratulates Glass on federal reserve
enactment, 234.
McGleary, James T ., congratulates
Glass on his debate with Vanderlip,
175.
Minneapolis Reserve Bank, expands
credits in 1920, 289.
Money Trust investigation, is headed
by Congressman Pujo and Samuel
Untermeyer, 68.
Muhlemann central reserve bank plan,
its resemblance to Federal Reserve
Act, 240.
National Association o f Credit Men,
assist in federal reserve legislation,
237.
Neely, George A., member o f House
Banking and Currency Committee,
97.
Nelson, Knute, Senate conferee on
currency bill, 214.
N ew York Sun, account o f Wilson’s
signing federal reserve bill, 227.
N ew York World, criticizes central-bank
Democratic members of Senate
Banking and Currency Committee,
192.
O ’Gorman, James A., Senate conferee
on currency bill, 214.
Owen, Senator Robert L., first chairman
of Senate Committee on Banking and
Currency, 24; denies House’s assist­
ance in federal reserve legislation, 25;
receives copy of the federal reserve
bill, 96; favours proposal to create
a central bureau bank in the Treas­
ury, 101; is opposed to bank repre­
sentation on Federal Reserve Board,
112; debates on currency bill, 168,
176; answers R oot’s attack on Glass
currency bill, 201; Senate conferee
on currency bill, 214.
Paish, Sir George, is worsted in argu­
ment with Paul M . Warburg, 210.
Par clearance system, is blocked by
legislation in some states, 301, 302;
four benefits to business man, 303;
is mandatory on federal reserve
banks, 304.
Pascagonla National Bank v. Federal
Reserve Bank of Atlanta, determines
status of par clearance, 305.
Patten, Thomas G., member o f House
Banking and Currency Committee,
97.
Phelan, Michael F., member o f House
Banking and Currency Committee,
97; defends federal reserve bill, 140.
Ph ilip Dru, Seymour’s theory o f its

inspiration of federal reserve legisla­
tion refuted, 16 et seq.
Poland, receives assistance from federal
reserve system, 310.
Pomerene, Atlee, Senate conferee on
currency bill, 214.
Price, William W., denies House’s
influence in federal reserve legisla­
tion, 10.
Pujo, Ars&ne P., investigates Money
Trust, 68.
Ragsdale, J. Willard, member of House
Banking and Currency Committee,
98.
Reed, Senator James, is won to support
of Glass currency bill, 196; answers
Root’s attack, 201; Senate conferee
on currency bill, 214; defends cur­
rency bill as reported, 220.
Reynolds, Arthur, debates on Glass
currency bill, 178.
Reynolds, George M., becomes a sup­
porter of the regional bank scheme,
86; his letter on opponents of the
Glass currency bill, 99; is opposed
to proposal to create a central bureau
bank in the Treasury, 103.
Richmond Reserve Bank, expands
credits in 1920, 287.
Root, Senator Elihu, attacks “ fiat
money” and “ inflationary facilities”
of Glass currency bill, 198.
St. Louis Reserve Bank, expands credits
in 1920, 288.
San Francisco Reserve Bank, expands
credits in 1920, 288.
Seldomridge, H. H., member o f House
Banking and Currency Committee,
97.
Seymour, Professor Charles, his In ti­
mate Papers of Colonel House reads
like a romance, 1, 4, 13, 20, 27, 56;
see also Intimate Papers o f Colonel
House.
Shafroth, John F., Senate conferee on
currency bill, 214.
Silver issue, Bryan opposes its revival,
146.
Speyer, James, congratulates Glass on
his debate with Vanderlip, 174. _
Stockton, Philip, does not anticipate
immediate Senate action on currency
bill, 163.
Stone, Claudius U., member o f House
Banking and Currency Committee,
97.
Swanson, Senator Claude A., aids pas­
sage o f federal reserve bill in the
Senate, 55.
Stephens, Hubert D., declines service
on House Banking and Currency
Committee, 98.
The New Freedom, description o f the
credit trust, 76.

INDEX
Thomas, Senator Charles S., accuses
Senate conferees of “ capitulating to
the House,” 219.
Underwood, Oscar, his aid in federal
reserve legislation, 131, 140; leads
Democratic insurgents against federal
reserve bill, 152; urges that currency
bill be sent to conference, 213.
United States Chamber of Commerce,
summary of benefits of federal reserve
system to business 313.
Untermeyer,
Samuel,
counsel for
Money Trust investigation, 68;
his advocacy o f currency scheme is
forwarded to Glass, 104; favours
immediate currency relief, 140.
Vanderlip, Frank A., presents central
bank scheme to Senate Banking
and Currency Committee,
167;
debates on Glass currency bill, 168.
Vreeland-Aldrich Act, is criticized by
Glass, 64; is condemned by Secretary
Gage, 65; is twice amended, 66;
its passage through the House, 150.
Wade, Festus J., congratulates Glass
on passage of currency bill, 158.
Warburg, Paul M ., his opposition to
certain provisions o f the federal
reserve bill, 49, 54; suggests currency
bill amendments to the Senate com­
mittee, 210; not the author o f the
Federal Reserve Act, 211; member
of Federal Reserve Board committee
on proposed elimination of four
regional banks, 257.
Watterson, Henry, reproves committee
chairman for humiliating Congress­
men hostile to federal reserve bill, 23.
Weaver, Claude, member o f House
Banking and Currency Committee,
98.
Weeks, John W., congratulates Glass on
assageof currency bill, 157; presents
odge’s letter opposing currency bill,
221.
Wexler, Sol, his letter refusing to sup­
port federal reserve bill, 118.
Williams, John Sharpe, answers Root’s
attack on Glass currency bill, 201.
Williams, John Skelton, praises Federal
Reserve Board for facilitating gradual
decline in commodity values, 287.
Willis, H. Parker, denies House’ s
participation in preparation of Fed­
eral Reserve Act, 50; expert adviser
to Congressional subcommittee on
currency reform, 69; suggests pro-

E




423

vision for open market transactions
by regional banks, 90; advises se­
crecy on federal reserve bill, 94; de­
scribes Glass’s position on the trans­
fer of reserves, 122; his contribution
to federal reserve legislation, 126;
congratulates Glass on passage of
currency bill, 158; a witness before
Senate Banking and Currency Com­
mittee, 187 el seq.; denies that federal
reserve bill is derived from any other
bill, 238.
Wilson, Emmett, member of House
Banking and Currency Committee,
98.
Wilson, Woodrow, his election makes
possible federal reserve legislation,
73; his letter on importance of
currency revision, 75; describes the
credit trust, 76; pleads for scientific
solution of the currency problem, 80;
suggests establishment of a central
federal reserve board, 82; recom­
mends discovery of extent and nature
o f banking opposition to federal re­
serve plan, 84; his letter on second
currency discussion with Glass, 89;
approves provisions for open market
transactions by regional banks and
for establishment of par collections,
90; advises with experienced bankers,
91; sends to Glass proposed Demo­
cratic membership of House Banking
and Currency Committee, 97; for­
wards to Glass Untermeyer’s advo­
cacy of currency scheme, 104; confers
with Glass on proposal to create a cen­
tral bureau bank in the Treasury, 108;
decides against bank representation
on Federal Reserve Board, 113;
proposes Federal Advisory Council
of bankers, 116; advises Glass not to
resign, 132; his statement on cur­
rency caucus, 141; refuses to see
Vanderlip, 166; his statement ap­
proving the Glass currency bill, 167;
wins Senator Reed to Glass cur­
rency bill, 196; signs federal reserve
bill, 226; speech on passage of the
bill, 229; congratulates Owen and
Glass on federal reserve enactment,
232; threatens to reorganize Federal
Reserve Board for usurpation of
legislative power, 270; avoids contact
with Federal Reserve Board, 272.
Wingo, Otis T „ member of House
Banking and Currency Committee,
97.
World War, its outcome due to the
Federal Reserve Act, 2.