Full text of The Federal Reserve Act

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The

Federal Reserve Act

BY

HON. R O B E R T L . O W E N
UNITED STATES SENATOR O F OKLAHOMA
CHAIRMAN OP T H E UNITED STATES S E N A T E COUHITTEIL
ON BANKING AND CUEBENCT

PUBLISHED FOR T H E AUTHOR




Copyright, 1915, by Robert L . Owen
Printed in the United States of America




THE FEDERAL
RESERVE ACT
ITS O R I G I N A N D

PRINCIPLES

by
ROBERT
A

L.

OWEN

REMINISCENCE

H E Federal Reserve A c t has now
so completely demonstrated its
value, and is so widely approved b y
the business men of America and of
the world, that I have yielded to the
suggestion that I should write a short
sketch of its origin and principles,
as a personal reminiscence, having no
time at present to write a full history
of this Act.
T h e backbone of the Federal R e serve A c t is;




m

T H E FEDERAL RESERVE ACT
1. A

quick available supply

of

elastic currency for business men;
2• Issued and controlled by the
Government;
3. Against adequate security, consisting of gold, commodity or commercial bills or acceptances, and U . S.
bonds.
4. Under an interest charge high
enough to prevent inflation by compelling contraction.
I n 1890 I had established the First
National Bank of Muskogee, Oklahoma, was its president for ten years,
and i n 1893 witnessed the panic that
took place at that time. This bank,
like very many other banks, lost fifty
per cent of its deposits within as
many days because of the panic,
which frightened people and caused
them to withdraw their funds for




[2]

THE FEDERAL RESERVE ACT
hoarding throughout the United
States and led creditors to strenuously press their debtors for settlement. Money suddenly appreciated
in value, so that property measured in
money fell in value in some cases to
half of its previously estimated value.
This enabled thousands of creditors to take over the property of
thousands of debtors on a basis that
was ruinous to debtors, causing the
bankruptcy of hundreds of thousands
of people; causing a violent dislocation of business; and throwing out of
employment vast numbers of people
and inflicting injuries which required
years to repair in the industrial and
commercial life of the nation.
Thousands of millions of dollars
were lost and many more thousands
of millions, the normal earnings of a
prosperous, active people, were left




[3]

T H E FEDERAL RESERVE

ACT

unmade during the next five comparatively idle years.
This panic demonstrated the complete instability of the financial
system of America and the hazards
which business men had to meet
under a grossly defective banking
system. A very large part of the
American people believed that the
panic ensued from the industrial depression and shrinkage of values due
to the demonetization of silver, and
a violent agitation arose for the free
and unlimited coinage of silver at
"sixteen to one/'
T h e depression was, in fact, worldwide, and the purchasing power of
many nations was affected.
The
M c K i n l e y Bill had just passed, obstructing imports and therefore exports; Russia, Rumania, France,
Spain, Portugal, Switzerland, had




[4]

THE

FEDERAL

RESERVE

ACT

raised their customs duties, also with
like effect. A severe crisis had arisen
i n Australia and i n Argentina, and
civil war i n Brazil, Chile, and other
South and Central American states—
all of which interfered with the purchasing power of nations.

T h e spirit

of enterprise was prostrated. People
hoarded their money, withdrew their
bank

deposits.

The

currency

of

checks and drafts with which men met
their ordinary obligations was diminished

fifty

per cent i n the

United

States, thus diminishing this ephemeral currency which at that

time

probably averaged a thousand million dollars.
The

remedy

proposed

by

the

Democrats was the remonetization of
silver;

the Republicans refused to

grant this, but craftily and unfairly
expanded the paper currency of the




15]

THE FEDERAL RESERVE ACT
national banks some five hundred
millions by authorizing the banks to
issue currency against two-per-cent
bonds at a profit to the banks of
approximately one and one-half per
cent per annum on such issue by the
Amendment of the National Bank
Act in 1900. This, of course, was no
remedy, for the currency remained
inelastic altho expanded.
In 1896, at the Democratic Convention at Chicago, as a member of
the Committee on Resolutions, I
strenuously urged a plank pledging
the Democratic Party to protect the
country from financial panics but
failed to obtain support. I advocated, as a resolution before the Committee on Resolutions, that United
States bonds might, in times of
threatened panic, be made convertible into Treasury notes to serve as




[6]

THE FEDERAL RESERVE ACT
currency as a source of quick supply
of money to offset the withdrawal of
currency for hoarding by frightened
depositors; in effect, elastic currency.
I failed to convince the Committee
of its wisdom, but made a second
attempt and obtained the support of
Hon. Charles S. Thomas, of Colorado; Hon. William J. Bryan, of Nebraska, and Hon. Allen Thurman,
Jr., of Ohio, and the Committee
adopted the proposed resolution. On
a reconsideration, however, at the
request of Senator George, of Mississippi, who strenuously opposed it,
the Committee eliminated the proposal from the National Platform
(Messrs. Thomas, Bryan, and Thurman having withdrawn their support) on the plea that it was novel,
untried, and might add to the polit17]




THE FEDERAL RESERVE ACT
ical difficulties of the Party in the
coming campaign.
T H E ELASTIC C U R R E N C Y
AND

OF

EUROPE

CANADA

In the summer of 1898 I went to
Europe and studied the question in
London, Paris, and Berlin, talking to
the Governors of the Bank of England, the Directors of the Reichsbank
of Berlin, as to their method of protecting the country from panic, and
in the summer of 1899 I undertook a
propaganda, by written articles and
addresses, showing how England, Germany, France, and Canada protected
their business interests from financial panic, and pointing out available
remedies for the United States.
I placed some of these proposals
i n the Congressional

Record of F e b -

ruary 25, 1908 (page 2450), and




[8]

THE FEDERAL RESERVE ACT
pointed out the means by which the
Bank of England and the Bank of
Germany, the Bank of France and
the Banks of Canada, prevented and
abated panic. From one of these arguments, dated September 26, 1899,
I take the following (p. 2452):
T H E B A N K OF E N G L A N D

" T h e Bank of England avoids panics by
the following method:
"This Bank holds the ultimate reserve of
all the banks of the United Kingdom. The
reserve constitutes the only available cash
reserve against $3,500,000,000 in deposits.
This reserve amounts to a sum ranging from
$180,000,000 to $150,000,000, or about four
per cent, of the deposits net. The Bank of
England has a great advantage in having all
the reserve concentrated in the hand of one
concern charged with the duty (by the force
of public opinion) of maintaining this reserve
above the danger-point.
[9]




T H E FEDERAL RESERVE ACT
""First, The instant this reserve begins
to diminish by gold export the Bank of England raises the rate of interest. This tends
to check gold exports, to cause gold imports, and usually brings idle gold from the
Continent. If, in ordinary times, gold is
not attracted it is usually because there is
loanable money on Lombard Street content
with a lower rate. In this event the Bank of
England sells consols for cash and buys
them back on time, which has the effect of
absorbing the loanable money on the street
and thus making the rate effective in attracting gold.
"Second, When local credit is violently
disturbed, and for that reason the rate might
not attract idle capital held by European
bankers, the Bank of England borrows gold
directly, as it did froln the Bank of France
when the Baring liquidation was anticipated.
"Third, The Bank of England when panic
threatens lends with great freedom to all
legitimate borrowers, so as to relieve the
pressure and relieve alarm as far as possible.
For example: When Overend, Gurney &




HO]

THE FEDERAL RESERVE ACT
Co. failed in 1866, the Bank of England
loaned in one day $20,000,000 and in one
week $50,000,000 to the depletion of the
cash in the banking department.
"Fourth, When the cash is about exhausted in the banking department and the
closing of the bank becomes imminent, the
administrative government of Great Britain
has always, through the prime minister, by
letter, advised the Bank of England to issue
notes (legal-tender, money) against other
securities than gold (to which the excess issue
was confined by the act of 1844). This was
done in 1847, in 1857, and in 1866, with the
result that the panic in each case was controlled instantly.
" T h e method of the Bank of England in
raising the rate and borrowing gold is not
adaptable to the United States, for the reason that the element of time and distance
and absence of concentration are substantial
barriers to such devices; but the issue of
notes against proper securities can be made
easily applicable
act authorizing




to the United

States by an

the United States Treasury to
111]

THE FEDERAL RESERVE ACT
issue Treasury

notes against proper

deposited by the banks in times of

security
stringency

with adequate provision for retiring such notes
when the panic is over.

T H E BANK OP GERMANY

" T h e Imperial Bank of Germany is substantially a state institution. T h e state gets
all the benefit over and above a low rate of
interest to the stockholders.

The bank is

controlled and dominated by the uniform
rate of interest.

It has substantially a

monopoly i n the issue of paper money.

It

carries i n its vaults a large amount of gold
and silver, averaging $200,000,000 in gold
and silver, principally gold* I t is protected
against panic, and Germany is protected
against panic, and the commercial stability
of the German Empire secured by giving
this bank the right to issue currency not only
against

gold, but also against

the

securities

held by the Imperial Bank, consisting of
bills, due within

ninety days or less, a n d se-

cured generally

by three and at least by two




[12]

T H E FEDERAL RESERVE ACT
persons known to be solvent. It may issue even

in excess of these limitations by paying a tax
to the German Empire of Jive per cent per
a n n u m on such over-issue.
a panic

The result is that

in Germany is impossible,

t h a t the

normal rate of interest is between three and
four per cent, commercial stability is secured,
a n d their enterprises and manufactures

are

making themselves felt throughout the civilized
world.

" T h e store of gold held by the Imperial
Bank of Germany is protected as in England:
"First, B y raising the rate.
"Second, B y favorable assay to foreign
gold, by giving six to eight interest days to
shippers, and other little devices favoring
the shipment of gold to Berlin.
"Third, The powerful influence of the
bank is exerted on the bankers of Berlin to
prevent their shipping gold, which is generally effective.
"Fourth, While the bank does not refuse
to pay gold on demand, persons asking for
gold for shipment feel that when the bank
says 'y es * it really means 'no/




[13]

THE FEDERAL RESERVE ACT
" T h e only features of the German legislation apparently available in the United
States are issuing
and

issuing

penalty

currency against

emergency

currency

securities
under

the

of a tax, either one of which

would

appear sufficient to protect the United

States

from

panic,

and

both of which

should

be

adopted.
T H E BANK OF FRANCE

" T h e Bank of France, which is practically
under state control, carries the largest gold
and silver reserve in Europe. Its gold was,
October 13, 1898, $369,000,000; its silver
was $246,000,000, making a total of $615,000,000.
" T h e duty of the governor of this bank is
t o w a t c h t h a t 'the bank performs its duty to
the state and toward the commerce and

of the countryThe

industry

banks of the United

States owe a duty to the state and toward the
commerce and industry
the law

should

of the country

enable and

perform•




[14]

require

which

them to

THE FEDERAL RESERVE ACT
" T h i s bank is protected against panic by
the authority under the law of 1897 to issue

legal-tender notes to the amount of $1,000,000,000, of which it has issued $739,000,000.
[The Bank of France thus retained an elastic
margin of $261,000,000 which it could issue
if needed, while the people had in pocket
over $700,000,000 of currency—about $100
per family, and had no reason to make a run
on the Bank of France.]
" I t hoards its gold and silver not by
raising the rate, but by other devices. First,
in case of an exchange unfavorable to France,
the Bank of France pays out small gold
coins which by use are slightly under weight
and therefore not suitable for export. I n
case of strong demand money brokers buy
up full-weight napoleons, and sell them for
export, and ultimately the bank feels the
withdrawal, but it costs something to take
gold from France in this manner, and the
method opposes a mechanical obstruction to
the withdrawal of gold. Second, if a request
is made of the Bank of France for a large
amount of gold for export the request must
[15]




THE FEDERAL RESERVE ACT
be submitted to the directors, who impose a
charge just at a point which is usually prohibitive. Third, in case of need the Bank of
France can protect its gold hoard by paying
out five-franc silver pieces as legal tender
under the law, and this provision of course
abundantly protects the gold held by the
bank against direct withdrawal.
"There is a vast difference between the
business methods of France and the business
methods of the United States. The French
people by long custom still maintain and do
nearly all their business in cash, and checks
are comparatively little used in commercial
life. The consequence is that the people
have acquired and use a very large amount
of currency in gold and silver, including
$739,000,000 in notes of the Bank of
France.
" T h e Bank of France not being compelled
to pay gold on demand, though it does do so
for domestic purposes, does not need to raise
the rate of interest to protect its gold. For
this reason, while the bank rate from February, 1889, to October, 1897, was raised by




[16]

THE FEDERAL RESERVE ACT
the Bank of England fifty-three times, and
by the Imperial Bank of Germany twentysix times, it was only raised by the Bank

of

France once. I t is the policy of the Bank of
F r a n c e to let the French people have money at
the unvarying

rate of three per cent, believing

that stability

in the rate of interest gives sta-

bility to commercial
the welfare
of the

of the

enterprise

and promotes

commerce

and

€

country * which

is

a chief

industry
duty

of

the bank.

" T h e very large surplus i n coin of the
Bank of France prevents the loss of confidence which leads to panic, and the bank
has so large a margin of note issue, with disposition to extend every reasonable demand,
and France itself has so large a supply of
internal currency i n circulation, and

the

banking deposits being relatively small, that
there is no danger there of panic i n times of
peace.
T H E BANK OF CANADA

" E v e n the banks of our nearest neighbor,
the Dominion of Canada, have a method




U7]

T H E FEDERAL RESERVE ACT
which expands and contracts the circulation
as much as twenty per cent during the three
months in each year when the crops of forest
and field are moving.
" Their notes may be issued to the extent of
their unimpaired

capital paid

up,

" T h e notes form a prior lien on the assets
and are secured by a five-per-cent guaranty
fund. The notes must be redeemed at any
part of the Dominion. N o reserve is actually required by law, but the cash reserve
for redemption has actually averaged in gold
and legal tenders for some years ten per
cent about. Under the law, forty per cent
of the reserves must be in Dominion legal
tenders, which, of course, take care of such
paper to that extent. There is a double
liability of stockholders, a special liability of
directors, elaborate regulations, frequent
printed reports, etc. The striking feature
is that in the history of these banks the
guaranty fund of five per cent for the
security of their notes has never been
depleted, and

that

this

method

offers

a

method which the United States might safely




[181

T H E FEDERAL RESERVE
use for

expanding

the

ACT

currency"—Cong.

Rec.> p. 2453.

The vital point of the English
system was the issuance of legaltender bank notes by the Bank of
England against securities and gold,
and lending these notes at interest.
This was permitted by a Ministerial
Permit in 1847, 1857, and 1866, with
the result that the panic i n London
in each case was instantly controlled (Hist. Bk. Eng., Andr6ad6s,
336, 349, 350).
T h e German method, to which I
called attention at that time (1899),
consisted in issuing currency against
securities under a penalty of a tax of
five per cent on the issue to the extent it exceeded its fixed gold security, and lending these bank notes at
interest, and I recommended at that
time (1899) the following remedy:




[191

THE FEDERAL RESERVE ACT
T H E REMEDY I N T H E UNITED STATES

" T h e remedy for panics in the United
States which suggests itself is:
" F i r s t , Establish

Postal

Savings-Banks,

in

which * timid* depositors with inactive accounts may place their money, because at
present by sudden hoarding in times of
excitement they constitute the greatest danger to the stability of banks and therefore
to the stability of commerce.
"Second, Issue to such depositors in the
postal savings-banks, i n lieu of their deposits, a bond, of long term, with liberal
option as to period of redemption by the
Government, bearing a low rate and issued
in small denominations, available for currency, and make such bonds legal tender.
In this way such deposits would become a
source of strength instead of weakness.
"Third,

Authorize

the

Treasury

United States to issue Treasury

depositing bonds of a fixed character,
state, or municipal,

of

the

notes to banks
Federal,

where the standing of such

bonds is thoroughly assuredf leaving the deter-




[20]

T H E FEDERAL RESERVE ACT
mination of their character with the Secretary of the Treasury.

In this case a charge

should be made against the banks drawing the
notes by a tax in excess of the amount of interest borne by such bonds, so as to secure the
prompt

redemption

advances'9—Cong.

and

repayment

RecFebruary

of the

25, 1908;

p. 2453.

Since this recommendation was
made the principles I then proposed
have been adopted by the United
States:
First, The Postal Savings-Banks
have been established to absorb the
deposits of timid depositors. Act of
June 25, 1910, 36 Stats., 814.
Second, T h e Aldrich-Vreeland B i l l
(May 30,1908), recognizing the principle of
(a) Issuing bank notes,
(b) A t interest,
(c) Against




adequate
[21]

securities,

THE FEDERAL RESERVE ACT
although with most serious obstacles,
were placed in the way of getting the
currency (35 Stats., 546).
Third, The Federal Reserve Act of
December 23, 1913 (35 Stats., 251),
was passed, having been engineered
through the United States Senate
under my management as Chairman
of the Committee on Banking and
Currency, perfected these principles
by providing
(1) A quick supply of Treasury
Federal Reserve Notes (money);
(2) Issued and controlled by the
Government;
(3) Against adequate security, including commodity bills;
(4) Under an interest charge to
prevent inflation; and
(5) Making these notes (money)
easily available at any time or place
in the United States where a business




[22]

THE

FEDERAL

RESERVE

ACT

m a n fairly entitled to credit wanted
currency.
U n i t e d States b o n d s m a y b e u s e d
n o w as a basis of issuing F e d e r a l R e serve N o t e s , u n d e r a n interest charge
fixed b y t h e authorities of t h e U n i t e d
States.
I advised the country at that time
(1899)
" T h a t the currency could be quickly and
safely expanded by issuing Treasury notes
against standard securities put up as collateral with the Treasury of the United
States. In this manner the sudden withdrawal of deposits and the shrinkage of the
narrow margin of currency available to the
banks could be supplemented as above
stated without forcing into liquidation, at
such an unfortunate time, any borrower. A n
issue of this kind could be made under proper
safeguards with a sliding scale of interest
against the party drawing Treasury notes
on such collateral and the redemption of such




[23]

T H E FEDERAL RESERVE ACT
securities when the Government desired
it."—Page 2454, Cong. Ree. (1908).

A t that time I made the following
comment (Ibid., p. 2454):
" I t is the duty of the United States to
provide a means by which periodic panics
which shake the American Republic and do
it enormous injury shall be stopped. They
are easy to prevent. The remedy is perfectly simple. Provide a means for quickly
expanding the currency when financial fear
threatens the country. Provide a means by
which the timid depositor who rushes on the
banker and demands his money shall not
frighten that banker out of his wits. Provide
a means by which that banker can, upon the
strength of adequate security, obtain a temporary accommodation of money with which
to meet his frightened depositors. In a time
of panic a man cannot borrow money if he
puts up gold dollars as collateral, for the
manifest reason that it is not security, but
currency, which is then required. The banker




[241

THE

FEDERAL

RESERVE

ACT

has not the currency to lend, and he cannot
lend that which he has not, no matter what
the security. You cannot then borrow on
Government bonds if you put up $10,000 for
$1,000. It is the duty of the United States
to protect the commercial life of its citizens
against this senseless, unreasoning, destructive fear that seizes the depositor when he
has been sufficiently hypnotized by the
metropolitan press with its indiscreet suggestions/*
On
sional

February
Record,

6,

1900 (Congres-

page 1534), Senator

James K . Jones offered a n amendm e n t t o the t h e n pending

Aldrich

B i l l , c o n t e m p l a t i n g the amendment
to the N a t i o n a l B a n k A c t , w h i c h I
drew as follows:
"That the Secretary of the Treasury is
hereby directed to have printed and to keep
on hand United States Treasury notes under
a special account to be called the 'emergency
[251




THE FEDERAL RESERVE ACT
circulation fund.* Such notes shall be full
legal tender. Any citizen of the United
States shall have the right to deposit United
States bonds under rules and regulations to
be prescribed by the Secretary of the Treasury, and to receive from such fund ninety
per cent of the face value of such bonds in
United States Treasuiy notes, and shall
have the right at any time within twelve
months to redeem such bonds by repaying
in United States Treasury notes the amount
so received by him on account of such bonds,
with interest at the rate of six per cent per
annum on such amount. Failure to redeem
such bonds within the limit of twelve months
shall operate as a forfeiture of such bonds to
the United States, and such bonds shall be
sold to the highest bidder in the open market,
and the balance, after the payment of the
principal of the amount advanced, the interest on the same, and the expenses, shall
be paid to the former owner of such bonds*
Any moneys received from such sale may
be exchanged with other moneys in the
Treasury, so that this fund shall consist




[26]

THE FEDERAL RESERVE ACT
alone of Treasury notes. The principal of
all sums so advanced when repaid shall be
returned to the * emergency circulation
fund,' and all interest upon such sums shall
be passed to the credit of the Treasury under
miscellaneous receipts."

Here again was presented the vital
principles of (a) quick money. Government notes (b) against adequate
security, (c) loaned by the Government at interest high enough to prevent inflation.
Senator Aldrich, then in charge of
the Bill, declined to accept this
amendment or to improve upon it
(1900).
The panic of 1907 ensued, leaving
American business men and banks
unprotected, and Senator Jones wrote
to me, as follows, calling my attention to the amendment which he
had proposed and suggesting that




[27]

THE FEDERAL RESERVE ACT
it would have prevented the panic
of 1907, if it had been adopted:
"(LAW

O F F I C E S OF J A M E S K .

J O N E S AND

J A M E S K . JONES, J R . , 621, 622 COLORADO
BUILDING.

T E L E P H O N E M A I N 638)

"WASHINGTON, D . C., February

11, 1908.

" H O N . ROBERT L . OWEN,
U N I T E D STATES S E N A T E ,
CITY.
"DEAR

SENATOR:

" I inclose a copy of tne amendment which
I offered to the financial bill on February 6,
1900.—Congressional Record,

p . 1534.

" Y o u will, of course, recall the fact that
you prepared the original draft of this proposed amendment, which I introduced in
almost, if not in exactly, the form submitted
by you. I think you will find the debate on
that bill at that time quite interesting.
" If that amendment had been adopted at
that time and it had been written in the law,
it would, in my opinion, have prevented the
late panic.




[30]

THE FEDERAL RESERVE ACT
" I am glad to see that at last the principle
of emergency currency properly secured is
recognized and that the Committee on
Finance of the Senate indorse it.
"Congratulating you on your early connection with this idea, I am
Very sincerely yours,
"JAMES K .

JONES."

—Cong. Record, Feb. 25, 1908, p. 2429.
THE PANIC OF 1907

After the panic of 1907 occurred
Senator Aldrich brought in a proposed remedy, afterward known as
the " Aldrich -Vreeland Law," and
in his address to the Senate February 10, 1908 (Cong. Rec., p. 1755), he
pointed out that the panic
"Was the most acute and disastrous in its
immediate consequences of any which has
occurred in the history of the country."
"That 'the shrinkage in values of securities and property, and the losses from injury
to business resulting from and incident to




[29]

THE FEDERAL RESERVE ACT
the crisis, amounted to thousands of millions
of dollars';
" T h a t ' a complete disruption of the exchanges between cities and communities
throughout the country took place';
" T h a t 4 it is impossible to estimate the
losses which were inflicted by this suspension
of payments by the banks, and the resultant
interruptions of exchanges/ etc., etc.;
" T h a t 4 there was financial embarrassment
on every hand, and an impossibility of securing the proper funds to move crops or to carry
on the ordinary business of the country';
" T h a t "the suspension or disarrangement
of business operations threw thousands of
men out of employment and reduced the
wages of the employed*;
" T h a t 'if the business interests of the
country are left defenseless through the inaction of Congress, the most serious consequences may follow/"

Senator Aldrich, as Chairman of
the Committee on Finance, thereupon urged the passage of Senate




[SO]

T H E FEDERAL RESERVE ACT
B i l l 3023, to amend the National
Banking laws. This bill provided for
the establishment of National Currency Associations, and it was approved M a y 30, 1908 (35th Stats.,
546).
These National Currency Associations, to be composed of not less than
ten national banks in number, and
each association having a capital and
surplus of at least five millions of
dollars, were to be authorized as corporate bodies. They were authorized
to expand the circulation by the approval of the Comptroller of the Currency to an amount not exceeding
seventy-five per cent of the cash
value of the securities or commercial
paper deposited under the direction
and control of the Secretary of the
Treasury. The notes were to be bank
notes, and many restrictions were




[31]

THE FEDERAL RESERVE ACT
placed upon the issuance of these
notes- For instance:
" N o association should be authorized to
issue circulative notes based on commercial
paper in excess of thirty per cent of it sunimpaired capital and surplus, and
" T h e commercial paper was to include
only notes representing actual commercial
transactions, with two responsible names,
and not exceeding four months to run. Such
notes should not exceed ninety per cent
market value of qualified bonds, and
" T h e total amount of circulating notes
outstanding of any national banking association, including notes secured by United
States bonds, as provided by law, and notes
secured otherwise than by deposit of such
bonds, shall not at any time exceed the
amount of its unimpaired capital and surplus/'

The whole system was under the
further sweeping provision that under no circumstances should the gross
amount of circulative notes issued by




[32]

THE FEDERAL

RESERVE

ACT

all the banks i n the U n i t e d States,
under this Act, exceed five hundred
million dollars.
I t was further provided that the
notes should be distributed as equitably

as

practicable

between

various sections of the country.

the
A

very impractical provision i n time of
panic.
Furthermore, the national banking
associations issuing such circulating
notes, proposed b y the A c t , were required to pay for the first month a
tax of Jive per cent per annum upon
such notes i n circulation, w i t h one
per cent per annum for each month
thereafter until a tax of ten per cent
per annum was reached.
T h e B i l l provided for the withdrawal of national bank notes based
upon bonds to the extent of nine
million dollars a month, and a can-




[38]

THE FEDERAL RESERVE ACT
cellation of the authorized new circulative notes.
OBJECTIONS TO T H E
LAND

ALDRICH-VREE-

BILL

I strongly objected on the floor of
the Senate (February 25, 1908) to the
various obstructions in the way of
quick - circulating notes, on the
ground that the method was unreasonable, cumbersome, and defeated
the object of preventing panic, although useful in abating a panic after
its occurrence.
" T h a t these notes were pretended to be
national bank notes, but in reality were
United States notes because practically guaranteed by the United States.
"Because it would take six thousand six
hundred different plates to print these notes
[a different note for each bank] instead of
one plate.
"Because the high rate of interest would




[M]

THE FEDERAL RESERVE ACT
make these notes available only after a panic
had occurred. N o bank in sound condition
and free from the fear of a panic would take
the trouble to call a meeting of the directors
of a national currency association and make
the appeal necessary to obtain these circulating notes and put up their securities on a
charge of five per cent up to ten per cent
for the use of such notes, unless a panic had
already taken place."

I called the attention of Senator
Aldrich to the interesting fact that
the issuance of circulating notes
based upon securities at a reasonable
rate of interest had been proposed on
February 6, 1900, in an amendment
which I had drawn and which was
offered by Senator James K . Jones
and which was rejected by M r .
Aldrich, and that his refusal of this
proposal had left the country unprotected against the panic of 1907. I
pointed out also that the only value




[35]

THE FEDERAL RESERVE ACT
of his present proposal (Sen. 3023),
in February, 1908, was that it did
provide circulating notes against security under an interest charge high
enough to prevent inflation, but that
it was insufficient in amount, because
the panic of 1893 had required a very
much larger sum of currency, clearinghouse certificates, cashiers' checks,
pay checks, etc., over $1,000,000,000,
to meet the demand for currency, and
that his B i l l was defective just to the
extent that it proposed obstructions
to the free delivery of such circulating
notes, and to the ease with which people might obtain them.
After I had made this indictment
of the neglect of Senator Aldrich to
adopt these principles i n 1900, 1 said
(Cong. Recp. 2429):
" I pause to say that, if any Senator [looking at M r . Aldrich] wishes to interrupt me




[36]

THE FEDERAL RESERVE ACT
at any time, it will not disconcert me in the
least.
" T h e Senator from Rhode Island would
have saved his country and millions of its
people the enormous shrinkage in values of
securities and property and the loss from
injury to business resulting from and incidental to the crisis, amounting, as he himself
now declares, to 'thousands of millions of
dollars/
" H e would have prevented 'the suspension or disarrangement of business operations which threw thousands of men out of
employment and reduced the wages of those
who were still employed.'
" H e would have prevented the fear and
distrust which has now paralyzed and makes
unproductive the energies of hundreds of
thousands of men and holds idle many
thousands of factories and business enterprises."

Senator Aldrich did not interrupt
me and made no defense against this
charge.
[37]




THE FEDERAL RESERVE ACT
I pointed out at that time (page
2432):
1. That the committee bill limited
the issue to five hundred million dollars of emergency notes, which had
been demonstrated by the Chairman
himself to be insufficient in volume,
and imposed restrictions which would
prevent any but a fractional part of
that issue, and in addition closed
every door to relief until after the
Secretary of the Treasury should
have declared an emergency, which I
insisted should be left to the bank
making application and not to the
Treasury, because a bank may be put
in a panic within twenty-four hours,
and nobody can know this as well as
the bank officers.
2. I objected to six thousand six
hundred varieties of national bank
notes when these notes should be




[38]

THE FEDERAL RESERVE ACT
United States Treasury notes in one
form.
3. I objected that the national
banks were not permitted to take
advantage of the Bill unless they
came within certain rigidly described
classes, thus limiting the efficiency of
the proposed remedy and preventing
its full and free exercise. For example:
4. N o national bank which has less
circulating notes outstanding than
forty per cent of its capital was permitted to have the benefit of the Act.
5. N o national bank with a surplus
of less than twenty per cent was permitted to have relief.
6. N o national bank in any event
was to have any relief in emergency
notes exceeding a gross amount of
its outstanding notes in excess of the
capital and surplus of such bank.
1391




THE FEDERAL RESERVE ACT
7. Even under these vexatious limitations the national banks within the
classes described were only permitted
to have relief of a limited amount of
these emergency notes apportioned
off to each of the several states regardless of the national exigency.
8. Moreover, no state bank, no
trust company, no savings-bank, was
permitted to have the benefit of this
remedy against panic, although these
institutions at that time held twothirds of the banking capital of the
United States, and had less than four
per cent currency reserve, and were
therefore to that extent dangerous to
our financial stability.
A l l these objections, made in 1908,
were remedied in the Federal Reserve Act in 1913.
I demanded (page 2435) that the
volume of emergency notes should




[40]

THE FEDERAL RESERVE

ACT

not be limited except by the actual
requirements of our commerce.
This has been accomplished.
I demanded that these notes should
not be national bank notes, but
should be Treasury notes based upon
the securities and the credit of
the banks, but in addition (being
Treasury notes) supported by the
taxing power of the people of the
United States.
This was accomplished in the Federal Reserve Act.
I advocated at that time the retirement of the bond-secured national
bank notes and the issuance in lieu
thereof of Treasury notes payable in
gold (page 2436).
T h e Federal Reserve Act provided
the gradual retirement of the bonds
and national bank notes by substituting Federal Reserve notes.




[41]

T H E FEDERAL RESERVE ACT
I n 1908 I urged also the issuance
of Treasury notes in lieu of gold
certificates, and that the gold thus
released should be added to the
reserve fund in the division of
redemption. This has been accomplished, under the Federal Reserve
Act. Federal Reserve notes are now
issued i n lieu of gold, and such gold
to the extent of many hundreds of
millions of dollars has passed into the
hands of the Federal Reserve banks
in the custody of Federal Reserve
agents and made available for this
very purpose (page 2436).
The Committee (Aldrich) Bill
(1908) permitted railroad bonds to be
used as a basis of the emergency circulative notes, and did not provide
that privilege for United States
bonds. Against this I vigorously protested (page 2441). T h e Federal Re-




[42]

T H E FEDERAL RESERVE ACT
serve Act corrected this by providing that United States bonds might
be used as a basis for obtaining
Federal Reserve notes, and does not
permit railroad bonds to be so used.
I further insisted in 1908 upon a
readjustment of the cash reserves of
the banks so that they would be real
reserves and actually available, as
they were not under the then existing
statute (page 2444). This was corrected in the Federal Reserve Act.
I stated at that time the principles
which should govern the statutes on
banking, as follows:
" I t should always be kept in mind that it
is not the welfare of the bank, nor the welfare of the depositor which is the main
object to be attained, but it is the prevention of panic, the protection of our commerce, the stability of business conditions,
and the maintenance in active operation of




[431

T H E FEDERAL RESERVE ACT
the productive energies of the nation which
is the question of vital importance."

The Aldrich-Vreeland A c t did not
accomplish this result, yet it did have
the great virtue of recognizing the
broad principle which I had advocated i n 1899 of
Making elastic currency available,
On adequate security;
On an interest charge to prevent
inflation.
The vital defects of the AldrichVreeland Emergency Currency Act
consisted in putting the system in
the control of the banks and making
the currency difficult of access and
expensive.
AMENDMENTS TO ALDRICH-VREELAND
ACT, 1913 AND 1914

On December 23,1913, the Federal
Reserve Act, Section 27, extended
[44]




THE FEDERAL RESERVE ACT
the Aldrieh-Vreeland Act, subject to
the modifications of the Federal Reserve Act, to June 30, 1915, and with
the important amendment that "the
tax on circulating notes, secured
otherwise than by bonds of the
United States, shall pay for the first
three months a tax of three per centum
per annum upon the average amount
of such of their notes in circulation as
are based upon the deposit of such
securities, and afterwards an additional tax rate of one-half of one per
centum per annum for each month
until a tax of six per centum per an-

num is reached, and thereafter such
tax of six per centum per annum upon
the average amount of such notes/'
I had recommended a lower rate of
interest on February 25, 1908, as a
substitute for the Aldrich Bill, putting the interest at six per cent for




(45]

THE

FEDERAL

RESERVE

ACT

the first twelve months (Cong* Rec
page 2445), a n d a lower rate was
provided i n the F e d e r a l Reserve A c t
A m e n d m e n t of f r o m 3 per cent t o
6 per cent.
O n J u l y 31, 1914, w h e n t h e E u r o p e a n war

broke out, I

offered

an

amendment to the A l d r i c h - V r e e l a n d
A c t w h i c h was adopted t h a t d a y b y
unanimous consent, as follows:
"Provided further that whenever in his
judgment he may deem it desirable the Secretary of the Treasury shall have power to
suspend the limitations

imposed by Section 1

and Section 8 of the Act

referred to i n this

Section, which prescribed that such additional circulation secured otherwise than by
bonds of the United States shall be issued
only to national banks having circulating
notes outstanding secured by the deposit of
bonds of the United States to an amount not
less than forty per cent of the capital stock
of such banks, and may permit national




[46]

THE

FEDERAL

RESERVE

ACT

banks during the period for which such provisions are suspended to issue additional

cir-

culation under the terms a n d conditions of
the A c t referred t o " (page 13067).
This

amendment

was

in

accord-

ance with the recommendations which
I h a d m a d e o n F e b r u a r y 25,1908, a n d
w h i c h w e r e n o t a c c e p t e d a t t h a t timeI n the H o u s e of Representatives a
further a m e n d m e n t was offered

and

adopted to authorize the Secretary
" To suspend also the conditions and limitations of Section 5 of said Act,—that

is, to

suspend the provision that the total amount of
circulating

notes outstanding

secured

by

U n i t e d States bonds, as now provided b y
law, and notes secured otherwise t h a n b y
deposit of such bonds, shall not at any time
exceed the amount of its unimpaired

capital

and surplus a n d t o authorize the suspension
of the limitation

of the circulating

notes of

emergency notes to Jive hundred million
larsr




[47]

dol-

THE FEDERAL RESERVE ACT
Both of these conditions, which I
had objected to on February 25,
1908 (pages 2433 and 2435), were in
this way corrected.
The House added a further provision authorizing the Secretary of the
Treasury to extend the benefits of the
Act to all qualified state banks and
trust companies which have joined
the Federal Reserve System or which
may contract to join within fifteen days after the passage of the
Act.
The demand for recognizing the
state banks and trust companies
in the issuance of emergency notes I
had made on February 25, 1908
(Cong. Rec., page 2436), and it was
here provided to this extent.
The House amended the bill, as
stated, on August 4, 1914, and the
Senate immediately accepted the
148]




T H E FEDERAL RESERVE ACT
House amendments with a proviso
that national banks should not issue
more notes than 125 per cent of capital and surplus.
I had taken this matter up with
the Treasury Department on Friday
morning, July 31, 1914, agreed upon
the form of amendment with the
Treasury Department, and called
the Banking and Currency Committee together and obtained a unanimous report in favor of the amendment, and the bill passed unanimously through both Houses with the
amendments above indicated.
T h e amendments in the House
were brought about by numerous
conferences between the Committees
of the Senate and the House of Representatives, and all these amendments were actively urged by such
distinguished bankers as Frank A.




[49]

THE FEDERAL RESERVE ACT
Vanderlip, president of National CityBank, New York, and Chas. C.
Glover, president Riggs National
Bank, Washington, and others.
The Treasury immediately sent
out a very large amount of circulating notes under the Aldrich-Vreeland
Act, and a total issue was made
amounting to $386,444,215, all of
which was retired by July 1st, 1915
(except $200,000, later retired), which
served to protect the country in a very
important way against the threat of
a panic due to the European war.
T H E M O N E T A R Y COMMISSION P L A N ,

1912
The Aldrich - Vreeland Act, approved M a y 30,1908, established the
National Monetary Commission of
nine Senators and nine members of
the House, to inquire into and report
[50]




THE FEDERAL RESERVE ACT
to Congress at the earliest practicable
date,
" W h a t changes are necessary or
desirable in the Monetary System of
the United States, or i n the laws relating to banking and currency," etc.
On January 19,1912, the National
Monetary Commission made its report to Congress with a proposed bill
to incorporate the "National Reserve Association of the United
States" (SenateDoc. 243,62d, 2d).
This biU provided for the " N a tional Reserve Association" with a
capital of one hundred millions paid
in, and two hundred millions to be
subscribed before commencing business, the total capital to be equal to
twenty per cent, of the capital of the
member banks, its head office in
Washington. I t had the usual corporate powers.
1511




THE FEDERAL RESERVE ACT
National banks were required to
subscribe to this stock. Y e t the
bankers who approved this bill insisted afterwards that national banks
should not be required to subscribe to
the Government-controlled Federal
Reserve Banks. The bill provided
an organization committee composed
of the Secretary of the Treasury,
the Secretary of Commerce and
Labor, and the Comptroller of the
Currency. The Association was to
have fifteen branches in as many districts.
1. The National Reserve Association was to be under the control of a
board of directors, consisting of fifteen directors to be elected, one by
the board of directors of each branch
of the National Reserve Association;
2. Fifteen additional
directors
elected in the same way to represent




[52]

THE FEDERAL RESERVE ACT
the agricultural, commercial, industrial, and other interests of the districts.
3. Nine additional directors were
to be elected by a voting representative chosen by the board of directors
of the various branches, each of
whom should cast a number of votes
equal to the number of shares in the
National Reserve Association held in
the branch which he represented.
4. There were to be seven exofficio members of the board of directors, namely: the governor of the
National Reserve Association, who
should be Chairman of the Board;
two deputy governors of the National
Reserve Association, the Secretary
of the Treasury, the Secretary of
Agriculture, the Secretary of Commerce and Labor, and the Comptroller of the Currency.




[53]

THE

FEDERAL

RESERVE

ACT

T h e executive officers were to consist of the governor, two deputy governors, a secretary, and such subordinate officers as might be provided
for i n the by-laws.
The effect of this plan was to place
absolutely in the hands of the banks
the control of the reserve system. A n d
to fix this stupendous power i n the
hands of five men i n N e w Y o r k C i t y
representing a B o a r d of forty-six persons, forty-two of whom were to be
chosen b y the banks and four of
whom were to represent the Government of the U n i t e d States.

The

B i l l proposed to exempt the Reserve
Association and the local associations
from local and state taxations except as to real estate. I n each branch
association the manager and deputy
manager were to be appointed from
the districts b y the governor of the




[54]

T H E F E D E R A L RESERVE

ACT

Association with the approval of the
executive committee and the board of
directors of the branch, and subject to removal at any time b y the
governor with the approval of the
executive committee of the National
Reserve Association. T h e local associations were authorized, for a commission,

to

guarantee

commercial

paper for rediscount at the branches
of the National Reserve Association.
I t was provided that any local association might function

as a clear-

ing-house b y a vote of three-fourths
of its members w i t h the approval of
the National Reserve Association.
T h e Federal Reserve Banks were
intended b y the Federal Reserve A c t
to function as clearing houses and
clear checks at par, but b y the present Federal Reserve Board they only
serve as collection agencies of checks




[55]

T H E FEDERAL RESERVE ACT
and clear very lamely. Some day
this will be corrected and the Act
administered more advantageously
for business men and depositors.
I t was proposed that the National
Reserve Association should be the
principal fiscal agent of the United
States, and that the Government
should thereupon deposit all its general funds with said Association and
its branches, and thereafter all receipts of the Government, exclusive
of trust funds, should be deposited
with said Association
and its
branches, and all disbursements by
the Government should be made
through said Association and its
branches.
Section 24 provided that the Government of the United States and the
banks holding stock in the National
Reserve Association should be the




[56]

THE FEDERAL RESERVE ACT
only depositors in said Association,
Section 25 provided that the Association

should

pay

no

interest

on

deposits.

Section 26 authorized the Association to rediscount for its member
banks commercial bills, but not on
bills based on investment securities.
Discounted bills should not have a
maturity of more than twenty-eight
days, nor exceed the capital of the
bank for which rediscounts were
made, nor exceed ten per cent of
the unimpaired capital of the member bank. Bills up to four months
were approved for discount with the
guarantee of the local association.
The National Association was authorized, with the approval of the
Secretary of the Treasury, to discount the obligation of a member




[57]

THE FEDERAL RESERVE ACT
bank endorsed by its local association, provided the loan did
not exceed three - fourths of the
actual value of collateral securities
pledged.
Section 30 provided that the Association should have the authority to
fix its rate of discount throughout
the United States.
Section 31 authorized national
banks to issue

acceptances not ex-

ceeding four months properly secured, based on commercial transactions, the total acceptances not to
exceed one-half of the capital and
surplus of the accepting bank.
Section 32 authorized the Reserve
Association to purchase such acceptances with not exceeding ninety
days to run.
Sections 33 and 34 authorized the
Association to invest in Government




[58]

T H E FEDERAL RESERVE ACT
bonds and Treasury notes and deal
in gold coin and bullion.
Section 35 authorized the National
Reserve Association to purchase and
sell commercial paper or bills of exchange rising out of commercial
transactions and payable in foreign
countries, provided the bills do not
exceed ninety days, have two responsible signatures, the last a subscribing bank.
Section 36 authorized the Reserve
Association to open and maintain
banking accounts in foreign countries
and establish agencies in foreign
countries for the purpose of handling
foreign bills and checks. T h e member banks were authorized to count
their deposits with the Reserve Association as legal reserves. The Reserve requirements were lowered by
making no reserve necessary on de[59]




THE FEDERAL RESERVE ACT
posits maturing more than thirty
days from date.
Section 40 authorized national
banks to loan not more than thirty
per cent of their time deposits upon
real estate, but not to exceed fifty
per cent of the actual value of the
real property, but excluding reserve
agents from this privilege.
Section 41 provided that the National Reserve Association should
cover all demand liabilities, including
deposits and circulating notes to the
extent of fifty per cent in gold or
lawful money, with a proviso that
whenever and so long as such reserve
should fall and remain below fifty
per cent the Reserve Association
should pay a special tax upon the
deficiency of reserve at a rate increasing in proportion to such deficiency,
as follows:
[60]




T H E FEDERAL RESERVE ACT
For each two and a half per cent below
the required reserve a tax shall be levied of
one and a half per cent per annum, and this
elasticity ceased when the gold reserve fell
to one-third of the outstanding notes.

I n computing the demand liabilities of the National Reserve Association a sum equal to one-half of the
amount of United States bonds held
by the Association which have been
purchased from national banks, and
which have previously been deposited
by such banks to secure their circulating notes, should be deducted from
the amount of such liabilities.
Section 48 forbade national banks
to reissue any further national bank
notes, and
Section 49 gave the National Reserve Association the right to offer to
purchase at par and accrued interest
the two-per-cent bonds held by sub-




[61]

T H E FEDERAL RESERVE ACT
scribing national banks and deposited
to secure their circulating notes, the
National Reserve Association to take
over the bonds and assume the responsibility for the redemption of
bank notes. The National Reserve
Association was thereupon authorized to issue,—
" I t s own notes as the outstanding
notes secured by such bonds," and
" M a y issue further notes from time to
time to meet business requirements, being
the policy of the United States to retire as
rapidly as possible, consistent with the public interests, bond-secured circulation, and
to substitute therefor notes of the National
Reserve Association of a character and secured and redeemed in the manner provided
for in this Act."

Section 50 required the note issues
to be covered by legal reserves of
from thirty-three and one-third to




[62]

T H E F E D E R A L RESERVE

ACT

fifty per cent, and b y notes or bills
of exchange arising out of commercial transactions or obligations of the
United States.
Section 51 provided that any notes
of the National Reserve Association
i n circulation at any time i n excess of
nine hundred million dollars which
are not covered b y an equal amount
of lawful money, gold bullion, or foreign gold coin held by said Association, shall pay a special tax at the
rate of one and one-half per cent per
annum, and any notes i n excess of
one billion two hundred million dollars, not so covered, shall pay a special tax at the rate of five per cent
per annum, provided that i n computing said amounts the aggregate
amount of any national bank notes
then outstanding shall be included.
The notes of the Reserve Associa-




[63]

T H E FEDERAL RESERVE ACT
tion were to be available for member
banks as reserves.
The notes were to be received at
par in payment of all taxes, exercises, and other dues to the United
States, and for all salaries and other
debts and demands owing by the
United States to individuals, firms,
coiporations, or associations, except
obligations of the Government specifically payable in gold, and for all
debts due from or by one bank or
trust company to another, and for
all obligations due to any bank or
trust company; in other words, LEGAL TENDER, except for specific gold
contracts of the United States.
Section 55 directed the Secretary of
the Treasury to exchange the twoper-cent bonds of the United States
bearing a circulation privilege for
three-per-cent bonds without the




[64]

THE FEDERAL RESERVE ACT
circulation privilege, payable fifty
years from date, and the National
Reserve Association was required to
hold the three-per-cent bonds during
the period of its corporate existence,
with the right to sell at the option of
the Treasury, after five years, not
more than fifty million dollars of such
bonds annually, the United States
reserving the right to pay off such
bonds at any time.
Section 56 required the National
Reserve Association to pay the Government a special franchise tax of
one and a half per cent annually
during the period of its charter upon
an amount equal to the par value of
such United States bonds transferred
to it by the subscribing bank.
The effect of this provision was
that the United States would pay
three per cent and get back one and




[65]

THE FEDERAL RESERVE ACT
a half per cent, paying one and a
half per cent interest net annually
for the exchange of its credit for the
credit of the Association, a net annual
profit on $900,000,000 of $13,500,000
to the bank at the expense of the United
States.

Section 57 authorized banking corporations to be organized for the transaction of foreign banking business.
When this Act was presented to
the Congress of the United States an
active propaganda ensued throughout the United States to obtain for it
the public approval; meetings were
held in various cities of the United
States under the patronage of the
American Bankers* Association. Senator Aldrich made many public addresses in its favor, but Congress
took no action because there was a
very resolute opposition in Congress




[66]

THE FEDERAL RESERVE ACT
toward turning over the entire control of the credit system of the United
States to private hands and practically uncontrolled by the National
Government. The most serious objections to the Aldrich Bill were these:
1. The entire banking powers of
the United States were to be concentrated in the executive officers (private persons), who would be located
in New Y o r k City, and this power
would be sufficient to coerce every
member bank and large business in
America.
I t was desirable, on the contrary,
that the control of the system should
be in the hands of the Government
of the United States, and, second,
that the reserve centers should be
distributed and not concentrated in
one city where a small clique could
control the system.




[67]

THE FEDERAL RESERVE ACT
2. So long as the Reserve Association issued its own bank notes it followed as a corollary that the Association would control its own notes as
it saw fit, and thereby could control
the currency of the country and
thereby control the credits of the
country regardless of the will of the
American people, since the Government under

the proposal

would not

have been in control. The measure,
however, did have some valuable
features; it did provide for the
gradual retirement of the national
bank notes.
I t did provide for acceptances, domestic and foreign.
It did provide for a currency which
was elastic and would accommodate
itself to the demands of commerce
(always provided the gentlemen in
control permitted it).




[68]

THE

FEDERAL

RESERVE

BUT, i t was a Central
Bank i n Private

ACT

All-Controlling

Hands.

THE DEMOCRATIC CURRENCY REFORM
OF 1913
I n the fall of 1912 Hon. Woodrow
Wilson was elected President of the
U n i t e d States upon a platform opposing a central bank, favoring the taking of the banking business out of
the control of the so-called "money
t r u s t " or "credit t r u s t " whose existence had been demonstrated b y
the P u j o investigation, and declaring
the doctrine
"Banks exist for the accommodation of
the public and not for the control of business.
All legislation on the subject of banking and
currency should have for its purpose the
securing of these accommodations on terms
of absolute security to the public and have
complete protection from the misuse of the




169]

THE FEDERAL RESERVE ACT
power that wealth gives to those who possess it."

As I had given this matter careful
study in 1898 and had called the attention of the country to the methods
by which Great Britain, Germany,
France, and other countries protected
their business people against financial panic and by which they stabilized business credits, and had elaborately set these principles forth in the
Senate in February, 1908, I desired
to be able to write these principles
in the statutes of the United States,
and I therefore initiated a determined movement to reorganize the
Democratic party control of the
United States Senate and among
other things to have myself put at
the head of a Committee on Banking
and Currency, in order that I might
have the opportunity of framing the




[70]

THE FEDERAL RESERVE ACT
Federal Reserve Act along sound
lines free from selfish interests.
The Senate was reorganized accordingly; there was formed a Committee on Committees, of which I
became a member, the Committee
on Finance was divided, the Committee on Banking and Currency
established, I was made Chairman
of this Committee, and immediately
organized a sub-Committee to study
this question in co-operation with
the Committee of the House, which
was giving attention to this question
at the same time.
During the preceding winter
(1912-13), Hon. Carter Glass, Chairman of the Committee on Banking
and Currency of the House of Representatives, had given this matter
vigorous attention, and had made a
preliminary draft which he had sub-




[71]

THE FEDERAL RESERVE ACT
mitted to President-elect Wilson. I
was advised that this draft had met
with the tentative approval of the
President. M r . Glass gave me a copy
of his draft and his notes thereon
which I have preserved. I, too, made
a draft incorporating the principles
I had advanced in 1908, and these
two proposals became the basis of
discussion in framing the Federal
Reserve Bill which finally became the
Federal Reserve Act.
The Glass tentative draft avoided
the establishment of a central bank
with branches, and provided twenty
Federal Reserve district banks under
control, however, of a Federal Reserve Board, W I T H F O R T Y OUT OF
FORTY-THREE

MEMBERS

CHOSEN

BY

T H E BANKS.

Section 10 of this draft provided
for a Federal Reserve Board, con-




[72]

THE FEDERAL RESERVE ACT
sisting of forty members chosen by
the member banks and their stockholders, and the Secretary of the
Treasury, the Comptroller of the
Currency, and the Attorney-General
of the United States. M r . Glass,
however, proposed to amend this
draft to alter this provision so that
the Federal Reserve Board should be
selected by the directors of the National Reserve banks, the directors of
the Federal Reserve banks being
selected by the member banks and
their shareholders, either directly or
indirectly.
I was strongly opposed to either
provision because i t would not give
to the United States control of the
system. I n effect this control of the
system I regarded as practically the
same as the Aldrich Bill, which
would have put the management of




[73]

T H E FEDERAL RESERVE ACT
the system i n the hands of persons
chosen to represent the banks, and I
insisted that the control of the system
was a governing function to be exercised alone by the Government of the
United States. About this feature I
felt great anxiety, because a powerful impression had been created that
the banks of the country would not
enter a Government-controlled system, would not take stock i n the
reserve banks, and would not put
their reserves in the reserve banks
unless they could control the Federal
Reserve Board.
Their representations with regard
to this had made a serious impression
on M r . Glass and on others in authority.
Mr* Glass and myself discussed the
matter very freely and fully, but
could not reach an agreement. As




[741

THE FEDERAL

RESERVE

ACT

far as he felt i t safe to go was to have
a Federal Reserve Board of seven,
four members of which were to be
chosen b y the Government and three
b y the banks.
U p o n this vital difference we determined to appeal to the President.
W e h a d a hearing one night at the
W h i t e House, i n the Cabinet Room,
Mr.

Glass urging his view and

I

pressing the proposal that the Government should control the appointment of every member of this Board.
After a discussion of two hours, approximately, the President

coincided

with my contention that the Government should control every member of
the Board on the ground that it was
the function of the Government to supervise this system arid no

individual,

however respectable, should be on this
Board representing private interests.
175]




T H E FEDERAL RESERVE ACT
Secretary McAdoo was present at
this interview and agreed with the
view which I presented.
When, shortly afterwards, i t became apparent that the banks would
not be able to refuse to enter the
system because of this provision, M r .
Glass gave it a very cordial support,
and when we introduced a bill identical in terms in the Senate and i n
the House this Government control
was provided for (S. 2639. H . R .
6454).
I had printed for the use of the
Senate explanatory notes and in connection with the section providing
for the Federal Reserve Board I
answered the objection of the American Banking Association to Government control. I pointed out that the
directors of the Reichsbank of Germany were appointed by the Govern-




[76]

THE FEDERAL RESERVE ACT
ment and not by the stockholders of
the bank, and that the Bank of
France had its managers, governors,
and sub-governors appointed by the
Government of France.
The Glass draft, Section 21, followed the Monetary Commission
Bill and provided that all moneys of
the general fund of the Treasury
should, after six months, be deposited
in the National Reserve banks and
disbursed through such banks.
This I was unwilling to agree to,
believing that the Government
should retain complete control of
its receipts and disbursements as a
further check on the reserve banks
by the Government.
On this point I received valuable
suggestions from Hon. Geo. H . Shibly, who briefed the case for me.
The Reserve Act preserved the in-




[77]

THE FEDERAL RESERVE

ACT

dependence of the Treasury in accordance with my contention.
Section 23 of the original proposal
by M r . Glass authorized the National
Reserve banks to receive from the
Federal Reserve Board Federal Reserve notes, but these notes were to
be the bank notes of the Federal Reserve banks as in the Monetary Commission Bill, and not the notes of the
United States Government.
I objected to this provision, insisting that the notes should be United
States Treasury notes and treated as
such, for the reason that i n this way
the United States Government would
be able to control these notes and the
banks would not be able to control
them, and Senate B i l l 2639, and
House B i l l 6454, introduced June 26,
1913, by M r . Glass and myself, made
such notes the obligations of the




T H E FEDERAL RESERVE ACT
United States, to be issued at the discretion of the Federal Reserve Board
solely for the purpose of making advances to Federal Reserve banks
(Section 17),
On this point I had the active assistance of Hon. W . J, Bryan, Secretary of State.
Between June and September
many discussions took place with regard to this bill. Finally, on August 29,1913, M r . Glass reintroduced
the measure of H . R . 7837, and reported it September 9, 1913, and it
passed the House September 18th.
On the 2d of September, 1913, anticipating the passage by the House
of this Bill, I opened the hearings in
the Senate upon H . R . 7837, before
the Committee on Banking and Currency, so that the B i l l if amended
would be amended as the matter of




[79]

T H E FEDERAL RESERVE ACT
the House Bill, it being the same as
Senate 3099, which I had introduced
on September 9, 1913, and thus several weeks' time saved in its parliamentary management.
I t resulted in a substitute bill
which after conference became The
Federal Reserve Act.
The hearings on this bill before the
Senate Committee filled three large
volumes of 3,259 pages, and were not
concluded until October 27, 1913.
The Committee made very resolute
efforts to ascertain as fully as possible
the views of bankers and business
men with regard to this bill.
T h e most distinguished bankers,
business men and financiers i n the
country gave the Committee their
views, some of which were very useful in refining the Bill.
I spent days in New Y o r k discuss-




[80]

T H E FEDERAL RESERVE ACT
ing this measure with leading bankers i n order to be thoroughly assured
of their point of view and not to omit
any suggestions of value or to insert
in the bill any provisions which
would be injurious either to the banks
or to our business people, but, as I
explained to them, I was considering
the matter as a public servant from
the standpoint of the interests of the
people of the United States, of the
manufacturer and merchant and producer and consumer, and not from
the standpoint merely of the banker.
On one occasion I spent the entire
day from nine o'clock in the morning
until nine o'clock at night talking to
the Legislative Committee of the
American Bankers' Association in
New Y o r k City.
I recall spending seven consecutive
hours discussing with M r . Paul War-




[81]

T H E FEDERAL RESERVE ACT
burg the question of whether the Reserve notes should be the notes of the
United States Government or bank
notes, he taking the position that
they should be notes of the Federal
Reserve banks and not United States
Treasury notes, he contending that
these notes would be the obligations
of the United States and would
weaken the credit of the United
States when the United States came
to borrow money from the banks or
from the people. I took the position
that the currency of the country
ought to have behind it the taxing
power of the nation, that the United
States should control the currency,
and that private persons should not
control the currency, and that the
Treasury notes would mobilize capital so that it would be easier for the
Government to negotiate its loans




[82]

T H E FEDERAL RESERVE ACT
with such notes operating as a medium for transfer of credits conveniently through the banks which would
be stabilized by this system.
M r . Warburg supported the principal proposals of the Aldrich Central
Bank plan and opposed those of the
Federal Reserve Act (North Amer.
Rev., Oct., 1913, p. 527).
On December 13, 1913, Senator
Root proposed to amend Section 16
and make the Federal Reserve notes
"bank notes," and he denounced the
Federal Reserve notes because they
were the notes of the United States
Government, and said that the A c t
" I s authority for the increase, practically,
of what we call greenbacks,"

and urged that the Federal Reserve
notes were unsound and extremely
dangerous.




183

T H E FEDERAL RESERVE ACT
H e contended that i t meant not
elasticity, b u t uncontrolled

expansion,

and said,
" I t provides a currency which may be
increased, always increased, but not a currency for which the Bill contains any provision compelling reduction."

I pointed out on December 15,
1913, in my reply to M r . Root (Cong.
Rec.9 899) that these notes could not
expand or remain expanded beyond
the requirements of our commerce,
because, unless a bank needed currency, it would not call for these
notes, and as soon as the need for
currency was past the bank would
return the currency to the Reserve
Bank and the Reserve Bank would
return such currency to the Federal
Reserve agents. T h e automatic redemption of these notes is expressly
provided for i n the Act. T h e ex-




184]

THE FEDERAL RESERVE ACT
tent of this issue was absolutely in
the control of the authorities of the
United States Government, and the
fact that these notes were available
everywhere has enabled the people of
the United States to meet the present
demands of the Government of the
United States(1918) for gigantic bond
issues and enormous taxes required
in the greatest war of all history.
T h a t these notes should not be discredited as unsound I made clear at
that time by pointing out the various
safeguards to these notes and their
validity and that the following securities were behind these notes:
First, A short-time promise-to-pay
of a business man in good standing,
based on commodities and for which
his entire fortune was responsible.
Second, T h e endorsement of
member bank in good standing.




[85]

a

T H E FEDERAL RESERVE ACT
Third, T h e stock of such bank in
the Federal Reserve bank.
Fourth, The reserve balance of
such member bank in the Reserve
bank.
Fifth, The double liability of stockholders of the member bank endorsing the note.
Sixth, T h e capital and surplus of
the Federal Reserve bank obtaining
the note.
Seventh, A minimum gold reserve
of forty per cent, behind such notes.
Eighth, The liability of member
oanks for the obligation of its own
Federal Reserve banks.
Ninth, The double liability of
stockholders of all member banks.
Tenth, The mutual liability of all
Federal Reserve banks for the debts
of one another.
Eleventh, The taxing power of the




[86]

THE FEDERAL RESERVE ACT
people of the United States to meet
the obligations of the United States.
N o such line of securities was ever
provided for any note issue in the
history of the world. These notes
have not expanded beyond the actual
requirements of commerce, and the
expansion is absolutely within the
control of the Government of the
United States.
The present assets of these banks
exceed five thousand million dollars.
The Federal Reserve notes in circulation amount to $2,562,517,000, secured by $1,146,646,000 in gold held
jointly by the Federal Reserve banks
and Federal Reserve agents, and
$2,116,238,000 in commercial paper
not including the other assets of the
Federal Reserve banks. In addition,
the Federal Reserve Board holds a
gold settlement fund of $433,885,000




[87]

THE FEDERAL RESERVE ACT
belonging to the Federal Reserve
banks. (November 15,1918.) Total
gold reserves, $2,056,777,000.
In the October, 1913, North American Review, p. 567,1 said of the proposed system, " I t will give the
United States the most gigantic and
masterful system of the world." The
stress of the great European war has
demonstrated the correctness of this
prophecy.
A serious contention over this Act
turned upon the question:
1. Should there be a central bank?
I voiced the opinion of those who
desired the banks to be distributed
throughout the United States in districts independent of one another, but
joined together so as to be co-operative without the dominance of one
by the other. Twelve banks were
established.
[88]




THE FEDERAL RESERVE ACT
2. Another vital issue was who
should control this system — the
banks or the people of the United
States? I steadily insisted that the
control of the banking system of the
United States was a governing function and should be controlled by the
representatives of the people of the
United States and should not be
controlled by private persons, whatever their respectability. The system was put under Government control.
3. I t was contended, as by M r .
Warburg, that these notes should be
the notes of corporations instead of
notes of the United States. I firmly
insisted that these notes should be
the notes of the United States under
the control of the Government and
based on the taxing power, and that
when these were loaned to the banks




[89]

T H E FEDERAL RESERVE ACT
they should be adequately secured by
gold in fixed ratio and by United
States bonds or commercial bills.
T h e Federal Reserve notes were
made Government notes.
4. Some wished one bank, or as
few as possible; others, from eight to
twelve.
I n my own Committee I was confronted with the most serious divergences of opinion with regard to some
of these vital questions, and found it
desirable at last to take the bill before
the Democratic Conference. I t was
there discussed for about three weeks,
in which I defended the points i n the
bill for which I stood, finally receiving the approval of the Democratic
Conference and being sustained, as
far as I now recall, on every vital
point i n the bill. I t passed the Senate, was submitted to Conference,




[90]

T H E FEDERAL RESERVE ACT
and in an acceptable form was reported as a substitute for the House
B i l l on December 19, 1913; was submitted to conference and became a
law, and received the approval of the
President on December 23, 1913,
" A s a Christmas gift to the American people/'
The changes of importance made
by the Senate in the bill, as it passed
the House, are shown in a special
print of December 1, 1913, in the
Senate of the United States.
T h e number of Federal Reserve
banks permissible was increased from
ten to twelve. The national banks
were required, and the state banks
and trust companies were permitted,
to become members.
The shareholder of every Federal Reserve bank
was made responsible equally and
ratably, and not one for another,




[91]

THE FEDERAL

RESERVE

ACT

for all contracts, debts and engagements.
National banks failing to signify
their acceptance within sixty days
were forbidden to act as Reserve
agents, and those failing within a year
to become members were required to
surrender their charters.

T h e usual

charter rights were granted to the
Reserve banks. T h e six directors of
each Federal Reserve bank to be
chosen b y the member banks were
required to be elected on a plan which
I

framed b y

a preferential

ballot,

which automatically coheres a majority of those voting on one ballot
and prevents the need of succeeding
elections to obtain a majority vote.
T h e three Government directors, including the Federal Reserve agent,
are appointed by the Federal Reserve
Board.




im

T H E FEDERAL RESERVE ACT
I t was expressly provided in the
A c t as amended that nothing in the
A c t should be construed as taking
away any powers vested by law i n the
Secretary of the Treasury which relate to the supervision, management,
and control of the Treasury Department and Bureaus under such Department.
This was thought necessary to prevent a possibility of interference with
the functions of the Treasury. The
Comptroller of the Currency was put
i n charge of all Federal Reserve notes.
T h e reserves of the member banks
were by the Act and the amendments
of June, 1917, subjected to a gradual
change, so that after three years the
reserves i n country districts were put
at seven per cent of its demand deposits and three per cent of its time
deposits. I n a reserve city, at ten




[93]

T H E FEDERAL RESERVE ACT
per cent of its demand deposits and
three per cent of its time deposits.
I n central reserve cities, at thirteen
per cent of its demand deposits and
three per cent of its time deposits,
to be carried with the Federal Reserve banks, leaving the member
banks at liberty to carry such additional reserves as they may see fit.
Previously to the passage of the
Reserve A c t a large part of the socalled reserves in country banks and
in reserve cities were not available in
actual cash, but were held as open
accounts in city banks with other
reserve agents, and were not available in times of stringency.
A n important proposed amendment i n Section 13 was to authorize
a Reserve bank to discount acceptances based on domestic shipment
of goods, as well as imports and ex-




[94]

T H E FEDERAL RESERVE ACT
ports up to one-half of the paid-up
capital stock and surplus of the bank
for which the rediscounts were made,
and to authorize any national bank to
accept drafts or bills of exchange
drawn upon it growing out of domestic shipments of goods having not
more than six months' sight to run.
This provision was at that time, however, disapproved by the Secretary
of the Treasury, and the House Committee rejected it in conference. I
was much disappointed by this defeat
of domestic acceptances.
A t a later date, September 7,1916,
it was inserted in the Federal Reserve
Act, so that now national banks can
issue acceptances on domestic shipments.
A t the time of the passage of the
Federal Reserve Act the Secretary of
the Treasury disapproved of permit-




[95]

T H E FEDERAL RESERVE ACT
ting the Federal Reserve banks to
exchange Federal Reserve notes for
gold, but under the provision that
a Federal Reserve bank may at any
time reduce its liability for outstanding Federal Reserve notes by
depositing gold with the Federal
Reserve agent, the banks did accomplish this in fact by exchanging the
Federal Reserve notes for gold and
depositing the gold with the Federal
Reserve agents, which had the effect
of placing to their credit with the
Federal Reserve agent gold against
Federal Reserve
notes
emitted
through them.
Afterwards this was changed so
that the Federal Reserve banks were
permitted directly to exchange Federal Reserve notes for gold, and in
this way they have added hundreds
of millions of dollars to the gold avail-




[96]

T H E FEDERAL RESERVE ACT
able behind the Federal Reserve
notes. I strongly stood for this gold
concentration in the Reserve Bank
System.
When the Federal Reserve Act
was signed I was given a copy of
the Act on vellum, in duplicate,
with the signatures of the Government officials participating in the Act.
The President presented me with
one of the gold pens with which he
signed the Act, and wrote me the
following letter:
" T H E WHITE HOUSE

"December

23,1913.

" H o n . ROBERT L . OWEN,
U N I T E D STATES SENATE,
WASHINGTON, D . C .
" M Y DEAR SENATOR:

" N o w that the fight has come to a successful issue, may I not extend to you my




[97]

THE FEDERAL RESERVE ACT
most sincere and heartfelt congratulations,
and also tell you how sincerely I admire the
way in which you have conducted a very
difficult and trying piece of business? The
whole country owes you a debt of gratitude
and admiration. It has been a pleasure to
be associated with you in so great a piece of
constructive legislation.
"Cordially and sincerely yours,
"WOODROW

WILSON/'

The main principles of the Federal
Reserve Act are (1) the issuance
of elastic currency, Treasury notes,
supported by a large gold reserve,
and by sound commercial credits and
banking credits; (2) issued and controlled by the Government, (3) easily
available to banks and to business
men, (4) under an interest charge to
prevent inflation by compelling contraction, (5) distributing bank reserves in twelve banks to serve commerce instead of concentrating them




[98]

T H E FEDERAL RESERVE ACT
in New Y o r k to serve the Stock Exchange.
This in effect puts behind the individual credit of the farmer, merchant,
manufacturer, shipper, and business
man the credit of the United States,
and furnishes him with elastic currency whose validity cannot be questioned, in exchange for his own notes,
enabling him to meet his current obligations without difficulty and providing an ever-present supply of
sound currency for business needs.
I t gives assurance to the business
men of the country that they never
need fear a currency famine.
I t assures them absolutely against
the danger of financial panic, due to
hoarding of currency or sudden denial of legitimate credit.
I t does not promise them protection against waste, improvidence, or




[99 J

T H E FEDERAL RESERVE ACT
carelessness in conducting business;
it does not protect them against overproduction or under-consumption; it
does not give complete protection
against industrial depression, which
may be due to these causes or to other
causes. The protection of the country
against industrial depressions is very
largely safeguarded by this Act, but
other steps by Government are essential if industrial depression in
the future is to be entirely avoided.
This is another story—the story
of reconstruction, of stabilizing industry and commerce by added safeguards and the regulated constant
employment of labor.
The management of the Federal
Reserve banks by the six directors
elected by the member banks and the
three directors chosen by the Governmentally controlled Federal Reserve




[1001

T H E FEDERAL RESERVE ACT
Board has proven satisfactory to the
Government and to the country.
T h e refinements of the Federal Reserve Act were brought about by the
co-operation of a great many able
men who participated in the deliberations whose names and evidence
will be found in the hearings of the
two Committees. After M r . Glass
and myself introduced the bill in
June, 1913, it received altogether
over eight hundred amendments,
nearly all of which related merely to
language and punctuation, the changing of words back and forth, and
matters of that character, which were
unimportant.
Hon. Carter Glass
was entitled to very great credit for
his able and admirable work on this
measure. The members of the Committees on Banking and Currency of
the United States Senate and House
[101]




T H E FEDERAL RESERVE ACT
of Representatives gave it the most
assiduous attention from April to
December 23, 1913, and are entitled
to the highest measure of praise.
I am especially grateful to Hon.
Henry F . Hollis (N. H.), to Hon.
John Shafroth (Col.), and to Hon.
Atlee Pomerene (Ohio) of the Committee for their valuable services.
The bill had the sympathetic support and earnest co-operation of
President Wilson, of Secretary Bryan, of Secretary McAdoo, and Hon.
John Skelton Williams, the assistance
by suggestion of many prominent
bankers and business men, and from
time to time has been amended since,
as experience has shown how it may
be improved in its mechanism and
operation. I particularly appreciated the valuable assistance of Hon.
Samuel Untermyer of New York,




[102]

T H E FEDERAL RESERVE ACT
who gave me many useful suggestions.
The expansion of the Federal Reserve banks under this Act has surprised and delighted the country.
Except for this Act the United
States could not have adequately
financed this war, and the Government of the United States would have
faced a serious panic at the beginning
of the war.
APPENDIX

A

S T A T E M E N T OF C O M B I N E D RESOURCES A N D LIABILITIES OF T H E F E D E R A L RESERVE BANKS A T
C L O S E O F B U S I N E S S . N O V E M B E R I , 1918
RESOURCES
NOVEMBER 15,1918
G o l d i n vault and i n t r a n s i t . . .
S375.527.000
G o l d settlement fund, F . R .
Board
433,885,000
G o l d w i t h foreign agencies
5,829,000
T o t a l gold held b y b a n k s . .
G o l d w i t h F . R . Agents
G o l d redemption f u n d

815,241,000
1,116,579,000
74,957,000

T o t a l gold reserves
Legal-tender notes, silver, e t c . . .
T o t a l reserves




[103]

$2,056,777,000
53,039,000
$2,109,816,000

THE FEDERAL RESERVE ACT
COMBINED

RESOURCES A N D

LIABILITIES.—Can.

B i l l s discounted: Secured b y
G o v t , war obligations
$1,358,532,000
B i l l s discounted: A l l other
439,276,000
B i l l s bought i n open m a r k e t . . .
377,877,000
T o t a l bills o n h a n d
U . S. Government l o n g - t e r m
securities
U . S. Government s h o r t - t e r m
securities
A l l other earning assets

2,175,685,000

T o t a l earning assets
Uncollected items (deduct f r o m
gross deposits)
5 % R e d e m p t i o n f u n d against
F . R . bank noteB
A l l other resources

2,298,640,000

29,478,000
93,449,000
28,000

717,785,000
4,008,000
18,169,000

Total Resources
LIABIUTIES
Capital paid i n
Surplus
Government deposits
D u e t o members—Reserve acct.
Collection items
Other deposits, i n c l u d i n g foreign
Government credits
T o t a l gross deposits
F . R . notes i n actual c i r c u l a t i o n
F . R . b a n k notes i n circulation,
— n e t liability
A l l other liabilities
Total Liabilities
R a t i o of total reserves t o net deposit a n d F . R . note liabilities combined
R a t i o of gold reserves t o F . R .
notes i n actual circulation after setting aside 3 5 % against
net deposit liabilities

$5,148,418,000

$246,401,000
1,449,949,000
573,727,000

79,903,000
1,134,000

113,385,000
2,383,462,000
2,562,517,000
72,930,000
48,472,000
$5,148,418,000

49.9%

59.6%

On the final passage of the Act in
the Senate, 47 Democratic Senators
[104]




T H E FEDERAL RESERVE ACT
voted for it, none against it, while 7
Republican Senators voted for it and
34 voted against it:
I n the House of Representatives
248 Democrats voted for it and only
one against, while 38 Republican
members voted for it and 85 Republican Representatives voted against
it.
Nearly all of the Republicans
voted for amendments suggested by
the Central Bank Bill of the Monetary Commission, but every one of
these hostile amendments was defeated i n the Senate and in the
House.
Hon. John Skelton Williams,
Comptroller of the Currency, in a
public statement recently said, in
regard to the Federal Reserve Act:
" Every business man, banker and
capitalist knows what it is and what




[105]

T H E FEDERAL RESERVE

ACT

it has done. I t is the best financial
system the world has ever seen. I t
has made this Nation and Government an impregnable financial force
and the strongest the mind of man
has devised. . . . T H A T

ONE

MEAS-

URE WON THE WAR. I t enabled our
finances to endure, without a quiver,
every shock and strain. I t gave us
the power to help our allies instantly
and without stint when their need
was sorest, with a help most needed."
The opportunity to take part in
framing this Act I have deeply appreciated.

I am glad to yield to the

suggestions of various friends and
dictate this short reminiscence.
I hope the little volume may prove
of

value

in

making

the

simple

principles of the Reserve A c t more
clear:




[106]

THE FEDERAL RESERVE ACT
1. A quick supply of elastic money,
easily available;
2. Under Government control;
3. Secured by gold, commercial
bills and U. S. bonds;
4. Under an interest charge to
compel contraction and prevent inflation.
ROBERT L .
Nov.

15,1918.




THE

END

OWEN.