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PROCEEDINGS
OF A
CONFERENCE
WITH
GOVERNORS
O F THE FEDERAL
RESERVE
BOARD
THE
O F THE FEDERAL
RESERVE
BANKS
AND
THE C L A S S 'B’ D I R E C T O R S
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Federal Reserve Bank of St. Louis
O F T H E F E D E R A L R E S E R V E BANKS.
ASSEMBLY R O O M
FEDERAL R E S E R V E B O A R D
METROPOLITAN. B A N K B U I L D I N G
WASHINGTON, D . C.
APRIL 14, 1921.
ASSOCIATED S H O R T H A N D R E P O R T E R S
SUITE 16-23 APPEALS BUILDING
426 FIFTH STREET, N. W:
WASHINGTON, D.C.
JOINT C O N F E R E N C E
O F T S E F E D E R A L R E S E R V E BOARD.
with t h e
GOVERNORS A N D CLASS E
DIRECTORS O F THE FEDERAL RESERVE BANKS.
YVashington,
D e G.,
Thursday, A p r i l 1 4 , 1 9 2 1 .
The J o i n t G o n f e r e n c e
the G o v e r n o r s
a n d Glass B
o f the Federal Reserve Board w i t h
Directors
o f the Federal
Reserve
Banks convened i n the assembly r o o m o f the Federal Reserve
boerd, Metropolitan Bank Building, a t 1 1 aeme
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Federal Reserve Bank of St. Louis
Presents
Hon. W. P e G. Harding, Governor o f the Federal
Keserve Board.
Edmund Platt, Vics-Governor o f the Federal
Reserve Boarde
Ae C o Miller, Member o f the Federal Reserve
Board.
Ge 6. Hemiin, Sunber o f the Federal Keserve
Board.
Also:
Charles A . Morss, Governor, Federal Reserve b a n k
of B o s t o n .
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Federal Reserve Bank of St. Louis
Benjamin Strong, G o v e r n o r , F e d e r a l R e s e r v e B a n k o f
New York.
George a . Norris, Governor, Federal Keserve B a n k
of Philadelphia.
&. hk. Fancher, G o v e r n o r , F e d e r a l R e s e r v e B a n k o f
Cleveland.
George J . Seay, Governor, Federal Reserve B a n k o f
Richmond.
P. wellborn, Governor, Federal Reserve B a n k o f
Atlanta.
B. McDougal, Governor, Federal Keserve B a n k o f
Chicago.
Ge Biggs, G o v e r n o r , F e d e r a l R e s e r v e B a n k o f
St. Louis.
A.» Young, G o v e r n o r , F e d e r a l K e s e r v e B a n k o f
wMinneapolis.
Ze Miller, j r . , G o v e r n o r , F e d e r a l K e s e r v e B a n k o f
Kansas City.
Present a l s o t h e following Class 6
Directors f r o m
the F e d e r a l R e s e r v e b a n k s named:
Jesse H. Metcalf, District No. 1 , Boston, Mass.
Alba B . Johnson, D i s t r i c t N o . 3 , Philadelphia,
Pa.
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Federal Reserve Bank of St. Louis
Coker, District No. 5 , Richmond, V a dartford, District No. 6 , atlanta, Ga.
Ball, District No. 7 , Chicago, Ill.
J. tooney, District No. 3 , St. Louis, ilo.
P. Hixon, D i s t r i c t N o .
9 , Minneapolis, M i n n .
McClure, District No. 10, sansas City, Mo.
Culbertson, District No. 11, Dallas, Texas.
Moore, District N o e 12, S a n Francisco, Cal.
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Federal Reserve Bank of St. Louis
Governor Harding.
Board, I
O n behalf o f the Federal Reserve
wish t o say t o those gentlemen w h o are dio f t h e Federal Neserve Banks t h e t w e appre-
rectors
ciate very much their leaving their business a n d coming
to confer with u s here today.
have a
I
t i s the custom t o
spring Gonference o f the Governors o f the Fed~
eral K e s e r v e b a n k s h e r e
a n d they confer
i n ashington,
with t h e Board a n d with each other, a n d w e get a com-~posite v i e w o f t h e w h o l e s i t u a t i o n a l l o v e r t h e c o u n t r y
I t seemed t o the
from the standpoint o f the banker.
Board expedient a t this particular time that v e should
call i n t o c o n f e r e n c e s o m e o f t h e n o n - b a n k e r d i r e c t o r s ,
and i n order that t h e various lines o f business might
be represented,
t h e Board indicated
t o each Federal
Heserve Agent t h e particular Director w h o m i t desired
to invitee
ing.
I n that w a y w e have a
representative g a t h e r -
A l l o f t h e various i m p o r t a n t lines
I think,
a r e represented
a t t h i s meeting.
a way, i s a conference o f best minds,
o f industry,
T h i s ,
i n
i n order that t h e
Board m a y have t h e benefit o f their advice a s t o the
most feasible methods o f bringing b a c k a return t o
normalcy. I
believe w e will a l l agree that con~
ditions a r e n o t n o r m a l a t t h e p r e s e n t time.
The b o a r d e x t e n d s
a n invitation t o t h e Governors
of the Federal “eserve Banksand t o those Virectors who
are present t o luncheon a t 1:15 today e t the Metropolitan
Club,
a n d hope
y o u c a n a l l secept,
and
i n the absence
o f
any e x p r e s s i o n t o t h e c o n t r a r y w e w i l l c o n s i d e r y o u r a c -
ceptance a s received ./
Jur program today does n o t call for a n y expression
of opinion S y the Board.
i h a t w e want i s the opinion
of t h e b u s i n e s s d i r e c t o r s .
not represented,
gentlemen
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Federal Reserve Bank of St. Louis
T w o districts a p p a r e n t l y a r e
N e w Y o r k a n d Cleveland,
w h o were invited found
i c o n
H
a t the last moment
e the
that
they were unable t o attend, a n d i t was t o o late t h e n t o
secure t h e a t t e n d a n c e
o f a n o t h e r Director.
S
o that,
i n
calling u p o n the Directors f o r a n expression o f their
views, t h e Board hopes t h a t t h e gentlemen w h o represent
the P h i l a d e l p h i a a n d t h e B o s t o n D i s t r i c t s w i l l n o t o n l y
spedk f o r t h e i r o w n districts,
b u t w i l l f e e l free,
if
they like, t o express a n opinion for t h e business o f
the N e w Y o r k District. I
a m sure Governor S t r o n g w i l l
not object t o having a n outside v i e w presented t o him.
Governor Strong.
N o t a bit.
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Federal Reserve Bank of St. Louis
549
Governor Harding.
A
n
d i n like manner t h e districts
which a r e contiguous t o the Cleveland District, t h o s e gentlemen a r e invited a l s o t o g o beyond t h e boundaries o f
their o w n districts a n d t o t e l l u s w h a t t h e y k n o w o f t h e
conditions
i n the Cleveland District a n d what they think
Ought t o b e done with respect t o the situation there.
The D i r e c t o r s w i l l b e c a l l e d u p o n i n t h e n u m e r i c a l
order o f t h e i r districts, a n d e a c h D i r e c t o r
weil, I
guess I
i s requested~--
could d o that i n introducing them, b u t i f
I should fail t o d o so, i n order that t h e stenographer
should g e t his name, i t i s important t o have his name a n d
the district h e represents
i n the minutes, a n d i f m y
memory s h o u l d f a i l m e , t h e D i r e c t o r w i l l b e r e q u e s t e d
to
give his name a n d t h e district that h e represents tthen h e
is-called u p o n .
District N o e 1 , Boston, r e p r e s e n t e d
Providence.
w
b y Mr. M e t c a l f
e Will b e glad t o hear from Mr. Metcalf,
and w e hope you will tell us just what you think o f the
Conditions
i n your district a n d what remedies y o u think
Should b e applied a n d what steps should b e taken t o
bring about better conditions.
in your discussions, a l l o f yOue
B
e perfectly frank
of
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Federal Reserve Bank of St. Louis
Mr. tletcalf. Y e l l , I
do not. like t o speak o n a
very s a d subject, b u t t o show h o w s a d and troubled w e
are i n N e w E n g l a n d
a t t h i s time, I
should l i k e t o h a v e
the other members f r o m other districts k n o w that N e w
England h a s been very hard hit.
potatoe g r o w e r s
o f Maine,
w h e t h e r i t was t h e
t h e s i l k manufacturers,
who,
when t h e y came t o take their inventories-Governor darding (interposing).
moment.
E x c u s e m e just o n e
“ w i l l you please state f o r the record j u s t what
your p a r t i c u l a r l i n e o f business
i s that y o u represent
yourself?
Mr. Metcalf. I
a m a woolen manufacturer a n d a m also
connected w i t h cotton manufacturing a n d some mach ine
shops.
A
l
l o f o u r factories, whether i t was wool,
Cotton,
o r silk, w h e n i t came time t o take their inven-
tories,
o f c o u r s e h a d t o h a v e a n enormous s h r i n k a g e ,
s o
that there a r e many o f o u r corporations w h o find themSelves large borrovers. A
good many o f our banks,
course, h a v e 6 great many frozen credits,
old New England, I
of
s o that poor
think, h a s been a s hard hit a s a n y
other part o f the country.
T o m y mind i t would perhaps
be as well t o consider changing our rate o f discount.
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Federal Reserve Bank of St. Louis
The Boston Bank itself i s i n a very good condition, a n d
I have seribbled d o w n a few ideas which I
would r e a d
to you i n regard t o that point, w h i c h I feel might
have some effect o n general business.
Realizing t h e importance o f a n y action taken i n
regard t o a change i n the discount rate a t this critical
time, w h e n s o many corporations, business m e n and banks
find themselves i n a position where a n y false move might
mean more financial difficulties,
i n order t o make u p
one's m i n d a s t o the proper course t o pursue,
essary
t o look
i t i s nec-
a t t h e question f r o m every angle.
would a lower rate o f discount b e beneficial t o the
herd-pressed b u s i n e s s m a n ,
o r would i t have perhaps a
sentimental effect, maxing i t more difficult f o r a bank
to insist o n their customers u s i n g every endeavor t o liquidate t h e i r debts,
as in a
case t h e t I
heard o f r e c e n t l y
where i n a business t h a t was being carried b y @ bank, t h e
Treasurer c a m e a n d a s k e d p e r m i s s i o n
t o declare a
stock dividend, which h e did n o t get, I
Would a
preferred
believe.
lower dscount r a t e n a v e t h e tendency t o
perhaps s t a r t s p e c u l a t i o n
i n stocks
o r commodities?
&@member b a n k perhaps u s e t h e Federal Reserve Banks
F o u l d
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Federal Reserve Bank of St. Louis
rather more t h a n i t would otherwise, a n d i n a slight
manner start inflation i n a small way?
While i t has generally b e e n thought wise t o keep t h e
discount r a t e a b o v e t h e c o m m e r c i a l r a t e , t h e c o n t i n u e t i o n
of high disc cunt rate b y Reserve b a n k after i t s necessity
to c o n t r o l t h e volume.
cally b e c r i t i c i s e d
o f credit h a s passed, m i g h t l o g i -
a s endeavor
t o help t h e commercial
banks i n making more moneyAfter carefully considering t h e various reasons r o e
and against, I
a m o f the opinion that t h e rate o f the
f
o
Boston Bank c a n safely b e lowered, f o r t h e s t a g n a t i o n
trade, a n d the absence o f speculation i s very marked, a n d
t h e curbing
in m y o p i n i o n t h e r e i s n o l o n g e r a n y n e e d f o r
influence o f a high discount rate»
I t would, I
believe,
it
lighten the burden o f many borroners, a n d would make
Governbetter f o r a n y future financial operations o f our
mente
I thank you.
Governor Harding.
represented.
T h e New York District i s not
any comM r . Metcalf, have you heard o f
as to
plaints f r o m borrowers i n your district except
rates--of a n y discrimination o r any jnability t o secure
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Federal Reserve Bank of St. Louis
eredit?
Wir. M e t c a l f .
N o sir.
Governor darding.
Mr. Metcalf.
N o complaints o f that kind?
N o sir.
Governor Harding.
D i s t r i c t No. 3 , Philadelphia, r e p -
resented b y sir. Alba B . Johnson.
Me. Johnson.
stenographer, I
I n order t o identify myself f o r t h e
have b e e n all m y life identified with t h e
baldwin Locomotive works, being f o r the past nine years
its President,
f r o m which position I
have retired. I
am
Vice President o f the Southwark Foundry « Machine Company,
a general machinery manufacturing corporation. I
am
President o f the Philadelphia Chamber o f Commerce, t h e
Pennsylvania S t a t e C h a m b e r
o f Commerce,
a n d t h e Railway
Business Association.
I have n o t p r e p a r e d a n y v i e w s u p o n t h e s e s u b j e c t s
which w e are discussing, because I
had n o advance infor-
mation a s t o just what t h e purpose o f the c mference
was t o be. I
understand t h a t t h e question t o which w e
are t o direct o u r answer is, first, should there b e a n y
reduction o f discount rates f o r t h e purpose o f stimulating and restoring business prosperity?
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Federal Reserve Bank of St. Louis
We i n P h i l a d e l p h i a h a v e n o t a d v a n c e d o u r m a x i m u m
discount rate beyond t h e legal limit o f 6 per cent, which
is prescribed b y the laws o f Pennsylvenia. T h e r e f o r e ,
we a r e already o n a 1 per cent lower basis t h a n that o f
some o f the other banks.
Y h i l s t there h a s b e e n some
tendency b y customers o u t s i d e o f P h i l a d e l p h i a
t o draw
their maximum lines f r o m their Philadelphia banks,
the whole I
on
do not think t h e difference o & rate has h a d
any v e r y p e r c e p t i b l e e f f e c t u p o n t h e g e n e r a l situation.
we have bad pressed upon us the views o f certain groups
of business m e n that t h e bank rate should b e lowered i n
order t o stimulate business.
I
t has s e e m e d
t o m e that
the purpose o f the Federal hNeserve Banking System i s
rather t h e c o n s e r v a t i o n
o f financial stability t h r o u g h o w
the United States, a n d the provision o f such elasticity
in t h e g e n e r a l b a n k i n g s i t u a t i o n t h a t w e m a y c o n f i d e n t l y
avoid those extreme panics which have hitherto generally
accompaniedbusiness depressions.
The fact that w e have carried this country through
the greatest war in the history of the universe without a
financial panic, when the credit situation had been
strained
t o t h e extreme, e x e m p l i f i e s t h e r e a l p u r p o s e
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Federal Reserve Bank of St. Louis
555
of the Federal Reserve Banking System, a n d I cannot b e lieve that i t i s a part o f the purpose o f this system
to act a s a medical prasticioner f o r t h e general business
situation o f the country, a n d t o g o about with a hypoders
mic syringe t o inject a stimulant w h e n business conditions a r e fundamentally b a d a n d the patient i s sick.
If t h e p a t i e n t
i s sick,
w e w a n t h i m t o get well,
want h i m t o get well b y the natural processes.
and we
w e do
not want t o stimulate h i m t o get o u t and g o down t o his
business f o r a couple o f days a n d t h e n g o back perhaps
and g o t o bed again a n d b e worse t h a n h e was before, a n d
it seems t o m e that that simile i n a general w a y illustrates t h e philosophy o f those w h o want u s t o create
lower d i s c o u n t r a t e s f o r t h e p u r p o s e
business.
A
s a
matter
o f fact, I
o f stimulating
d o n o t t h i n k i t would
have that effect.
The attitude o f the Federal Keserve Banking System
throughout t h e country is, t o carry m y simile a little
further along, t h a t o f t h e w i s e p r a c t i c i o n e r w h o i s
trying t o prescribe t h e p r i n c i p l e s
those principles,
o f g o o d health.
N o w ,
s o far a s business i s concerned, a r e
reduction o f expense, prudence i n expenditures, liquida-
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Federal Reserve Bank of St. Louis
tion, t h e conversion o f over-sxpanded investments
in
stocks a n d materials a n d i n inventories i n t o cash.
Now, those t w o propositions,
exactly o p p o s e d
t o e a c h other.
i t seems t o me, a r e
I f w e w a n t t o stimulate
the orderly processes o f liquidation a n d t h e return t o
a-sound a n d prudent finance,
w e d o not want t o take
a measure which i s going t o undo that b y encouraging
expansion.
T h e c o u n t r y i s sick.
I
t h a s g o t t o g e t well,
and t h e o n l y w a y i n w h i c h i t c a n g e t w e l l i s b y p r o d u c -
ing a n d saving more t h a n i t expends, a n d n o manipula-
tion by reason of discount rates i s in the end fundamentally going t o alter that situation.
It seems t o m e that t h e fundamental purpose,
have stated,
o f the Federal “eserve Bank,
as I
i s t o act a s
the cushion, t h e spring, b e t w e e n what was formerly a n
unelastic financial system and the varying demands o f
business.
I t i s not a part o f that function t o put down
the rates f o r t h e purpose o f stimulating business, b u t
it seems t o m e that t h e general principle governing this
question should b e that normally t h e rates o f the Federal
“eserve Bank should b e slightly higher than the commercial
rates,
i n order n o t t o stimulate c o m m e r c i a l operations
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Federal Reserve Bank of St. Louis
beyond what they would go, i n order n o t t o interfere
with t h e economic l e w s which govern t h e rate o f interest,
because t h e rates o f interest depend upon the eredit
situation, a n d credit i s a commodity j u s t a s much a s
wheat
o r p i g iron.
T h e r e a r e varying demands u p o n it;
sometimes t h e demands f o r credit a r e very great e n d the
prices o f i t g o very high, a n d sometimes there i s n o demand f o r c r e d i t a n d t h e p r i c e s
o f i t g o v e r y low.
As I have stated, i t seems t o me that as a normal
principle t h e rates o f the Federal Keserve B a n k should b e
slightly higher t h a n the commercial rate, s o that i t will
fulfill i t s function o f being a
real reserve system.
Are there a n y other points t o which I
should address
myself, Mr. Chairman?
Governor Harding.
H a v e y o u heard o f any complaint
as t o inebility t o get credit f r o m those w h o a r e really
entitled
t o credit?
Mr. Jonnson.
N o sir.
.
e have h a d recommendations
made that w e should reduce t h e general rate f o r i t s effect u p o n t h e whole business situation, b u t w e have h a d
no complaints f r o m a n y individual institution o r from
any individual business man.
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Federal Reserve Bank of St. Louis
Governor darding.
t h a t a r e t h e current rates i n
your district that a r e chargedby member banks t o regular customers?
Mar. Johnson.
uniform.
S i x per cent.
T h e rate i s quite
I t i s limited b y l a w t o 6 per cent, a n d I know o f
no loans which are made b y banks e r by individuals lower
than that. C o m m e r c i a l paper i s higher t h a n 6 per cent.
Governor Harding.
A r e your banks buyers o f com-
mereial p a p e r o r bankers’ a c c e p t a n c e s
Mr. Johnson. I
this time.
t o a n y extent?
think t h e r e i s v e r y l i t t l e o f i t a t
T h a t prompts m e t o say this. T h e r e i s n o
competition b e t w e e n t h e c o m m e r c i a l b a n k s t o d a y .
T h e y
are all of them striving t o take care o f their o w n cus~tomers, a n d the demands u p o n every individual b a n k are
greater t h a n i t can satisfy, a n d t h e reason o f that i s
that t h e business situation, t h e reduction o f inventorles, t h e p a y m e n t s w h i c h h a v e t o b e m a d e t o t h e G o v e r n m e n t
for income a n d excess profits taxes, payments
p r e d i -
Cated n o t u p o n cash i n hand, b u t upon book values, h a v e
to a certain extent made every individual b a n k a n investor i n the capital required b y its customers.
i
t
has been impossible f o r the banks t o discriminate between
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Federal Reserve Bank of St. Louis
borrowings f o r the legitimate purposes o f turning o v e r
commercial o p e r a t i o n s a n d t h o s e r e q u i r e d
b y their c u s ~
tomers f o r cash t o make t h e payments t o the Government,
by reason o f the fact” t h a t t h e profits u p o n which those
taxes a r e predicated a r e invested i n inventories a n d
cannot b e w i t h d r a w a n d c a n n o t b e u s e d f o r t h e p a y m e n t
of taxes. I
think that i s the reason f o r the factt that
every bank i s strained u p t o its capacity t o borrow t o
take care o f its own customers, a n d practically there
is n o competition among t h e bankers f o r the accounts o f
different business houses.
T h e y have a l l got a l l
that they c a n take care o f with their o w n people.
Governor Harding.
w e thank y o u very much.
D o e s any
member o f the Board wish t o ask Mr. Johnson a n y questions?
If not,
w e w i l l proceed.
D i s t r i c t N o . 4 , Cleveland,
not represented. D i s t r i c t No. 5 , Richmond,
by Mr. Db. k e Coker o f South Carolina.
Mr. Goker.
M r . Ghairman, I
i s
i s represented
M r . Cokere
a m sorry I did n o t know
I was going t o b e called u p o n for a report.
I l really
thought that w e were coming u p here j u s t t o b e catechized
by the board a n d asked a n y particule questions.
If you would like t o know m y business, i t is farmer
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Federal Reserve Bank of St. Louis
and plant breeder, a n d I
cotton business, a
operate a seed business, a
department s t o r e ,
a n d I f a m inter-
ested i n a number o f different kinds o f manufacturing.
Severalf
o the gentlemen before m e have referred t o
the d i s c o u n t r a t e . I
except what I
know v e r y l i t t l e a b o u t finance,
have learned a t the Board a t Richmond.
I a m perfectly convinced, hovever, t h a t a lowering o f the
rate i n our district would b e inadvisable, a n d I
do not
think a n advance o f the rate either would b e advisable
at this time. I
— ~
feel sure that o u r bank i s doing every-
thing that i s humanly possible t o ameliorate and support
conditions
i n our district.
I n fact,
i n m y o w n districi,
which i s the cotton e n d o f it-~-I a m from South Carolina-we w o u l d h a v e a
condition
o f general bankrupicy w e r e i t
not for the support o f the Federal “eserve Bank.
W e
are l e n d i n g t o o u r S t a t e n o w o v e r p20, 000, 000
twenty-one o r twenty-two millions, I
Seay, a n d a
little m o r e t o N o r t h Carolina,
that support I
a n d without
a m sure that w e would have had, n o t d e n t e
but p o s s i b l y h u n d r e d s
ures, a n d I
believe, Governor
o f b a n k failures a n d business f a i l -
have n o d o u b t t h e s a m e c o n d i t i o n a p p l i e s
district f u r t h e r aest.
t o the
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Federal Reserve Bank of St. Louis
South Carolina a n d North Carolina a r e particularly
fortunate i n being i n the Fifth District, because there
n some sections o f that district w h o are
are b a n k s . i
not drawing heavily o n the resources o f the federal
to
Reserve bank, a n d w e are able t o utilize t h a t money
carry u s through.
I ao not think I a m qualified t o give t h e Board a n y
advice a s t o what should b e done t o correct these con-
ditions, b u t I thought i t might b e helpful t o tell you
a little about what those conditions are. I
do not
of
think t h e c o u n t r y g e n e r a l l y h a s a n y t r u e c o n c e p t i o n
the pitiful conditions t h a t prevail i n the cotton belt
today- I
nave recently b e e n asked t o prepare a
paper
for t h e *orld Cotton Conference, a n d have b e e n giving a n
unusual a m o u n t o f s t u d y t o conditions
i n t h e c o t t o n belt,
with t h e view o f presenting those conditions
conscience
o f t h e c o t t o n rorld. I
tables a n d f i g u r e s b a s e d
t o the
have m a d e u p s o m e
o n averege c o n d i t i o n s
i n my
section, w h i c h , w h i l e p r o b a b l y n o t r e p r e s e n t a t i v e - they c o u l d n o t b e r e p r e s e n t a t i v e
ticular section--still I
o f more t h a n o n e par-
think t h e y are a n average, a n d
o n the
it goes t o show that the average tenant family
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Federal Reserve Bank of St. Louis
average o n e - h o r s e f a r m ,
i n t h e c o t t o n belt,
i s realiz-
ing f o r t h e s u p p o r t o f t h a t f a m i l y a b o u t 5 5 cents p e r
day, a n d that t h e lebor o f five members o f that family
is r e q u i r e d
t o produce t h a t amount,
In further explanation, I
5 5 cents p e r day.
should s a y that t h e tenant
very simple one, t h e y have a little
family h a s a home, a
plot c f grcund u p o n which t h e y c a n raise some vegetables,
but o u t s i d e
o f t h a t t h e 5 5 cents a
family e x c e p t f o r a
outside
day must support thet
little w o r k t h a t t h e y c a n p r o b a b l y
i f there i s a
demand f o r t h a t labor,
do
a t periods
when t h e cotton crop does n o t require their attenticn.
Usually i t i s net the case that t h e y are s o situated
that they c a n get outside work.
It appears
t o m e that t h e worst trouble w i t h t h e
whole situation i n the country i s unequal deflation.
The cost o f living i n our section has not gone down more
cotton.
than a small fraction a s much a s the deflation i n
80
In less t h a n a year cotton has decl ined approximately
cent i n
per cent, a n d cottonseed approximately 380 per
fields
value; t h a t is, t h e t w o products o f the cotton
f
o
have gone d o w n a n d are bringing today about o n e f i f t h
what they were bringing a year ago. I
know o f no other
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Federal Reserve Bank of St. Louis
agricultural p r o d u c t t h a t h a s d e c l i n e d
s o much.
The South was done a tremendous injury b y the tremendous inflation i n the price o f cotton.
T h e r e were
few
fer o r c o m p a r a t i v e l y / o f o u r p e o p l e w h o w e r e r e a l l y b e n e -
fitted.
W n i l e w e have gone o n ever since t h e Civil h a r
in raising a n d selling cotton a t prices w h i c h d i d n o t
permit t h e b u i l d i n g
decent c i v i l i z a t i o n ,
of a
y e t when
prices w e n t u p two, three o r four hundred p e r cent tithin
two o r three years,
i t was j u s t like taking,
a s w e have
all heard of, a n ignorant b o y without a n y education a n d
giving h i m a
fortune.
Y o u k n o w w h e t u s u a l l y happens.
I t
does more h a r m than good. T h o u s a n d s o f o u r desperately
poor a n d i g n o r a n t t e n a n t s
i n the South h a d one, two,and
sometimes t h r e e t h o u s a n d d o l l e r s a
year f o r t w o o r three
years, a n d i t did t h e m more h a r m than good, a n d t h e reversion
to the old-time conditions h a s left t h e m bitterly dissatisfied a n d p o o r laborers,
w i t h l o s t h o p e a n d n o ambition.
Right i n our own district i t seems t o me that w e have
some o f the most glaring instances o f inequality.
cotton farmer,
t h e cotton landowner a n d tenant
T h e
a t present
prices i s not receiving anything l i k e a decent living,
yet right u p i n west Virginia t h e average c o a l miner c a n
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Federal Reserve Bank of St. Louis
earn n o t less t h a n 315.00 a
day working s i x hours.
p e
have that o n the authority o f sir. Johnson, o u r Director
from that district, a n d from others.
T h e railroad laborer
is receiving enormous wages compared t o what h e did
before t h e war, a n d t h a t i s a
cause o f d i s s a t i s f a c t i o n
and complaint i n our section. A
few months a g o the
railroad agent o f one o f the railroads a t our point told
me t h a t t h e c o l o r e d p o r t e r
Hartsville,
o n the train running i n t o
h e handed h i m each m o n t h a check f o r more
than »200.00, w h i l e h i s o w n s a l a r y ~ - a n d
i t is a
large
agency a n d responsible one--was ~190.00 a month.
Kind o f inequality i s hurting business.
T
h
That
e advance
in railroad rates i s causing tremendous dislocation i n
business.
I know o f a number o f large plants whose business
is being taken f r o m them b y the increase i n railroad
rates. L o c a t e d i n central points, t h e y had advantages
in overhead a n d good locations, b u t the advance i n
railroad rates has encouraged the establishment o f small
plants throughout t h e district.
O n e industry that i s
affected that w a y i s the ice-cream industry, w h i c h I
happen t o t h i n k o f .
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Federal Reserve Bank of St. Louis
ost
u r manufacturing i n One o f the w o r s t - t h i n tga h
dustries have t o run u p against i s the tremendous a d vance i n coal.
E v e n after t h e decline i n coal,
i t is
now being quoted a t three times t h e prewar price f.0.bthe mines e n d about twice t h e price l a i d down a t the
mill,
o r about 7 . 5 0 a g a i n s t ~3.75 a n d about 5 e D 0
at
the mine against 1.25--something l i k e that.
I do net know o f anything else, wr. Chairman, t h a t
I can say, e x c e p t t h a t I
feel t h a t t h e d e f l a t i o n h a s
oceurred most rapidly a n d bears worse o n the farmer a n d
the farm laborer, a n d that until there i s equal deflation, especially i n labor a n d other lines, I
feel that w e c a n g e t along a n d make a
do not
living producing
cotton o r w h e a t o r m o s t a n y o t h e r a g r i c u l t u r a l product.
Governor darding. I
would like t o ask you, M r -
Coker--I think y o u pointed o u t o n e o f the prince ipal
causes o f the present difficulty.
within a
A s s u m i n g that
reasonable t i m e t h e r e w i l l b e s o m e r e l i e f a p -
plied along that direction, t h e n what igs your view
of the ultimate outcome?
H o w i s your cotton situation
o r the
eoing t o b e relieved, e i t h e r i n South Garolina
other cotton States? # h a t i s going t o be the acreage
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Federal Reserve Bank of St. Louis
planted
i n cotton this year?
u h a t i s t h e c o s t o f pro-
ducing t h e n e w crop, a n d what i s t h e prospect o f disposing o f your surplus supplies o f cotton a t some figure
which will n o t mean bankruptcy, f o r those w h o o w n i t o r
for those w h o have loaned money o n it?
Mr, Cokere I
feel that t h e efforts t h a t a r e being
made t o stimulate t h e consumption o f cotton b y advancing
credit t o foreign countries f o r the purchase o f cotton
hold o u t some hope. I
do not feel that they a r e going t o
accomplish v e r y much, because,
a s I understand it, those
people o v e r t h e r e a r e n o t i n p o s i t i o n t o m a n u f a c t u r e m u c h
cotton, they are too disorganized.
B u t I think efforts o n
that line should b e continued, a n d whatever t h e y d o i t
cannot
d o a n y harm, a n d i t w i l l p r o b a b l y d o s o m e good.
You a s k e d a s t o t h e c o s t o f p r o d u c t i o n o f c o t t o n
and the decrease i n acreage.
acreage, I
A
s t o the decrease i n
can only a t this time s a y that I
have a kind
of intuition that t h e decrease i n acreege i s going t o
be about 2 0 per cent.
I t is going t o be a lot more than
that i n m y immediate section.
in some o t h e r p a r t s
I t i s going t o b e less
o f S o u t h Carolina,
but I
have a n i d e a
that i t i s not going t o run very f a r from 2 0 per cent,
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Federal Reserve Bank of St. Louis
above o r below.
Governor Harding.
T h e u s e o f fertilizer t o a
very large extent i s empleyed i n certain parts o f the
cotton belt,
i s i t not?
Wr. Coker.
Y e s sir.
Governor Harding.
‘ h a t would b e t h e proportion
of the u s e o f fertilizer this year?
Mr. Coxer.
T h e sales
5O per cent this year.
e f fertilizer w i l l b e about
T h a t would m e a n a little more
than 5 0 per cent o n the cotton acreage. I
think probably
the u s e o f fertilizer o n cotton would b e about two-thirds
of l a s t year, a n d t h a t o u g h t t o r e d u c e
i n the eastern
part o f t h e b e l t t h e p r e d u c t i o n o f c o t t o n f r o m h a l f a
million t o a million bales, I
would say, s o far a s the
reduction o f fertilizer i s concerned, a n d then o f course
the a d d i t i o n a l r e d u c t i o n
i n t h e r e d u c e d p l a n t e d acreage.
The c o s t o f production,
i r . Ghairman,
n o one can
figure, because y o u have g o t t o take a basic wage; y o u
have g o t t o take a
basic valuation o f land; y o u have g o t
to take a valuation f o r t h e services o f the land owner
in supervising,
that w a y now.
a n d s o forth;
a n d cotton i s not raised
L a n d s t h a t were worth 9300.00 e n acre
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Federal Reserve Bank of St. Louis
in m y s e c t i o n a
100.00
year a g o c o u l d p r o b a b l y b e b o u g h t f o r
a n acre, a n d y o u have g o t t o take a n entirely
land
different basis t o compute your/value. A
get f o r ~ 2 0 0 . 0 0 a
month a
$75.00 a month now,
man y o u could
year a g o y o u c a n g e t f o r
a n d s o forth.
The tenant does n o t g e t a wage.
d e i s advanced b y
the land owner o r the merchant, usually t h e land owner
under p r e s e n t conditions,
b a r e l y enough t o keep body a n d
soul. together, usually about 1 0 . 0 0
t o 15.00 a
month
during t h e w o r k i n g s e a s o n f o r h i s e n t i r e f a m i l y .
That
is charged u p against his account.
s e has t o feed a
mule a n d h e has t o feed his family.
A t the e n d o f
that time, w h e n t h e c r o p i s g a t h e r e d a n d sold,
h e gets
from a third t o a half--always a half o r more i f he furnishes t h e live stock, a n d usually a
third w h e n h e furn-
ishes nothing b u t thelabor--of t h e crop, a n d i f there
is anything left after deducting advances made t o him, h e
gets that.
S
o i t i s very much like t h e whaling industry,
in which the tenant gets a lay,
a
s these New England
men will understand, a n d that l a y depends u p o n the price
and t h e s i z e
o f t h e crop.
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Federal Reserve Bank of St. Louis
569
Governor darding.
M r . Coker, b e f o r e t h i s d e p r e s -
Sion set in, h a d there b e e n very much treding o r speculation i n farm lands i n your section?
Mr. Goker. A
great deal, a n d that i s one cause o f a
great deal o f the trouble.
T h e gentleman f r o m the Memphis
“istrict w i l l probably t e l l y o u i t i s very b a d o u t there;
I understand t h a t i t i s worse e v e n i n that district t h a n
in ours--no, I
believe
i t i s i n the Atlanta District,
i n
Mississippi--worse t h a n i t hes b e e n i n our section.
There has been a great deal o f i t and i t has caused a
great deal o f trouble.
Governor Harding.
feasible
I s i t your opinion that i f i t were
t o have applied preventative measures,
Speculation could have b e e n avoided?
t h a t this
I s there anything
that t h e b a n k s c o u l d h a v e d o n e t o h a v e p r e v e n t e d i t ?
Mr. Coker.
Y e s sir. I
think i f the banks h a d re-
fused t o loan o n that l a n d paper, t h e y could have prevented a
great deal o f it.
Governor Harding.
I s i t your judgment that after
this p r e s e n t s i t u a t i o n i s r o r k e d o u t i n s o m e w a y o r other,
I do not know h o w j u s t now, t h a t i t will b e feasible f o r
a good m a n y years
t o come t o prevent a
recurrence
of
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Federal Reserve Bank of St. Louis
this s p s c u l a t i v e s p i r i t a n d h o l d t h i n g s
iim. Coker. I
and I
i n line?
think a burnt child dreads t h e fire,
thin« t h e bankers h a v e learned a
pretty good lesson.
One great trouble vith t h e whole situation was that many
of o u r banks h a d more money t h a n they Knew what t o d o
with, a n d they looked around f o r investments.
Governor Harding.
A n d I presume t h a t they were pay-
ing interest o n a good many o f those investments a n d they
wanted t o get their money employed,
n o matter what t h e
security might be?
ir. Coker. Y o s , a n d they p u t i t i n the best paper
they c o u l d find, a n d a s y o u k n o w t h a t p a p e r h a s p r o v e d u n -
liquid.
T h e deposits a r e shrinking tremendously i n our
immediate district right now. I
was observing the fig-
ures f o r Charlotte, Charleston a n d Golumbia i n the February report, w h i c h w a s t h e l a s t o n e w e g o t o u t , I
believe,
and they h a d shrunk something l i k e 2 0 per cent i n the month
of February a t those three cities, t h e deposits t o individual a c c o u n t s
i n those t h r e e cities. I
think t h e y a v e r -
aged a b o u t ~ 5 , 0 0 0 , 0 0 0 - - d o y o u k n o w t h e figures, G o v e r n o r
Seay?
Governor Seay.
No.
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Federal Reserve Bank of St. Louis
Mr. Cokere
k
t the l s t o f March t h e y h e d shrunk t o
over 94,000,000 from about ~5,000,000 on the Ist of February, I
believe.
made t w o trips t o North Carolina
Governor Harding. I
in February,
thought a
a n d w a s t o l d b y bankers t h e r e t h a t t h e y
great d e a l o f c u r r e n c y h a d b e e n w i t h d r a w n f r o m
the banks a n d hoarded.
Varolina,
I s there much hoarding i n South
d o y o u believe?
Mr. Goker.
I t i s hard t o say. I
in m y mercantile business,
will say, though,
w e have taken i n a good deal
more cash, d o n e a great deal bigger cash business t h a n w e
expected
t o d o i n t h e l a s t t h r e e months »
Governor Harding.
I t i s possible t h a t t h e necessities
of the owners o f thismoney will accumulate a n d that this
hoarded money will gradually come b a c k into s i g h ’
again
and g o into the chennels o f trade.
ir, Coker. Y e s . ‘there i s a great deal i n that. B u t
not think that i s going t o b e e very b i g factor f o r
long, toough.
Mr. Platt.
T h e people t h a t a r e holding t h e cotton,
proportion
o f t h e m a r e o u t o f debt a n d what propor-
of t h e m a r e i n debt?
Mr. Coker.
well, I
would not ansrer that question,
but I think t h e overwhelming proportion o f them are i n
debt, a n d o n e reason t h e banks a r e letting t h e m g o a h e a d
without paying i s because the men are not in a position :
to pay t h e debts, a n d i t would make t h e m bitter a n d antagonize them.
Governor Seay.
A t least 5 0 o r 6 0 per cent o f the
crop i s being held.
wr, Coker.
A t least 60, i n m y judgment.
Mr. Platt.
H a v e many o f these people borrowed o n
the cotton?
Mr. Goxer.
I f they have not borrowed o n cotton, they
have borrowed o n something else that amounts t o the same
thing,
o n their l a n d o r live stock.
Mr. Platt.
T h e reason I
asked that question i s that
- Secretary Houston told m e a while a g o that i n visiting
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Federal Reserve Bank of St. Louis
a section o f North Garolina w h i c h i s a n excessively thrifty
neighborhood, t h a t a t least 6 0 per cent o f the farmers
there were nolding cotton and were not i n debt.
have been that i t was a Scotch neighborhood.
ir. Goker. I
Governor Seay-
do not know about that.
I t i s purely local.
I t may
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Federal Reserve Bank of St. Louis
Mr. Gokers
I n sections where t h e farmers raise a l l
the h o m e s u p p l i e s , t h a t m i g h t b e true.
Mic. Platt.
I n those cases t h e people e r e living o n
their bank balances, a n d that might account somewhat f o r
the reduction i n deposits.
Me. Coker.
T h a t undoubtedly h a d something t o d o with
Governor Harding. D i s t r i c t No. 6 , atlanta, fir. Ae O e
Hartford.
Mr. dartford. M r . Chairman and gentleman, I
am @
hosiery manufacturer, t h e Hartford Hosiery Mill, and Preshave b e e n a Class 5
ident o f the concern. I
Director i n
the Atlanta Director e v e r since i t was organized.
I am very sorry that I did n o t know j u s t what t h e
program was here, a n d I must s a y thet I
to m a k e a n y speech,
but I
a m not prepared
take i t t h e m o s t i m p o r t a n t m a t t e r
of this discussion i s the rate. I
a tendency i n our district.
w
think that has quite
e o f course have a large
I
part o f our district a s a cotton district, while
in-
does
dividually live i n a section o f the district that
not raise b u t very little cotton--I a m from Nashville--and o u r c o u n t r y t h e r e
is a
g r a i n a n d s t o c k country.
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Federal Reserve Bank of St. Louis
Now, getting b a c k t o the rate a minute,
our d i s t r i c t
you, a n d I
w e had i n
u p until severa# months a g o what m a n y o f
expect a l l o f you, a r e f a m i l i a r with,
progressive r a t e , a n d i t w o r k e d o u t v e r y nicely,
along v e r y n i c e l y w i t h i t , b u t t h e r e c a m e a
the
w e got
time w h e n
the Board o f Directors thought w e ought t o g o o n a flat
rate; t h a t s o m e o f t h e c o u n t r y b a n k s h a d g o t t o t h e p o i n t
where t h e progressive r a t e r a n s o high that i t was
almost i m p o s s i b l e f o r t h e m t o b o r r o w m o n e y f r o m t h e
Federal “eserve Bank.
clusion, while I
about i t , w h e r e I
rate again.
rate- I
B u t I have come t o the con-
have n o t talked t o m y Governor here
think w e o u g h t t o p u t i n a progressive
O u r rate down there i s a 7 per cent flat
wovld like t o see, a n d I believe i t would help
the country, especially t h e farming sections,
i f we
could g o o n a minimum rate o f 6 per cent a n d a maximum
rate o f not over 3 per cent. I
take i t that the Board
here would like t o have s o m e expression along that line,
and I feel like i f we had that progressive rete, o r
would put i t i n again, w e would be benefitted.
I find a great many o f the large banks i n our
section, especially Nashville--we have a branch bank
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Federal Reserve Bank of St. Louis
in Nashville a n d they have bdsen pretty heavy borrowers
there; the jobbing trade from Nashville d o all o f their
principal j o b b i n g b u s i n e s s
i n t h e c o t t o n section,
and
I think the majority o f the big banks there are rather
inclined t o hold t o the? p e r cent rate.
T h e y have g o t
their customers trained u p t o that, b u t I rather think,
I a m n o t m u c h i n favor o f l o w rates,
to see t h e rate g o below 6
a n d would n o t want
per cent o n a sliding scale,
but I think f o r t h e benefit o f the country, t h e farmers,
it would b e a n ideal proposition a t this t i m e o f the
year.
The m e r c h a n t s w e r e v e r y h e a v y b o r r o w e r s a n d s o w e r e
the manufacturers
and I
i n m y immediate locality i n Nashville,
might say, n o t t o b e throwing a
at myself, I
little bouguet
have n o t s o far borrowed a n y money a n d d o
not e x p e c t t o borrow a n y money,
a n d s o far a s the rate
is conszerned i t doses not amount t o anything t o m e per~
sonally.
B u t t h e merchants,
t h e jobbers there, h a v e
been l i q u i d a t i n g t h e i r a c c o u n t s r i g h t a l o n g f o r t h e l a s t
two o r three months.
T h e retail people there i n Nash-
ville a n d i n that vicinity s e e m t o have, t h e report
shows t h a t their trade i s holding up, a n d they are
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Federal Reserve Bank of St. Louis
taking i n quite a good deal o f cashe A s the Governor
think t h e y must have h a d that money
said o r suggested, I
drawn o u t and are using i t now.
The great trouble m y friend spoke o f a while ago,
the difference i n the ordinary wages o f the employes o f
the manufacturers a n d t h e railroad labor a n d the coal
miners, a n d things o f that kind, make laboring people dissatisfied quite a good deal, a n d then I think o n the other
hand that t h e retail merchants a r e more responsible
some o f t h e c o n d i t i o n s t h a n a n y b o d y e l s e -
I
fo
f they would
go along a n d sell their stuff a t replacement prices a n d
give t h e people a n opportunity t o see that t h e stuff h a s
declined,
w e would b e i n much better shape.
I would like t o see t h e rate--back t o the rate proposition again--lowered. I
have h a d a
rate o f 6
think some o f the districts
per c e n t a l l t h e time,
b u t ours
has been--how l o n g has i t been, Governor kellborn?
Governor «elliborn.
k e have h a d the 7 per cent r a t e . _
since November.
Mr. dartford.
S i n c e November, a n d a t one time o u r re-
got u p t o
serve went down pretty low, b u t n o w w e have
about 4 2 and some odd per cent.
S
o I feel like i t is
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Federal Reserve Bank of St. Louis
time f o r u s t o give t h e smaller banks e n d the country banks
an o p p o r t u n i t y
Now, I
t o borrow m o n e y o n a progressive r a t e .
believe t h a t i s a b o u t a l l I
less s o m e g e n t l e m a n w a n t s
Governor Harding.
care t o say, u n -
t o a s k m e s o m e questions.
D o e s a n y member o f the Conference
to ask wir. dartford a n y questions?
Mr. wooney-
A r e they going t o cut t h e cotton acre-~
age i n Georgia?
Mr. sartford. I
understand t h e y are. T h e y are going
to cut it as low es 33-1/3 per cent.
Mr. Mooney.
A r e t h e y selling much fertilizer d o w n
there this year?
Mr. nartford. Y e s . T h e y have sold quite a good deal.
That i s quite a
f e r t i l i z e r point, N a s h v i l l e i s , a n d w h i l e
it h a s n o t b e e n a n y t h i n g l i k e ,
as I
understand,
e s i t was
last year o r several years back, s t i l l they have sold
quite a good deal o f fertilizer.
Governor *ellborn. T h e y are not selling over half, a r e
they?
Mr. dartford.
e e
O n e other point which was brought
up by m y friend over there (sir. Coker) about the farm
proposition, t h a t has p u t quite a
good m a n y o f o u r country
banks i n Tennessee i n quite b a d shape, t h a t is, t h e farm
paper t h e y h a v e g o t e I
Know o n e county, a b o u t t h e r i c h e s t
county i n the State, Lincoln Gounty, w h i c h h a s three
National banks, a n d l a n d I expect y o u could b u y a t »~100.00
an acre n o w sold a s high a s 9550.00 a n acre, a n d there
have b e e n s e v e r a l f a i l u r e s
i n t h a t s e c t i o n o f t h e State,
and o f course that paper has a l l drifted i n t o the banks
there.
T h e land n o w will n o t bring, s o m e o f thelards w i l l
not bring, well, o n e farmer I
know o f i n particular s o l d
for $57,000, a n d the gentleman paid g17,500 down a a the
first payment,
a n d h e a f t e r w a r d s o f f e r e d t h a t fellow,
‘the o t h e r g e n t l e m a n w o u l d g i v e h i m b a c k h i s n o t e s ,
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Federal Reserve Bank of St. Louis
would b e glad t o sacrifice t h e 1 7 , 5 0 0 . 0 0
ist d o w n there.
I
that i n the future,
he
o n the farm and
the fellow would not take i t back a t that figure.
is the sort o f conditions
if
Thet
i n the farming section that e x -
f anything c a n b e done t o prevent
i t would b e @ good thing.
Governor darding.
I s there m u c h unemployment i n
your larger towns o r cities?
fir. Hartford.
W e l l , there h a s b e e n u p t o the last
two o r three months. C h a t t a n o o g a l e d the Southern cities,
the report was, sixty days ago, t h a t i t had nearly 9,000
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Federal Reserve Bank of St. Louis
unemployed i n Chattanooga, “ h a t t e n c o g a i s a manufacts
uring town, a n d a great many textile mills a r e there, a n d
they were a l l practically shut down, b u t they have started u p a n d h a v e b e e n r u n n i n g
o n p a r t time, a n d I
noticed a
report a while back that they were o n l y employing about
5,000 o r 4,000.
Governor darding.
T h a t 9,000 was about 1 5 per cent
of the entire population, wasn't it?
Mre dartford.
I guess about 20.
Yes.
I
w e l l , i t was more t h a n that,
n Nashville there a r e quite a
good
many idle people.
Governor Harding.
I s there a n y drift back t o the
farm from the cities?
Mr. dartford.
Y e s , quite a drift. A
good many o f
them h a v e t o d r i f t back, t h e y c a n n o t l i v e otherwise. I
myself h a d o n e mill shut d o w n for three months, s h u t down
in October, a n d d i d not r u n any more until January, a n d I
made u p m y mind that I
had b e e n paying,
could n o t p a y the prices t h a t I
a n d when I
opened u p I
announced t h a t
I would start u p a t from 2 0 t o 2 5 per cent reduction,
and then I
had more h e l p t h a n I could d o anything with,
My production i s not as large a s a great many i n the
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Federal Reserve Bank of St. Louis
nosiery business, hovevere
Governor narding.
D o you note a n y increase i n
the efficiency o f your labor?
Mr. Hartford.
ing, f o r instance,
Y e s , v e r y much. I
have girls work-
o n piece w o r k that made before I
shut
down around g30.00 t o 935.00 a week, a n d after cutting
them i n that particular l i n e 2 5 p e r cent, t h e y make about
p2oe00
t o »~S0.00 a
w e e k now.
T h e y d o more w o r k a n d w o r k
more regularly.
Governor Harding.
D s trict N o . 7 , Ghicago, m y . B a l l
of Indiana.
Mr. Bali.
say that I
A
S a
matter o f identification,
I f will
a m President o f ball Brothers Glass Manufact-
uring Company, manufacturing glass j a r s a n d bottles, w i t h
factories
a t wiuncie, I n d . , a n d \ i c h i t a . F a l l s , T e x a s , a n e
we sell t o the jobbers throughcut t h e United States, a n d
we ere doing business i n nearly a l l the jobbing cities
of the United States, a n d w e come i n contact more o r
less w i t h t h e business i n t e r e s t s .
The b u s i n e s s
o f the Seventh District
i s diversified,
divided o n agriculture, manufacturing and commercial.
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Federal Reserve Bank of St. Louis
Iowa a n d tisconsin a r e largely agriculturel States; If1linois, Indiane a n d Michigan a r e divided between manufacturing a n d agriculture, perhaps manufacturing n o w
predominating i n those States.
T h e industries have, a
great m a n y o f them, c l o s e d d o w n i n t h e l a s t year, o w i n g
to shortage o f orders.
D u r i n g t h e war period a n d f o r
a year o r s o after t h e war, there w a s a shortage o f ma~
terial
o r a
i n n e a r l y a l l lines,
supposed shortage,
and
orders a n d contracts w e r e placed f o r a great deal more
than w o u l d b e o r d e r e d
i n normal times,
i n order t o get
the material that the industries needed f o r their operashortage
tion. T h i s resulted i n overbuying a n d created a
of material.
game line.
T h e jobbers a n d dealers followed i n the
F e a r i n g that they would n o t b e able t o get t h e
goods t h a t t h e y would require f o r their trade, t h e y would
place e x c e s s i v e o r d e r s ,
a n d s o that l o a d e d u p their ware-
houses a n d their shelves w i t h
a
S o p a n t y a l l know, E
R
e e
e
T h a t was true, a s
s SUgare
I
t was
reported that there would b e a shortage o f sugar because E n g l a n d h a d b o u g h t
u p t h e G u b a n crop, a n d s p e c u -
lators i n one way and another got hold o f the sugar and
held i t at higher prices, a n d the jobbers, feeling that
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Federal Reserve Bank of St. Louis
there would be a shortage and money to be made in the ad~
vancing p r i c e s
o f sugar, p l a c e d l a r g e o r d e r s ,
e v e n consumers
that would normally b u y a pound o r two o r three pounds o f
sugar a t a time, would b u y 2 0 pounds i n order t o have i t
on hand when the shortage came- T h a t was true with a
great many other goods.
T h e n the period o f reduc ing
stocks came, a n d i n place o f the merchants a n d jobbers
buying for futures, they would only buy what was necessary f o r t h e m t o h a v e t o s e e p u p t h e i r stocks,
manufacturers r a n short o f orders.
shut down.
a n d the
T h e y were obliged t o
T h i s t h r e w m e n o u t o f employment,
a n d they
old
reduced their buying a n d wore their o l d clothes a n d
shoes, a n d had their shoes tacked, a n d tois first brought
about a
depression i n business, naturally,
a n d I think
will g o o n
properly, a n d I believe t h a t this condition
until t h e stocks t h a t a r e i n the hands o f the dealers
and manufacturers a n d jobbers are very much reduced.
in
When they get down t o a point where they need goods
order t o c a r r y o n their business,
t h e y w i l l buy, c a u -
tiously a t first and gradually increase until w e get
back t o the normal ¢ omditions o f business.
Now, i t seems t o me that i t is necessary, i t is
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Federal Reserve Bank of St. Louis
very important a t least, f o r the Federal “eserve b a n k
to help t h e business m e n i n various lines t o carry t h e
situation along until w e d o get back t o normal times.
Toe merchants,
a s they sell their goodis, will a
and p a y o f f t h e i r i n d e b t e d n e s s .
T
o
n
e
e manufacturers,
as t h e y m a n u f e c t u r e t h e i r r a w m a t e r i a l i n t o goods, w i l l
be a b l e t o liquidate.
B u t t h e farmers w i l l b e slover
They only have a selling period once a year, a n d s o
unless t h e y a r e able t o sell enough o f their crops i n
one year t o liquidate,
i t will b e necessary f o r some o n e
to c a r r y t h e m t h r o u g h t o t h e n e x t c r o p year,
a n d that
it seems t o m e i s thepart o f the banks a n d t h e Federal
Naserve banks working with t h e m and carrying t h e situation along until t h e y c a n get o n t o their feet again.
T.think t h e policy o f tne Chicago Bank--I k n o w t h e
policy o f t h e C h i c a g o B a n k - ~ h a s b e e n t o a s s i s t m e m b e r
banks a s f a r a s p o s s i b l e
i n t a k i n g c a r e o f t h e situation,
and w h e r e t h e y a r e worthy, w h e r e t h e y s h o w t h a t t h e y a r e
conducting t h e business
are d i s p o s e d
customers.
i n a safe a n d proper way, t h e y
t o give t h e m credit a n d h e l p t h e m carry their
w h e r e t h e bankers a r e n o t d i s p o s e d t o d o
the right thing a n d reduce their loans a n d collect o n
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Federal Reserve Bank of St. Louis
their p a p e r a s m u c h a s t h e y should,
o f course
i t would
be the duty, i t seems t o me, o f the Federal “eserve
banks t o insist u p o n their doing more t h a n they would
be inclined t o d o without insistence o r pressure.
On the whole, I
think that o u r member banks a r e
doing very well i n taking care o f the situation, a n d i n
time will work i t out. I
believe w e m e getting d o w n
to a solid basis, a n d when w e reach that basis w e will
gradually come back.
I t will take time, verhaps a
year o r two.
Governor narding.
H a v e y o u h e a r d o f a n y complaints
of t h e w a y t h e s i t u a t i o n i s b e i n g h a n d l e d
b y t h e banks
in the curtailing o f credit o r the restriction o f credit?
Mr. Ball.
N o t particularly so, no.
realize t h e situation,
T h e y seem t o
a n d t h e y w o u l d l i k e , s o m e o f them,
to borrow moremoney t h a n they are able t o do, b u t they
realize t h a t there i s a limit.
Governor Harding. H a v e y o u noted the unequal reductions t h a t have b e e n made, t h a t some o f the other
gentlemen have referred to, reductions
unequal deflation,
i n prices,
or
a s I believe t h e y stated i t ?
Mr. Ball. Y e s , I think the wisest merchants and
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Federal Reserve Bank of St. Louis
jobbers h a v e s e e n t h e s i t u a t i o n a n d h a v e r e d u c e d t h e i r
prices a n d sold their goods a n d have gotten down t o
replacement values, while others a r e holding their
goods t o a basis o f their cost, a n d they a r e t h e ones
tnat will have a hard time t o get back.
T h e y a r e being
1eft u p i n t h e a i .
Governor Harding.
D o y o u note t h e inequality
in
the wages t h a t some o f the other gentlemen have referred
to?
Mr. Ball. Y e s , there i s a great deal o f inequality i n
WageSe
T h e miners particularly a r e receiving exhorbitant
wages, I
believe, a n d that i s holding t h e situation.
Governor Harding.
A r e coal prices considerably b e -
yond prewar standards?
wr. ball. Y e s .
T h e wylroad rates a l s o a r e above
the o l d prices, a n d thet i s making i t much more e x pensive f o r manufacturers
t o produce, a n d i s holding
up the prices o f commodities.
Governor Harding.
w a s thers much real estate specu-
lation i n northern Indiana,
i n farms particularly?
Mr. Balle N o t s o much i n Indiana.
T h e r e was a
good deal i n Iowa, a n d i n the *estern States, particu-
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Federal Reserve Bank of St. Louis
larly t h e wheat growing states.
T h e . price o f wheat w a s
high, t h e farmers could s e e large profits,
thought,
a s they
i n wheat, a n d would b u y land a t the high
prices, w i t h t h e v i e w o f s e l l i n g t h e w h e a t a n d p a y i n g
he p r i c e s f o r t h e land. I
nate.
think t h a t w a s v e r y u n f o r t u s
S o m e o f t h e m have p a i d s o much o r agreed t o p a y s o
much for land that i t will b e very difficult f o r them
ever t o liguidate.
Governor Harding.
H o w about unemployment
i n your
Gdistrict?
Mr. B a l l e T h e r e i s a
g o o d d e a l o f unemployment.
Many o f t h e f a c t o r i e s h a v e s h u t d o w n entirely.
running half time.
S o m e are
D e t r o i t w a s largely a n automobile
manufacturing center, a n d Indianapolis manufactured a
good many automobiles, a n d that industry h a s b e e n largely
shut down.
T h u s t h e m e n have been thrown o u t o f employ-
ment and they are not producing, they are not buying.
Governor Harding.
H a s a n y o n e e l s e a n y questions
ask o f Mr. Ball?
Dr. Miller.
M r . Ball, h a v e y o u a n y information
which s h o w s w h e t h e r
o r n o t manufacturers a n d merchants
in your district, especially n o t the largest, b u t mod-
to
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Federal Reserve Bank of St. Louis
erate size mercantile houses o r manufacturing cono r some
cerns,
a y
n e
O s
suffered severe losses
on
inventory declines, a r e i n difficulty i n getting a c c ommodations t o conduct their current operations?
My. Ball. I
think they have a l l received t h e
bank assistance t h a t t h e y need.
T h e y n o w simply need
to convert that into money a n d p a y off their obligations, t h e obligations t h a t have already b e e n made.
They a r e n o t a s k i n g f o r a d d i t i o n a l c r e d i t
t o a n y great
extent.
Dr. Miller.
o y o u say from your point o f view
S
there i s n o borrower's problem?
wre Ball.
would b e a
N o t a t the present time. I
rate.
I
with now.
t o l o w e r t h e r a t e a t t h e p r e s e n t time.
mistake
Dr. Miller.
I t i s n o t ea question o f lowering t h e
t i s not a question o f rate that I
I
wants c r e d i t ,
think i t
t is a
a m concerned
question o f whether t h e borrower w h o
a n d particularly t h e borrower whose «state
is impaired b y reason o f the severe losses h e has sus~
tained b y inventory declines a n d w h o i s not i n position
to t a k e u p t h a t l o s s ;
i s that m a n under embarrassment
getting c r e d i t a c c o m m o d a t i o n
o r such credit accommo-
i n
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Federal Reserve Bank of St. Louis
588
dation a s h e thinks h e i s entitled to, o r a t a n y rate
which
h e thinks
Mr. Ball.
parrassment
h e could use?
S o m e o f t h e m feel t h a t t h e y a r e under e m -
i n not being able t o buy all the goods t h a t
they would like to, b u t I
think i t would b e unwise f o r
them t o d o i t , t o g o f u r t h e r i n t o debt,
more goods. I
i n order t o b u y
think t h e y should reduce t h e stocks t h e y
a n d reduce t h e i r busi-
have o n hand, l i q u i d a t e w i t h those,
ness a s m u c h a s i s n e c e s s a r y t o p a y o f f t h e i r debts.
P
e
think i t i s a matter o f getting b a c k t o capital invested,
rather t h a n increased borrowing i n order t o carry larger
stocks.
Dr. Miller.
Well,
a m I right,
you think there a r e borrowers
i cone luding
then,n
i n your district that
that t h e y a r e b e i n g u n d u l y p r e s s e d a t t h e p r e s e n t
by t h e i r b a n k s ?
Mr. Ball.
No, I
think they
d o not think they do- I
feel that t h e y have borrowed a l l that they a r e entitled to,
and a s a
rule t h e y a r e n o t a s k i n g f o r more.
I
t i s simply
a q u e s t i o n o f t h e i r p a y i n g w h a t t h e y n o w ore, r a t h e r t h a n
a question o f borrowing more.
T h e banks feel,
as a d d i t i o n a l l o a n s a r e concerned,
s o far
t h e y a r e v e r y easy,
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Federal Reserve Bank of St. Louis
but i t i s a question o f taking care o f those w h o are
already borrowers a n d carrying t h e m along until they are
able t o pay their obligations.
N o t e s e r e maturing
and t h e y a r e u n a b l e t o t a k e c a r e o f them, a n d m o s t o f
the t r o u b l e
tions.
a t present
i s i n renewing p r e s e n t o b l i g a -
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Federal Reserve Bank of St. Louis
Governor-Harding,.
D i s t r i c t No. 8 , St. Louis,
Mooney o f Memphis.
Mr. Mooney.
District;
a m from the 8 t h
M r . Chairman, I
m y residence i s i n Memphis.
I . a m the editor
of the Memphis Commercial Appeal a n d also a farmer.
®ur district I
tunate . A
believe, h a s b e e n singularly for-
year ago,
o r l a s t year,
o u r reserves w e r e
at their lowest point, h a v i n g r u n domn t o abait 14,
Qur reserves now are 57, T h a t , o f course, came about
from t h e r e p a y m e n t
ual,
o f loans a n d that repayment w a s grad-
O u r Governor made n o hard a n d fast rules,
T h e
process o f repayment r a n along b y the banks gradually
reducing, a n d that general reduction throughout t h e
district brought u s t o where w e n o w are.
We have 600 member banks i n our district and I
am glad t o s a y thatiup t o t h e present t i m e n o t o n e o f
our m e m b e r b a n k s h a s f a i l e d ,
I
n certain parts
district t h e r e h a v e b e e n f a i l u r e s
banks n o t i n the system.
anced;
o f the
o n the p a r t o f
O u r district i S Well bal.
i t c o m p r i s e s t h e S t a t e o f Missouri, e x c e p t
Kansas City, which i s a State o f MHamufacture, agriculture, mules, corn and s o forth.
T h e South half o f
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Federal Reserve Bank of St. Louis
591
Tllinois, which is.a.State o f soft coal, w i t h a f e w
counties i n Southern Indiana, a l l o f Kentucky toJla line
Bast o f Louisville, N o r t h a n d Youth, W e s t Tennessee
and the Northern half o f Mississippi a n d the State o f
Arkansas eo
our district i s a district o f cotton, lumber,
tobacco, c o a l , r i c e a n d t h e u s u a l m a n u f a c t u r i n g p e -
culiar t o the mid-South.
As t o loans a n d rates,
w e have i n the 5t. Louis
district t h e p r o g r e s s i v e r a t e , a
rate o f 6
per c e n t t o
a bank havinga l i n e o f credit, a n d i f the bank goss
over i t s l i n e t h e r a t e g o e s u p . U n f o r t u n a t e l y
has r u n r a t h e r h i g h i n a
good m a n y banks
it
i n my
particular territory, a r o u n d Memphis, w h i c h have
large holdings o f cotton a n d Which have been unable
to dispose 6 f them. Notwithstanding the fact that
there are about one hundred t o a hundred and fifty
million d o l l a r s
sold, I
worth
o f cotton
i n our district
believe t h e c o t t o n p a p e r p r o p e r l y
un-
i n the
bank, t h a t i s r e d i s c o u n t s b a s e d u p o n c o t t o n w a r e h o u s e
receipts, amounts t o only about three a n d ahalf
million dollars,
T
h
e other cotton loans were placed
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Federal Reserve Bank of St. Louis
592
last year with the larger banks i n the East, N e w York
and Chicago. they, about a year ago, a s y o u lmow, c a m e
south hunting t o lend money.
O u r people a r e given t o
borrowing money i n the South a n d they d i d a very hand-
Some business,
just n o v .
T h e y are having a little difficulty
T h e y a r e p r e s s i n g t h o s e p e o p l e v e r y hard.
Our cotton situation i s a very serious one.
If we consume t h e cotton a t the present r a t e w e are
consuming it, a t the e n d d
t h e fiscal year, w h i c h i s
July 3lst, the United States will carry over 9,000,000
bales o f cotton.
i f the rorld continues t o consume
cotton as i t has been cmsuming it, there will be
€nough c o t t o n i n t h e w o r l d o n J u l y 3 i s t t o s u p p l y t h e
world f o r another year without growing a n y cotton a t
all.
T h i s cotton costs u s about 3 3 cents a pound,
according t o the Government figures,to grow; a
year
ago some o f i t was worth sixty t o seventy cents, s o m e
was worth eight t o ten cents, even linters commanded
& price.
. B u t there i s n o market f o r cotton now, t h a t
is no steady market, T h e r e was a time when the Southern
banker would put o n his statemmts a n item of overdrafts,
a small bank, a $500,000 overdraft and immediately i n
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parenthesis after that he would put "cotton." T h a t
meant h e h a d loaned money o n that cotton a n d that h e
could sell that cotton a n y d a y for that overdraft a m i /
eash i t i n . \
We have finally cane t o a condition i n this coun- x
try where cotton i s n o longer a
cash crop,
N o t until
this year h a s i t been s o that a
man could not sell
a bale o f cotton i n the South a n y d a y h e wanted t o
sell i t i n any o f the primary markets f o r a price
approximating t h e Quotation.
I
f o u r cotton people
do not c u t their acreage this year, t h e i r condition
next year will b e infinitely worse t h a n i t i s now,
The
fact i s they will j u s t about commit suicide.
Cotton n o w i n Memphis i s fetching around t m t o
twelve cents a pound. I
know that i t cests t o pick,
bale and bring that cotton t o market, regardless o f
the rent, cultivation and the tillage, $50.00 a bale.
Cur people a r e carrying o n with it, t h e y are going t o
Plant some cotton this year, I
think they are going
to materially reduce t h e acreage,
The trouble with cotton, gentlemen, i s that it is
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not domestic; i t is a foreign demand.
W e think every~
thing i s due t o the troubles i n Middle Europe.
I t is
amaZing h o w much cotton Middle Hurope t o o k last year.
A great deal o f our cotton w a s s o l d t o imgland, J a p a n
and China.
T h i s year China and Japan u p to date have
iis: about 500,000 bales o f cotton less than they d i d
last year.
E n g l a n d u p t o the present time h a s taken
1,500,900 bales o f cotton less than i t did last year
and i t looks as» i f a t the e n d o f the year England will
follow i n about t h e s a m e p r o p o r t i o n .
Now, a s t o lumber,---but I will @ m e back i n a
moment
t o the lumber question.
S o m e m e n a r e buying
cotton b y selling Government bonds a n d going o u t into
the country a n d buying distress. .
four o r five cents a
cotton, .
pound a n d holding it.
of that i s being done.
three,
N o t much
T h e Spot market i s out o f
line w i t h t h e f u t u r e m a r k e t .
T h e r e a r e people w h o
are carrying on; t h e y are going t o reduce t h e acreage
and they a r e going t o reduce i t tremendously.
Of c o u r s e o u r c o t t o n t r o u b l e s a r e p a r t l y o u r o w n
fault.
W e insist o n growing nothing but cotton,
Y e
work 120 days i n the cotton fields and we d o not have
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Federal Reserve Bank of St. Louis
mach t o d o the rest o f the time. A
great many of us
produce nothing o n our plantations b u t cotton.
W e é&m~-
port from the North our corn, o u r hay, o u r butter and
our c a n n e d stuff;
fHiat-18 G o t cot.
w e o n l y have o n e thing
O
t o sell, a n d
f course a n y o i e c r o p system breaks
any people i f they persist a t i t long enough,
The l u m b e r m a r k e t
i s v e r y dull,
T h e tremendous
prices o n lumber w a s largely brought about a
year a n d
a half a g o b y the inability o f the railroads t o haul
the logs into t h e mills a n d the inability o f the railroads t o haul t h e lumber after i t was mamfactured,
was a Question o f car Shortage.
I
A l s o , i n the winter
of 1 9 1 9 a n d t h e S p r i n g o f 1 9 2 0 i t w a s v e r y d i f f i c u l t
to get o u t the logs,
W e eT
e e b a d rainy season
in the lumber field a n d i t was h a r d t o get t h e logs
Out.
N o w there i s a n immense Quantity o f logs o u t
and a n i m m e n s e q u a n t i t y o f l u m b e r s t o r e d ,
T h e r e
looked a s though there might b e a revival o f the
demand f o r lumber this year, b u t I
d o not believe i t
is going t o amount t o much until t h e labor difficulties
are settled i n the various cities, until w e get a
reduction i n carpenter work and building labor work,
t
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Federal Reserve Bank of St. Louis
596
a n d TI belisve
w e are going t o sell a
good d e a l o f lumber
when t h a t c o m e s ,
The export market f o r lumber h a s gone.
I n our
territory w e export a great d e a l o f lumber t o Belgium,
France a n d England, a n d there i s very little o f that
foing o n .
I
dark tobacco.
n West K e n t u c k y a n d e s t Tennessee
w e grow
T h a t tobacco i s not used i n this
country a t all, except f o r the purpose o f making snuff,
You lmow a good deal o f tobacco i s c m s u r e d y
b snuff
Caters.
T h a t t6bacco i s always bought b y France, Ger-
many a n d Italy.
L a s t y e a r t h e tremendous discount
rates r u n n i n g a g a i n s t t h e s e c o u n t r i e s b r o u g h t a b o u t
a Situation where t h e c r o p was s o l d a t a very small
price,
T h i s year tobacco o f the better grades i s
being fairl y
sold now,
T h e r e h a s b e e n a revival i n
tobacco selling i n the last f e w weeks, b u t t h e lower
grades though are fetching nothing,
Tobody i s mining a n y coal i n Alabama a n d Western
Kentucky a n d t h e r a i l r o a d m e n a n d t h e m a n u f a c t u r e r s
Say t h e r e i s g o i n g t o b e a
c o a l S h o r t a g e t h i s winter,
and they a r e n o t manufacturing,-
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Federal Reserve Bank of St. Louis
The rice situation h a s been a very difficult
On€ «
T h a t i s o v e r i n middle A r k a n s a s .
T h e denand f o r
rice went o f f just about a s the demand for wheat went
off a n d i t f e l l f r o m s i x a n d s e v e n c e n t s a
pound t o
three cents, o r i t fell f r o m $2.00 a bushel t o 8 0 cents
a bushel, w i t h n o takers.
Our district h a s about 40,000 square miles o f
Mississippi R i v e r bottom, w h i c h w e c a l l t h e Delta.
There i s a tremendous speculation i n land there, w h i c h
these other gentlemen referred to.
T h o s e lands are
very rich. B e f o r e 1917 those lands were bought from
at s e v e n t y - f i v e
to a
hundred dollars
a n acre.
T h e
splendid t h i n g a b o u t t h e m i s t h a t t h e y a r e u n c u l t i -
vated, a r e densely wooded, t h e wood i s very valuable,
and when y o u take t h e wood o f f a very Splendid soil
remains.
T h a t l a n d runs i n price n o w f r o m t w o hundred
and f i f t y t o t h r e e h u n d r e d d o l l a r s
a n acre,
In the last year a n d the year before l a s t these
man made a
f money i n cotton,
great d e a l o
they did.
4 A farmer who made $50,000 o n a one thousand
acre p l a n t a t i o n
or a
o r thought
fifteen h u n d r e d a c r e p l a n t a t i o n
took his $50,000 and bought the plantation next t o him,
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Federal Reserve Bank of St. Louis
593
paying probably his (,50,000---paying probably $250.00
an acre f o r the land, s a y 4 0 0 , 0 0 0 f o r a
plantation---
paid his {50,000 i n cash a n d gave h i s notes f o r the
TOst- ofits.
T h e result l a s t year o f that operation was
but
that h e not o n l y d i d not make h i s first payment,/his
farming operation resulted i n a loss, because a s I say
it costs 3 5 cents t o grow this cotton a n d h e grew i t
on 50 cent bacon, $2.00 corn and $3.00 wheat,
There
is ncthing produced o n these plantations b u t cotton.
They have t o bring i n everything, s o that his cotton
was glutted this fall, a n d those farms a r e being taken
back,
T h e e x c e e d i n g l y d i f f i c u l t p a r t o f t h a t stthua-
tion h s that the m a n w h o owned a thousand acres o f
land and who bought another thousand, p u t the money
he had made into t h e l a n d a n d mortgaged b o t h tracts
for the payments, a n d some o f them have not only lost
the land that t h e y b a g h t up, b u t they have lost their
original holdings,
o r are about t o lose them, I
know
of a negro w h o ovned 5 0 0 acres o f land; h e bought
500 acres next t o him and paid $250.00 a n acre for it,
Unless h e i s helpéd f o r five orsix years h e will
probably lose b o t h o f his farms.
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Federal Reserve Bank of St. Louis
Our c o t t o n people, i n s t e a d o f p u t t i n g t h e i r
fifty, sixty, ten, o r five, o r one thousand dollars
into their rorking capital, t h e y merely used i t a s
a basis o f further borrowing,
A & A great m a n y o f a e s
men b o u g h t t h i s l a n d u p a n d p u t l o a n s w i t h s o m e o f
the l o a n c o m p a n i e s
o n it.
But t h e exceedingly difficult situation i n Miss.
issippi j u s t n o w i s that the Governor o f the State,
through his revenue collector, concluded that the
fire a n d life insurance companies w e r e i n a conspiracy
to make rates, a n d h e has indicted them all and tried
to impound their money i n the State a n d t h e y have
all withdrawn.
I t was hoped b y a great m a n y men
who h a d loans i n the banks, g o o d men, m e n w h o h a d
not speculated i n land, b u t w h o h a d loans o n their
cotton, t h a t they could mortgage their farms t o
the loan. companies, p u t that mortgage o n the farm
and liquidate their bank loans a n d make u p for t h e
deficit, b u t this action o n the part o f the State
authorities d r o v e a l l o f t h e i n s u r a n c e c o m p a n i e s
and other companies w h o l o a n o n land out o f the
State.
T h e y a r e afraid t o come i n there; t h e y are
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Federal Reserve Bank of St. Louis
out, a n d i t has made a n exceedingly difficult situation.
I think w e have g o t t o g o along; w e are going along.
I think w e have reached t h e bottom, a n d although w e
are bumping pretty hard along t h e botton, I
think pos-
sibly within five years w e will, a l l o f us, b e back t o 4
reasonable prosperity, n o t o n l y i n m y part o f the cointry, b u t I
expect probably t h e five year period Will
run all over t h e country, b u t I
cover t o o much territory.
do not want t o t r y t o
B u t i t seems t o m e that
with all that w e have t o export---that w e have a n abun-
dance t o export, w e have a n abundance o f everything,
we have grown more t h a n w e have consumed;
w e are break-
ing under t h e opulence o f our r a w materials t h a t w e have
On hand; w e have more food, m o r e clothing material,
more cattle, more hogs than w e have ever had i n m r
history, y e t w e are o n hard lines,
money too, I
W
e have more
believe, b u t w e are i n exceedingly hard
lines, a n d s o far a s I see it, i n m y humble way, i t
looks t o m e a s i f t h e p r o b l e m i s a
than a domestic one.
bigger p r o b l e m
W h e n w e c a n g o abpoad through-
out the world again a n d get England t o buy a n d Japan
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Federal Reserve Bank of St. Louis
601
to b u y a n d China t o buy, a n d sell this surplus stuff
that w e have got, * e will g e t along.
Now a s t o rates,
w e have a l l borrowed t o o much
money, a n d i f these rates are Lowered---I offer this
as a respectful suggestion,---if these rates a r e lowered
you w i l l i m m e d i a t e l y f i n d t h a t a d d i t i o n a l b o r r o w i n g w i l l
put y o u right d o w n i n your reserves, I
d o not think
it i s probably o u r function t o d o banking for t h e i n dividual. I
believe l o w e r r a t e s v o u l d m e r e l y p u t a n
artificial stimulus i n t o t h e process o f reorganization
and keep t h e reorganization f r o m being completed,
think w e have g o t t o have a
through a n d all over, I
x 2
thorough Washing o u t a l l
think t h e ecmmdauct o f this
entire system, a S I see i t a S a n editor, d u r i n g t h e
last year a n d a haif, h a s been admirable,
T h e r e never
was a system that did the same good t o people that
has b e e n m o r e r o u n d l y a b u s e d b y t h o s e w h o k n o w n o t h i n g
about i t t h a n t h i s F e d e r a l R e s e r v e S y s t e m .
In our district, a s I have stated, w e have this
progressive rate, I
dia not favor it, I have never
favored it, b u t wiser m e n t h a n I
did favor it.
T h e
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Federal Reserve Bank of St. Louis
peculiar t h i n g a b o u t t h e p r o g r e s s i v e r a t e i s t h a t w h i l e
some i n d i v i d u a l b a n k s h a v e p a i d a s h i g h a s t w e l v e
or t h i r t e e n p e r c e n t f o r money, t h a t i s w h e n t h e y g o t
into a
certain frame---you a l l k n o w t h a t w i t h t h i s
horrible surtax, y o u get into a certain frame---put
as I say some o f our bankers h e r e a n d there have p a i d
12 per cent for $10,000 e n d have immediately indicted
the e n t i r e F e d e r a l R e s e r v e S y s t e m a s a n e x t o r t i o n e r
and a profiteer,
A s a matter o f fact that bank it-
self, averaging its borrowings, will find that i t is
paying m a y b e less t h a n 7 per cent, o r may b e a little
shade above 7
per cent,
Now, t h e fact i s i n our district, u n d e r this
progressive r a t e ,
and I
think G o v e r n o r B i g g s w i l l b e a r
me o u t i n this, o u r average rate, while same have
paid 1 2 p e r c e n t a n d o t h e r s m i g h t h a v e p a i d 1 0 ,
ard
some 8, that our average lending rate has been between
about 6,2Ger cent and 6.3 per cent.
8 6 that our
customers o r our patrons o r our members, o n the whole,
are better off than the members who pay 7 per cent
FETS p
a
s
There a r e other things t h a t I woulda just suggest
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Federal Reserve Bank of St. Louis
603
to you a s a n editor a n d a member, which I hope a r e
for the greater g o o d o f this organization.
w e have
had a great deal o f trouble i n our district about the
par rate.
O
f course b e i n g t h e editor
o f a newspaper
with a circulation over about half o f the district I
went outside o f my duties a s a bank director and"allowed" a few things about it.
W e had a great deal
of trouble a n d i t w a s v e r y m u c h m i s r e p r e s e n t e d
as
to what t h e scheme was,
A bill w a s introduced i n the Tennessee Legislature r e c e n t l y
t o prevent t h e F e d e r a l R e s e r v e
Banks f r o m oppressing t h e people o f Tennesses b y
insisting u p o n a
p a r rate.
A
S a
matter
o f fact,
as
you know, a great many o f the people who were objecting t o i t were merely pinching checks a s they
came back t o them.
that a n d I
W e g o t into a controversy about
think i t i s p r e t t y w e l l u n d e r s t o o d n o w
and t h a t t h e p e o p l e g e n e r a l l y a r e c o m i n g t o u n d e r -
stand that t h e p a r rate really means t h e handling
of m o n e y
at a
less c o s t
t o the cmsumer
o f money
or the user o f money and that i t is therefore
petter f o r h i m .
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Federal Reserve Bank of St. Louis
Other complaints h a v e b e e n made against t h e
system. T
knew o f a man i n West Tennessee w h o was a
banker, A
customer vent t o h i m for a loan,
H e told
him h e w o u l d l i k e t o l o a n h i m t h e m o n e y o n t h a t p a r t i -
cular commodity but that t h e Federal Reserve System
would n o t permit that l o a n t o b e made o n that particular commodity, a n d after h e a n d that gentleman abused
the Federal Reserve »ystenm for a While they adjourned,
The fact i s that the bank was not a member o f the
system.
Another crititism that h a s been made i s this; A
gentleman sent me a letter from Texas the other day
and said that h e was going t o read i t before s o m e
manufacturers’ association,
criticized the system.
i n Which h e severely
H e wanted t o reduce t h e
reserve, t h e g o l d reserve I
think 1 0 per cent a n d
he has circularized that a l l over t h e country.
e X
think i t i s well t o here a n d there k e e p informed s o
as t o meet these matters a s they a r e brought up.
Of c o u r s e i f w e w e r e t o r e d u c e
1 0 per cent everybody
would borrow right u p t o it; that i s all there i s t o
that.
W
e k n o w that,
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Federal Reserve Bank of St. Louis
I really believe t h a t v i t h regard t o the particula™
territory around Memphis t h a t i t i s going t o takes four
or f i v e y e a r s
t o recover.
w
e a r s recovering now, b u t
we are like the man who has had typhoid fever, w e are
very wobbly o n our knees,
Then t h e freight rate situation I
think has a
certain
great d e a l t o d o with general conditions.
classes o f lumber cannot n o w b e s o l d a t all because o f
the freight rate, which i s s o high o n that low grade
stuff t h a t i t n o l o n g e r c a n b e exported,
F o r instance
the freight rates w i t h regard t o m y paper,
o m just
white paper, i s $50,000 more this year than i t was
last year,
There i s also this matter o f inequality i n reduction o f prices,
I n some cases y o u find raw mater-
ial a n d m a n u f a c t u r e d s t u f f h i g h e r t h a n i t w a s l a s t
years
O u r white paper bill will b e $170,000 bigger
this y e a r t h a n i t w a s l a s t year.
tunate l a s t year, h o w e v e r .
W i e were v e r y for-
s o m e things a r e coming
down a n d other things a r e n o t coming down.
A s to
labor, there i s not a great excess o f labor i n Mem-
phis. T h e mills are still going on, some of them,
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Federal Reserve Bank of St. Louis
606
and w e have plenty o f labor on.the plantations, f o r t h e
reason that t h e negroes w h o went North t o the automobile
factories o f Detroit and Cleveland and other places, a
great m a n y o f t h e m are coming back; t h e fact i s a great
many have already came back.
T h e y are sending home f o r
money t o get back with a n d w e are assisting t h e m a m
bringing them back. T h e y will stay for a while.
E s
think i t is very good for them that they went away.
Some o f them have come home with a little money.
we h a v e g o t t o g o a l o n g a n d m a k e a
c o t t o n Crop.
B u t
W
e
cannot c u t the cotton c r o p entirely out, b u t I believe w e are going t o reduce t h e acreage.
i f Texas
does n o t g r o w a big crop w e will reduce t h e acreage
probably from thirty t o thirty-three a n d a third
per cent.
W e have a
campaign going o n now t h r o u g h
oub paper i n regard t o that a n d w e are v e r y close t o
it and I believe there i s going t o be a substantial
reduction, f o r oné reason, t h a t some cannot g e t t h e
fertilizers,
O f course d o w n i n m y region they d o
not use fertilizers, b u t some o f them cannot g e t the
Creatt
Now i n t h e M i s s i s s i p p i D e l t a
w e had two bank
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Federal Reserve Bank of St. Louis
607
failures t h a t were exceedingly disastrous t o the community. A
bank i n a town o f 5,000 people a
year a n d
Of
a half a g o h a d deposite? $17,000,000, w h i c h w a s right
sharp for a little bank i n a town o f 5,000 people i n
a plantation country,
n o manufacturing, a n d i t took
in a good many loans o n these lands a t these prices;
the commissions w e r e big--~in f a c t i t looked good a n d
we were going t o have prosperity forever,
T h s bank
had those loans and they took $4,500,000 of those loans
out, A
company t o o k t h e m o u t a n d t h e m e n pledged
their l a n d a n d s o forth a n d the b a n k i s now going o n
and will continue t o do business.
T h a t bank did not
fail, but i t is just a trustes. A
bank failed i n
Greenville the other d a y under rather interesting
circumstances.
I
t h a d $200,000 capital a n d %200, 000
surplus, and the bank was very well managed. T h a t
bank h a d three cotton loans aggregating a million
dollars
T h e cotton couldn't b e sold.
was loaned a t $150.00 a
now $50.00 a bale.
T h e money
bale a n d the cotton i s worth
T h a t bank caild not redisscnt;
it was not a member o f the Federal Keserve System.
It did not want t o came in; i t did n o t approve o f t h e
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Federal Reserve Bank of St. Louis
W iae Ogo e :
Se NT S h i r s a n yeS t a ge=
=
System and
43
didcnot
bank, y o u know.
a
a
e
.
w
a
e
5
e
4¢ show t o run its
ty
want _ a n y h o d*ee1]L
PRES
a
e :a
in
w e l l we-hnaven't h a d a n y failure
our s y s t e m y e t o r j n o u r district,
b u t that bank was com-
not realize o n those
pelled t o stop because t h e y could
three loans.
out o f
N o w t h e y have t a k e n those loans
the b a n k - - - s o m e
and
o f t h e m e n have pledged t h e i r l a n d s
their fortunes and they are going forward.
| The
Our loans a r e being gradually liquidatede
summer will o n l y b e
money that will b e borrowed this
limited way.
money necessary t o carry o n in a very
t o make a
Iast year w h e n a man h a d t o borrow $10,000
this year,
crop h e probably would make t h e same c r o p
i s made
if he does so, o n say $4,000, because cotton
on bacon, c o r n meal, f l o u r a n d mules,
U
p i n Missouri
o f mules f o r %800,
a year a g o they used t o sell a pair
pounds o r
mules 1 6 hands h i g h a n d weighing a thousand
a
OVEYs T o d a y two mules will fetch probably $300
t h e y are not
pair s o they a r e not buying a n y mules,
getbuying a n y agricultural implements, b u t w e are
year
ting along a n d w e are going t o get along this
like w e d i d i n 1915. I
think probably that o u r
people a r e going t o grow something t o eat.
I f they
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do that t h e y will b e like-the Kentucky farmers e n d the
other farmers a n d b e able t o carry along.
I am sorry t h a t I talked s o long gentlemen.
Governor Harding.
I understand
I t has been very interesting t o
b y what y o u s a y that i n addition
large stock o f cammodities
i n the district that
of the people are accumulating a considerable
of experience.
Mr. Mooney. T h e y have, yes, but I have been
there f o r t w e n t y - f i v e
o r t h i r t y years, w i t h t h e e x -
ception o f t e n years i n New York, Governor Harding,
and they have very Short memories.
T h e same thing
Was going o n i n the fall o f 1914, y o u know, ¥ h e n
cotton went dovn t o five o r siixscents a n d you could
mot sell it.
W e d i d sell i t i n 1915 a h d made some
money a t l o w prices,
I n 1916 they planted more cot-
ton a n d i n 1917 t h e y told m e t h e y were going t o plant
their graveyards i n cotton a n d t h e y planted them, a n d
there y o u are,
Governor Hardings I
do not think i n some districts
that i t i s b e s t t o b a n k a t t o o l o w rates.
Y o u have
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to draw a pretty tight line 1 guess.
District No. 9, Mr. Hixon o f Wisconsin, representing
the Federal Reserve B a n k o f Minneapolis.
Mr. Mooney.
Governor I
I f you will pardon m e just a moment
notice t h a t o u r reserve l a s t night i n the
St. Louis district a t the close o f business W a s 5 9 2D»
Tt i s still going u p a little.
Mr. Hixon.
my
G o v e r n o r Harding a n d gentlemen,
particular l i n e o f business i s manufacturing lumber
in Minnesota, Cregon, a n d California a n d retailing lumper i n North Dakbta, Minnesota, Wisconsin a n d various
other States.
O u r operation i n Oregon vas started
five years ago and up until the middle o f Yecember
ran continuously d a y a n d night a t full capacity.
Last year w e were paying our labor a minimum o f &5 00
a d a y f o r e i g h t h o u r s o f work, C o m m o n l a b o r ,
t
e
started up, after this three months shut down a
couple o f weeks ago,on t h e basis o f 4 0 cents a n hour
or $3.20 a day for common labor.
In the lumber industry t h e demand i s a mere fraction o f what i t was a year ago.
plete stagnation. I
T h e r e i s pretty com-
think one trouble with the gernr-
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Federal Reserve Bank of St. Louis
611
al situation i s the lack o f buying power, the lack o f
disposition
t o b u y o n t h e p a r t o f t h e b u s i n e s s m e n gener-
ally.
a
W
o
t they have passed through i n the p a s t
few months, h a s caused t h e m t o feel o r fear that perhaps
something worse i s i n store before there i s a turn for
the better,
P
a
s
I think during the period o f large profits which
we h a v e e n j o y e d u p u n t i l e v e r y recently,
t h e Guestion
“o0 Fee uci mace did not enter a great deal into the
minds
o f these b u s i n e s s c m e c e r n s ,
T h e y paid 7
per
cent and a higher rate very cheerfully because they
found they could d o s o out o f their prosperity.
There
has been a great deal o f deflation b u t i t has been
largely i n the marking d o w n i n values,
T h e r e h a s been
comparatively little r e a l liquidation a s yet through
the lowering o f stocks a n d the Shipping o u t o f inventories.
o f
I t seems t o m e that what business needs n o w
more t h a n anything else i s t o have some heart p u t into
it.
The deflation a n d liduidation t h a t w e have h a d
in the past year was brought about very largely, i n
large measure, through the efforts o f the Federal Re-
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Federal Reserve Bank of St. Louis
612
serve Board a n d the System generally, a n d i t seems t o
me that just a s soon as the time comes,---if i t is here
now-~-that there ought t o b e a recognition o f the fact
that the corner i s turned, that times are improving,
as evidenced b y the increasing reserves,
i n the lower-
do not mean b y that that
ing o f the discount rate. I
there should b e a n invitation t o business concerns
generally t o come i n and borrow more money ,because I
think i t would b e the d u t y o f the banks t o restrict
credit just as carefully a s though the rates were high,
I have heard n o canplaints t o speak o f about difficulties o n the part o f c m c e r n s w h o are worthy o f credit,
in securing it, but there i s Quite a widespread complaint about the high rates t h a t business i s obliged t o
pay now for money.
Governor Harding. W h a t rates are charged by the
banks i n Wisconsin ordinarily?
Mr. Hixon.
w e l l , where I
live,
i n LaCrosse,
and I think that i s typical o f the medium sized cities
and small cities generally, t h e bank rate i s 7-3 per cent,
where ordinarily i t was 6
rowers,
per cent t o the best bor-
a n d concerns t h a t a r e o b l i g e d t o g o o u t s i d e a n d
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sell paper through brokers o r otherwise a r e p a y i n g
8 per cent. I
think a reduction i n taxation will
have a great deal t o d o with putting some heart into
business a n d I
think a reduction i n interest rates
would have a very marked effect.
I f b y same such
step w e could start t h e wheels going, g e t labor e m ployed a n d get more purchasing power i n the country, ,
/
f
I think w e would b e taking a very wide step,
I shall not s a y anything about t h e conditions
that a r e peculiar t o other districts, I
think each
district h a s i t s o w n particular troubles t h a t i t
will
e e
h a n d l e i n its o m w a y and i n the b e s t
way possible.
T h e ninth district problems a r e
jargely concerned with t h e smaller banks i n the agricultral districts o f North Dakota a n d Montana,
ZIdo not think o f anything further t h a t I care
to say, Mr. Chairman.
Governor H a r d i n g .
questions
D o e s anyone desire t o a s k a n y
o f Mr. H i x o n ?
I
f not w e will hear f r o m
District No. 1 0 , Kansas City, Missouri, Mr. McClure,
Mr. McClure. I
am engaged i n the raising o f
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Federal Reserve Bank of St. Louis
live stock a n d i n the l e n d i n g o
f moneyo
n live stock
interests
and
i n the l i v e s t o c k commission business.
Our district i s primarily engaged i n the pro-
duction o f foods, a l t h a g h w e have sane cotton and
oil a n d also some manufacturinge
The p a s t y e a r a n d w i n t e r n a t u r e h a s b e e n v e r y
ind t o oar district,
L a s t year w e had large crops
of c o m a n d forage, w h e a t a n d other f a r m products,
Last winter was very mild and pleasant and the wheat
that was s o w n last fall strengthened a n d i s i n fine
condition this Spring.
C a t t l e a n d other live stock
wintered much better t h a n usual.
E v e r y c o w will
have a calf this year a n d the little pigs a r e plentiful.all over t h e district,
The s i t u a t i o n
i n regard
t o the production o f
crops i s i n much better shape than a year ago, for
the r e a s o n t h a t t h e y c a n b e p r o d u c e d m u c h c h e a p e r ,
Farm help i s much more plentiful a n d not a s high
priced,
F o r instance o u r campany h a d occasion t o
advertise several times during the war for men for
farms. S o m e t i m e s w e would get n o answers a n d some-
times one or two. About a month ago we advertised
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Federal Reserve Bank of St. Louis
for a man a n d his wife t o live o n the farm a n d
esived something o v e r o n e hundred applications.
ever I
How-
d o not think there i s a great deal o f idle labor
in o u r country.
The live stock interests h a v e suffered very greatly
from depreciation i n prices, which I presume has amounted
to 4 0 per cent.
T h e live stock interests h a v e always
been h e a v y borrowers,
not a s s e r i o u s
T h i s depreciation
i n our country a S perhaps
i n price w a s
i n a
country
where those engaged i n the raising o f cotton for i n Stance a n d other things a r e n o t the owners o f their l a n d
and a r e renters.
Q u r district
i s c o m p o s e d o f farmers
who o w n their o w n land a n d the loss i n live stock i s
distributed among a great m a n y farmers
m d i t i s not
serious, except i n some few instances.
S o m e o f the
banks will have losses a n d the farmers w i l l lose some
money,
b u t t h e whole condition
i s not s o bad and the
outlook i s good.
There i s quite a lot o f complaint o n account o f
freight rates,
T h e y can hardly ship hay o n account
of the high tariff.
T h e y claim they find their live-
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stock p r o d u c t s c a n b e t r a n s p o r t e d f r o m S o u t h A m e r i c a t o
the E a s t e r n c i t i e s c h e a p e r t h a n t h e y c a n b e b y railroad,
corand t h e y want that corrected i f i t possibly c a n b e
rected.
In regard t o the o i l situation, a n d our district
produces Quite a bit o f oil i n Oklahoma a n d i n Kansas,
I have a letter that I wold like t o file with the
Board, w h i c h I will not r e a d because i t i s H i t e long;
but t h e price o f oil has gone d o w n over S O per cent a n d
the drilling f o r n e w wells a n d s o forth i s materially
curtailed a n d there a r e a great m a n y idle m e n i n the
oil fields.
(The letter submitted i s as follows: )
FIRST NATICNAL BANK BARTLESVILLE
Bartlesville, Okla.
April 4 , 1921.
Mr. M. L. McClure,pres.,
Drumm Commission Co.,
Kansas City, M o .
Dear M r , McClure:
Acknowledging yours o f the 2 9 t h ult., I
will at-
tempt t o tell you briefly something i n reference t o the
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Federal Reserve Bank of St. Louis
problems o f the producers o f crude oil, with n o desire
whatever t o b e critical b u t a statement o f facts a s
generally understood b y the fraternity i n the Mid-Conhinent field.
There i s now a n d has always seemed t o be a
natural prejudice i n the minds o f the management a n d
directions o f the 10th District Federal Reserve Bank,
Kansas City, against o i l producers.
W h e t h e r o r not
there i s a n y j u s t f o u n d a t i o n f o r t h i s o p i n i o n o n m y
part, y o u p e r h a p s k n o w .
In s o far a s the business b e i n g liquid i s coneerned, t h e r e i s not a n y fundamental c o m a d i t y t h a t i s
as liquid a s crude oil, i n a s much a s w e always h a v e
a ready market a t some price a n d payments a r e made
twice a
month.
Because o f the general speeding u p program which
was p u t o n a t the instigation o f the government i n the
last three years w h e n w a r was i n process, t h e producers
speeded u p production a n d were intensely busy i n
prospective n e w fields a n d wildcatting owing t o t h e
demand for crude, during which time the price advanced
up t o % 5 . 5 0 p e r barrel; l a b o r c o s t s a n d o t h e r e x p e n s e s
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Federal Reserve Bank of St. Louis
incid- n t t o the production o f crude had a corresponding
increase, a n d a t n o time i n the history o f the business
aid i t gain such momentum a s i n the latter part o f 1920,
The Bureau o f Mines A t iiashington, t h e American Petrolinstitute, Standard O i l officials a n d others w h o
supposed t e have a
wide kmowledge o f the industry
jnasisted and sent o u t information t o the effect that
there w a s a national a n d inter-national shortage o f
oil.
I f the face o f all the r e a d j u s t m m t a n d re-
construction after t h e war, w i t h decreasing prices i n
other commodities, t h e orice o f crude remained t h e
same and, a s before stated, t h e r e apparently w a s a
Shortage o f o11; credits were fairly easy and there
Wem nonicessabion o f drilling until suddenly o n the
15th o f D e c e m b e r p i p e l i n e c o m p a n i e s a n n o u n c e d a
30%
reduction i n runs, a n d then the industry a s a h o l e
Woke u p t o find that t h e propaganda s e n t o u t b y the
above mentioned agencies w a s either calculated t o
intentionally m i s l e a d o r n o o n e k n e w w h a t t h e c o n Gitions
i n the vorld's markets were,
T h e resuit o f
this decrease i n runs was the beginning o f a n im-
mediate readjustment and the forerunner o f the cut in
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Federal Reserve Bank of St. Louis
price w h i c h came o n J a m a r y 24, 1921, a n d from that
date t o February 9 t h the price o f crude w a s c u t from
{3.050.104.1475 p e r barrel,
I n this connection i t might
be w e l l t o s t a t e t h a t m a n y o f t h e i n d e p e n d e n t c o m p a n i e s
were paying a
premium a n d a great deal o f the o i l i n
_the Mid-Continent field brought from 252 t o 50/ per
barrel above t h e posted price o f 6.5.50.
This cubtailment i n runs a n d the sudeen reduction
in price h a d t h e e f f e c t t o p a r a l y z e t h e industry.
Notwithstanding t h e d e c l i n i n g p r i c e s
o f all other com-
modities, t h e r e w a s none t h a t experienced s u c h a n
immediate change,
Previous t o the curtailment i n runs a n d the c u t
in price,
t h e o i l companies r e r e a l l i n very r o o d
shape financially a n d were asking v e r y little o r n o
credit, except i n some fevi instances vhere refining com-
panies were issuing their trade acceptances, but immediately following t h e c u t i n price s o m e o f the pipeline c o m p a n i e s ,
i n order t o t a k e c a r e o f the f l o w i n g
‘wells, m a d e propositions t o run a l l the o i l paying f o r
half o f i t i n c a s h a n d t h e b a l a n c e
i n trade accept-~-
ances, while i n some instances individual producers,
i n
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Federal Reserve Bank of St. Louis
order t o t a k e care o f properties w h i c h h a d t o b e
operated o r otherwise ruined, arranged t o put u p
tankage o f their o w n which o f course necessitated t h e
expenditure
of a
understand,
n o doubt, t h a t w h e r e a n o i l p r o p e r t y
making water,
great d e a l o f m o n e y u n e x p e c t e d l y .
Y o u
is
a s i s particularly t h e case i n Kansas,
the wells have t o b e operated continuously -
othervise
the water will overtake t h e m a n d ruin t h e property;
this i s true a l s o i n many other places throughout t h e
Mid-Gontinent f i e l d where wells a r e flowing,
a s they
cannot b e shut in,
The n e t result o f all that I
have s a i d leaves t h e
local banks i n about this cmdition:
About a l l the ready money t h e y have h a d the
last year with Fhich t o d o business a n d take care o f
the farmer, the cattle man, t h e local merchant a n d
other lines o f industry, h a s been furnished b y the
oil men.
Y o u will observe that our Bank has with
you a considerable l i n e o f rediscounts, little o r
none o f which are pertaining t o the oil industry.
N o w
the only source o f our ready money i s just a s Sick as
the rest o f them a n d until w e c a n get their labor
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Federal Reserve Bank of St. Louis
problem adjusted a n d their operating costs d o w n t o
their sales a n d t h e y are going t o need help a n d rith
our basic line already full, a s I take i t i s the case
with other banks i n the o i l cénters, j u s t h o w w e a r e
going t o get a n y relief f o r o u r o i l customers W i l 1
depend entirely upon t h e generosity o f the directors
or your Bank.
T h e o i l producers a r e entitled t o a n d
must have some recognition a n d help n o t o n l y for the
safety o f themselves b u t f o r t h e safety o f the banks
located i n the o i l territory, a n d this fact should not
be o v e r l o o k e d
b y your directors,
It will take a matter o f sixty days o r more t o
readjust t h e labor problem.
of m e n o u t o f employment.
rt,
+ n e r e a r e n o w thiusands
4 A general Ffeduction i n wages
has been announced b u t even t h e n i t will take some
time t o work out thes matters, remembering a t the same
time that bills being paid now b y oil bringing only
$1.76 p e r barrel were contracted when o i l was worth
#5.50 per barrel. N e a r l y all the operators are
closing down; a n intense campaign i s being put o n under
the auspices o f the Mid-Continent C i l & Gas Producers
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Federal Reserve Bank of St. Louis
622
Association t o restrict drilling a n d there probably
are n o t more t h e n half a s many wells drilling n o w a s
compared w i t h last September, T a k i n g t h e case o f our
orn Company,
t h e F h i l l i o s P e t r o l e u m Company, Last. S e p =
tember w e h a d 110 strings o f tools i n operation while
this morning w e have eight.
N o r m a l l y w e would a t
this t i m e h a v e a s m a n y a s 1 5 0 s t r i n g s
i n operation.
I am not writing y o u this letter w i t h a n y special
thought f o r o u r o w n Company a s w e are n o t asking a n y
help, b u t I would like t o get t h e idea over t o y o u that
ndustry a s a whole i n the Mid-Continent field
have h e l p .
Tru r
value
this rambling letter r i l l b e o f some
t o you, I
am:
Very truly
lia Ss
The financial situation i n our district i s n o t a t
all good. E v e r y b o d y h a s borroved about a l l the m o n e y
they can and the Federal Reserve Bank o f hansas City
has almost reached i t s limit. I
rather believe t h a t
further L i q u i d a t i o n f o r t h e n e x t t h r e e o r four m o n t h s
cannot b e made.
I f déposits g o down a s i s expected;
we w i l l t h e n h a v e s o m e s e a s o n a l d e m a n d s f o r t h e
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Federal Reserve Bank of St. Louis
seeding o f crops a n d the harvesting o f them a n d for t h e
stocking u p o n live stock.
t i e are going t o have a
demand for more m o n e y than o u r bank c a n Supply a n d I
feel that w e should n o t hesitate t o take c a r e o f the
district b y calling o n some o f the ~astern banks that
are more favorably situated.
I f w e have crops a n d
prosperity i n the farming districts w e will have prosperity i n the United States,
Liguidation over our district will begin. about
the 15th o f July.
M a n y cattle v i l l b e ready t o mar-
ket a n d t h e w h e a t w i l l b e g i n t o c o m e i n t o t h e m a r k e t ,
There i s some o f last year's wheat crop, perhaps sixty
million bushels i n our aistrict, t h a t i s unmarketed,
but w e u n d e r s t a n d f r o m w h a t t h e b a n k e r s t e l l u s t h a t
the n e w c r o p W i l l p r o b a b l y b e m a r k e t e d a s f a s t a s
threshed
o r a s fast 4 s i t c a n b e taken care o f .
In r e g a r d
t o t h e r a t e o f interest I
any change 4 h the present time.
would n o t f a v o r
w e are foing t o have
more demand t h a n w e are ¢eoing t o b e able t o supply a n d
a cheapening o f the rate would not help the situation
any.
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Federal Reserve Bank of St. Louis
I believe that i s all Ihave t o say.
T h a t i s y o u r r a t e o v e r there?
Mr. Hartford.
Me. McClure.
A t the Federal Reserve D a n k
Mr. Hartford.
Y E S
per c e n t i s t h e b a s i z r a t e
Mr. M e C l u r e , 6
and w e have a
cent.
progressive r a t e v i t h a maximum o f 1 2 per
T h e rates o f interest o u t through the district
charged t o the farmers i s very high.
h a v e a
Governor Herding.
l e per cent contract
in some S t a t e s h a v e y o u not?
Mh. McClure. Y e s , from 8 to 12 per cent, although
I think t h a t t h e r a t e w o u l d b e r a t h e r l e s s t h a n 1 0 p e r
cent t h a n over that.
Governor Harding.
D o y o u favor t n e Continuation
of the progressive rate?
Mr. M c C l u r e , I
have n e v e r f a v o r e d t h e p r o g r e s s i v e
rate for the reason that the burden i n some instances,
for instance l i v e stock, falls o n certain banks that
have almost a l l o f their m o n e y invested i n live stock,
anc w i t h o u t p u n i s h i n g t h e l i v e s t o c k interests,
t o pro-
tect their customers a n d t o prevent making losses themSelves, t h e y were compelled t o borrow a
great deal o f
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Federal Reserve Bank of St. Louis
money.
Governor Harding. “would the live stock interests
in your judgment g e t a n y cheaper money f r o m the banks
that l e n d t o them i f the progressive r a t e w a s abolished
in t h e K a n s a s C i t y district?
Mr. McClure. I
rather think so, S t i l l the matter
is more o n e o f affect, t h e affect i t has o n the minds
of the people, rather t ! a n actual fact. F o r instance
when w e put the rate into effect i t was v e r y unfortunate that some f e w little banks were n o t entitled t o a s
much preadit perhaps a s they h a a a n d were charged a very
high interest rate b y the Federal Reserve Banks.
That
got noised about a n d many banks t h a t h a d funds that
they w o r l d h a v e l o a n e d c l o s e d u p a n d r e f u s e d
t o make
loans f o r fear that t h e y might have t o call o n the Federal R e s e r v e B a n k a n d p a y a n e x c r b i t a n t r a t e .
Governor Harding.
I f that pr@ressive rate shoulda
be discontinued would y o u b e i n favor o f continuing t h e
present basic rate o f 6 per cént a s a regular rate o r
would b e i n favor o f advancing t h e rate?
Mr, M c C l u r e . I
think.
vould p u t t h e r a t e a t 7
per c e n t
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Federal Reserve Bank of St. Louis
Governor Harding.
H a v e a flat rate o f 7 per cent?
Yes. I
Mr. McClure.
think that vould have a
good efect,
Mr, Hartford.
rate
T o u l d y o u favor 4 progressive
8
if the maximum d i d not r u n over
per cent?
I would. I
Mr, McClure. Y e s , I believe
think
moncy pecause t h e y have
very f e w b a n k s g u i t b o r r o w i n g
interest.
to p a y a n excessive r a t e o f
Y o u have g o t
to catch t h e m right b y the shoulders
a d s i t them d o w
borrowing,
and talk t o them t o get them to Ziscontinue
rather t h a n punish t h e m for borrowing.
W
e have t o
Jo that everywhere.
H a v e t h e farmers generally i n your
Dr. Miller.
s o far a s their
jistrict been pretty well taken care o f
crop needs a r e concerned?
Mr, McClure,
banks
T h e member banks a n d the other
Limit i n takin the Kansas City district have gone the
ing care o f their customers.
T h e y have done t h e v e r y
o f funds,
best t h e y coudid, b u t there h a s b e e n a Shortage
being
Our district i s naturally a borrowing district,
a new country.
j i e always h a v e borrowed a great deal
of money i n the East.
T h e live s t o c k interests a r e
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Federal Reserve Bank of St. Louis
financed t o a great extent f r o m Chicago a n d St. Louis
ana East o f use N o w , t h e banks i n those other districts
have u s e for their o m m o n e y a n d are calling o n the 1 0 t h
I t i s a little b i t embarassing be-
District t o p a y up.
cause i t i s n o t -the t i m e o f y e a r t h a t t h e y c a n pay.
They
have got t o wait until the cattle are ready for market,
which will n o t b e f o r some little t i m e y e t a n d until t h e
crops c a n b e marketed.
Dr, Miller, ‘ s h a t happens t o the cattle grower under
those conditions?
Mr. McClure,
Miller.
W e l l , h e just stays o u t o f business,
H
McGiureé,
Miller.
e just stays
o u t o f business?
e does n o t produce.
h
i s that t h e p o l i c y o f your bank?
Mr. McClure, W e l l , I
very best i t could.
think o u r bank has done t h e
I t has loaned a l l o f its money,
it has borrowéd about a s much a s i t could o n the outside
to take care o f these interests, a n d that i s the condition that eabrrents US.
De. M i g t e r .
D
o I
understand t h a t t h e basic r a t e
in y o u r d i s t r i c t b e a r s w i t h p e c u l i a r h a r d s h i p u p o n t h e
banks that are taking care o f the cattle growers and
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Federal Reserve Bank of St. Louis
that normally t a k e ~ c a r ef
o them?
Mr, McClure. Y e s , I rather think So.
Dr, Miller.
A n d that t h e y a r e being kept o u t o f
business, t h e cattle growers, a n d are being forced out
of business through the operation o f the rate, a s well
as because o f withdraral o f funds b y other centers, that
normally g o into y o u r district?
Mr. McClure, I
Mr, Hamtint
think so.
D o I understand that y o u vould favor
not abolishing t h e progressive r a t e i f the maximum were
8 per c e n t ?
Mr, McClure,
Yes.
Mr. Mooney. * f t e r you had reached the maximum,
and t h e b a n k w a n t e d more, w h a t w o u l d y o u d o ?
Mr. Hartford,
L e n d i t t o h i m a t 8 per cent, i f
he h a d the right k i n d o f papere
Mr, McGlure,
I f h e was a n excess borrower a n d
was borrowing money for speculation a n d loaning i t for
that purpose, w e would not loan i t t o him at all.
Mr. Hartford,
Y o u vouldn't loan i t a t all for
speculation?
Mr, McClure, B u t i f he was borrowing i t for
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Federal Reserve Bank of St. Louis
think w e would.
legitimate u s e s I
Dr, Miller.
I s i t a fair-conclusion,
i s i t Mr.
McClure, f r o m your view o f ths conditions i n your State,
that t h e f a r m e r b o r r o w e r
o r some o f the farmer borrowers
are u p against real credit iifficulties?
T h e y a r e market-
t h e y are.
Mr, McClure, i
ing their stock, t h e i r goods a n d their products t o p a y
their i n d e b t e d n e s s
Dr. Miller,
a n d their pastures a r e empty e
I s that true o f others t h a n stock
growers?
Mr, McClure,
farmer
No, I
i s cmtinuing
believe not. I
think t h e
t o raises h i s c r o p s j u s t t h e s a m e ,
district
I have t r a v e l l e d p r o b a b l y 1 , 0 0 0 m i l e s o v e r o u r
in the last f e w weeks a n d farm vork,
o n account o f t h e
fine weather this winter a n d spring, h a s advanced a n d
I believe with the usual acreage.
splendid
T h e crops will be
i n our country a n d all w e need i s a
littie
time i n which t o catch our breath there, s a y until the
15th of July, when liquidation will begin and w e will
be i n good shape f r o m then on. I
think w e have n o t
as hard problems a s some o f the others,
present t i m e p e r h a p s
R i g h t a t the
w e a r e s i t u a t e d badly,
b u t within
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Federal Reserve Bank of St. Louis
three
t o s i x months
w e will improve
s o that
i t will
be
equal t o a n y o f them.
I think that i s all I care t o say, Governor Harding.
Governor Haring.
I f there are no questions, w e will
hear:from district No. 11, Mr. Culbertson o f Texas.
a m f r o m Paris, T e x a s .
Mr, C u l b e r t s o n . I
Coming
as I do, gentlemen, f r o m a small city, located i n an
agricultural district,
i t i s but natural t h a t I
should
absorb some o f the feelings a n d sentiments a n d ideas o f
the farmers w i t h whom I have been brought i n contact,
I have jotted down i n a crude w a y some o f the views
that I
wish t o bring t o you a n d with your indugigence I
Will read them.
There i s imposed o n me the duty of indicating t o you
gentlemen conditions t h a t I feel y o u are i n a great
measure acquainted with.
credits I
T h e matter o f extension o f
take i t i s governed b y the same fundamental
principles a s should exist generally. ‘Somes confuse
credit w i t h capital a n d vhile vithout capital extension o f credit would b e difficult, s u c h extension should
have this limitation: G r e d i t s are granted t o those
who are able t o p a y o r who b y their success, reputation
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Federal Reserve Bank of St. Louis
651
and character should be-able t o pay. T h u s t h e movement
of business g o e s o n smoothly a n d satisfactorily i n normal periods.
It i s hard t o s a y what h a r d a n d fast bound policies
and o r i n c i p l e s s h o u l d b e a p p l i e d
i n such times a s are
and n o w p a s s i n g - - w h a t w o u l d b e a
practical a n d l o g i c a l
application i n normal periods might prove t o b e illogical i n abnormal times a n d i t i s i n times s u c h a s the
latter w e find ourselves,
In relation t o the conditions n o w prevailing i n
the l l t h District i t i s the results o f the same causes
that have b e e n nation-wide.
T h e undue exhilaration o f
abnormal profits . n d expansion i n values l m v e been folloved b y the reactionary effects, “ h i c h i n our case h a s
left u s i n a vorse plight t h a n most districts.
“ 6
spent money for a n d b u g h t c6xtravagantly high-priced
products f r o m without a n a now have t o pay for s u c h
from t h e d e p l e t e d p r o d u c t s f r o m within.
Now L
have s a i d t h a t c r e d i t i s a u e t o t h o s e t h a t
are a b l e t o pay.
I f w e should exhaust o u r resources
in extending credit along those lines solely i feel
that w e Would b e making a mistake.
T h e interpretation
ofwhat may be capital invested in our business may be
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Federal Reserve Bank of St. Louis
subject
t o m a n y changes—--and t h e
certain l i n e s a n d c h a r a c t e r
d u t y we m a y o w e t o
o f business m a y make i t
necessary t o a realignment o f credit yhere s u c h involves t h e basis o f our r e a l t h a n d property--I speak n o w o f t h e f a r m e r s
o f t h e L i t h District.
without h i m and his products business generally sould
mean disaster, a n d while this would apply t o other
districts---my b e l i e f
i s that t h e farmer
o f the 11th
District h a s o r has appeared t o m e t o have suffered
greater contraction i n value o f their products t h a n
anyone e l s e
i n this c o u n t r y .
C o t t o n a
year a f o w a s
worth 4 0 cents a n d i s now 1 0 cents a n d 1 1 cents.
Cotton se@a fas 275.00 per ton and now i s (12.00 and
so o n through the list, s u c h a s rice, cattle, sheep,
hogs, o o l a n d about everything e1s¢ the y produce,
Never v a s h e i n greater n e e d o f assistance t h a n a t
prescnt..
I
n most cases h i s capital
i s brwan a n d
willingness t o produce w i t h the means a t vis command
and that rhich h i s local b a n k c a n afford which a t times
is meager enough.
It i s for these these smaller country member
banks t h a t I
especially appeal---whatever m a y have
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Federal Reserve Bank of St. Louis
, B35
been their deli
mediate past.
e n c i e sr
o shortcomingsn
i the im-
T h e y represent a
class through w h o m
we must l o o k t o fowrour prosperity---shen w e consider
that the crops raised i n this country i n 1919 vere
valued a t 1 6 billions a n d i n 1920 t e n billions, o n s
can conceive w h a t might happen t o our general welfare
if production f r o m the soil b e materially interferred
with.
T e x a s produced o f crops i n 1919 over twelve
hundred millions a n d i n 1920 seven hundred and twentyseven millions,---easily ranking first o f all o u r
States.
T h e ability t o produce i n the l l t h District
so far a s agriculture i s concerned i s the largest asset,
We h a v e b e e n i n similar p l i g h t s l i k e t h i s b e f o r e a n d
have come through a n d w e c a n d o i t again with t h e a i d
of our Pystem i f they will consider the assets good
and t h e a v e r a g e s m a l l f a r m e r ' s p a p e r e l i g i b l e - - - a n d
evince a
willingness
t o cooperate
a s far a s pos-
sible t o t h e e n d o f s u p p l y i n g t h e m i n i m u m w a n t s
of trose engaged i n agriculture, w h e r e b y that class
may b e a b l e t o r e p l e n i s h a n d t o a d d t o t h e p r o s p e r i t y
which i s bound t o come.
Now, a
word o n the inegduality o f valuss, I
want
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Federal Reserve Bank of St. Louis
to s a y that i t has operated,
i t appears t o me, worse
against those living i n our district a n d carrying o n
business there t h a n against t h o s e living i n any other
place. I
might i l l u s t r a t e t h a t b y s a y i n g t h a t i t c o s t s
to bring me from Paris t o washington the value o f three
bales o f l o w grade cotton. I
a m paying a t the rate
of 140 pounds o f cotton f o n m y room a t the hotel.
Z z
had a dinner l a s t night that cost t h e equivalent o f
40 pounds o f cotton, a n d i f the cotton could b e
placed here a s against w h a t I
had t o eat, i t would b e
a glaring example o f the inconsistencies a n d the
disorganized c m d i t i o n s relating t o values. I
presume
all o f you gentlemen f r o m t h e various districts c o n sider y o u are about a s badly o f f a s a n y o f the other
districts,
T h a t i s t r u e w i t h u s o f coursé.e
we F e e l t h a t i n a s m u c h a s w e a r é s t r i c t l y a n agri-
cultural district, relying a s w e d o o n the products
of the soil, t h a t with t h e tremendous deflation that
is taking place i n what w e produce, t h a t i t i s going
to t a k e s o m e t h o u g h t a n d s o m e w i s d o m o n t h e p a r t o f
those higher u p t o help us,
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Federal Reserve Bank of St. Louis
I feel that while there apparently should not b e
justification f o r present values o f tnose articles t h a t
we produce, unfortunately f o r u s w e are n o t able t o
wish that i t were within the p o w e r o f
control t h e m . I
our agricultural interests t o get together,
have b e e n some attempts
a s there
i n times gone by, a n d some efforts
are still being made along that line, t o conserve 5 %
possible w h a t w e produce b y a better means o f distripution. In m y o w n line, c o t t o n s e e d products, there h a s
been the same drastic decline.
we m a n u f a c t u r e
C o t t o n s e e d oil, t h a t
i s c l a i m e d t o b e o n e o f the b e s t e d i b l e
fats produced, a n d Fhich sold a t 20 cents a pound a year
ago, i s selling a t 3-3/4 cents & pound.
O n e c a n hard-
ly blame t h e consumer o r the manufacturer w h o uses this
edible f a t i n the manufacture o f products, f o r not
ing m o r e f o r i t w h e n h e c a n g e t i t a t t h a t price.
have n o C m t r o l o v e r that, n o r have w e a n y control
our r a y material.
vith regard t o the freight rates,
a n instance
to m y mind n o t l o n g a g o with regard t o freights o n
of products, a n d i t was stated that cottonseed cake
s
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Federal Reserve Bank of St. Louis
meal coulda b e sent t o the Gulf port, transported t o
Liverpool a n d from thence t o Boston a t a lower rate t h a n
ths a l l rail rate f r o m the inicrior o f Texas t o Boston,
Those a r e t h e i n f l i c t i o n s t h a t w e a r e i n o u r d i s t r i c t a r e
compelled t o have,
That I
want t o d o gentlemen i s t o endeavor t o indi-
cate t o y o u this, t h a t t h e farmer---and I presume h e i s
not confined t o t h e l i t h district, b u t especially the
farmer o f the l l t h district, s h o u l d have t h e greatest
amount o f consideration Shown t o him. I
is doing the best that h e knows. I
know that h e
know that the country
banks, a s the gentleman from South Carolina stated, are
putting o u t money i n driblets f o r the purpose o f keeping body and soul together until s u c h time,as will come,
when reljef will b e present.
lief
W e Will have some re-
i n the course o f a few months, o u r wheat crop,
which w i l l b e g a r n e r e d
i n June,
I
t promises t h a t t h e r e
will b e perhaps t w e n t y millions o f bushels, f r o m
c e c e will b e released perhaps $20,000,000, which will
be a source o f liquidation, because w e believe t h a t
the farmers generally a r e filled w i t h the i d e a o f
realizing f r o m whatever sources t h e y have a t hand,
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Federal Reserve Bank of St. Louis
Mr. Mooney.
A r e t h e y going to- cut the cotton
with it?
crop i n Texas, o r what are they going t o d o
Mr, C u l b e r t s o n .
There
i s going t o b e a
cut i n the
that w a s
acreage unquestionably, b u t not t o the extent
=
thought
t h e t there will perhaps
-
M o e t
SG» I
think myself
p e r e o nhb 4 %
be a reduction o f twenty t o twenty-five
raise cotton
must b e borne i n mind that Texas i s able t o
think, becheaper than the balance o f the country, w e
there a r e
cause w e Z o not use fertilizers, a n d while
are able t o raise
aistriets a n d c o m m u n i t i e s w h e r e t h e y
essential
other crops, the cotton érop i s the chief and
Ons «
I think that i s all I care t o say.
Governor Harding.
t i e have heard from all t h e
districts except S a n Francisco.
T h e hour i s growing
a n d I suggest
late; i t i s nearly time f o r o u r luncheon
Club
that w e adjourn a n d g o over t o the Metropolitan
to lunch.
A S soon a s luncheon i s finished w e will
near f r o m Mr. Moore o f San Fraicisco there. I
think h e
could prefer i t that way because h e would not be rushed
for time.
H e represents a
which covers a
very important district
large territory.
{Whereupon a t 1.15 o'clock p.m. the Joint Confer-ence adjourned t o the Metropolitan Club f o r luncheon a n d
further procesdings.)
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Federal Reserve Bank of St. Louis
{At the conclusion o f the luncheon s t the Metropolitay Club, t h e C o n f e r e n c e
o f t h e B o a r d o f Governors a n d
Class B Directors o f the Federal Reserve Banks w a s re-
sumed a t the Metropoliten Club as follows):
Governor darding.
G e n t l e m e n , w h e n w e adjourned
this morning t o g o t o luncheon,
Mr. M o o r e o f S a n Francisco.
Y
w e had n o t heard f r o m
e will n o w have t h e pleas-
ure o f h e a r i n g f r o m him.
Mr. Moore.
G o v e r n o r darding a n d gentlemen:
This i s the first gathering t h a t I have ever known o f
mermen who control t h e credit,at which there was o n l y a
chant p r e s e n t a s f a r a s I
know.
T h e y a r e usually there i n
plenty.
First,
b y way o f introduction,
m y name i s Moore, a n d
my p r i n c i p a l o c c u p a t i o n i s w h o l e s a l e d r y - g o o d s b u s i n e s s ,
being t h e President o f Walton M. Moore D r y Goods Company
of San Francisco, a n d engaged i n distributing merchandise
all over the Pacific Slope, embracing a l l o f the Twelfth
District.
As t o t h e c o n d i t i o n o f t h e P a c i f i c C o a s t
Pwealfth District, I
i n the
might s a y that there i s n o business
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Federal Reserve Bank of St. Louis
659
boom there, b u t I b
e
l
it _after-hearing
ea vh et
f r o m some
of the gentlemen this morning that, d u e t o the diversity
of o u r interests,
o u r a g r i c u l t u r a l products,
ag well a s o u r industries, I
a n d s o on,
am rather persuaded t o be-
lieve that o u r condition i s above t h e average,
a s the
picture h a s been drawn this morning.
we h o w e v e r h a v e s o m e v e r y s o r e spots-
i n Que North-
west, Idaho, Kashington, a n d Oregon, which i s the graingrowing section,largely wheat, o u r suffering f r o m frozen
credit, a s i n other wheat-growing sections.
O r e g o n and
Washington, w e s t o f the Cascades, a r e suffering principally, I
believe, because o f the paralysis o f the lumber
industry.
Right here I
would like t o emphasize s o m e o f the
remarks m a d e b y s o m e o f t h e g e n t l e m e n t h i s morning,
as
to the seriousness o f the present freight rate situation.
Toe lumber industry o n the coast i s paralyzed, a n d i n m y
judgment i s going t o continue t o b e paralyzed until that
situation i s relieved.
T h e r e former markets i n the
Middle s e s t a r e closed t o them, a n d they have b e e n compelled t o shut d o w n operations, a n d have a
large stock
of sawed lumber, a s well a s logs, o n hand, a n d i t
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Federal Reserve Bank of St. Louis
presents a
very serious situation,
In Galifornia o u r interests,
diversified.
n o doubt.
as I
said, a r e m o r e
F o r t u n a t e l y f o r us, t h e fruit growers,
which i s perhaps the largest agricultural industry o f
California, r e a l i z e d
prices.
o n last year's c r o p particularly h i g h
T h e losses incident t o time slump which came
later a r e falling u p o n the canners, a n d the customers
of ecanners w h o h a d c o n t r a c t e d f o r goods
a t t h e h i g h prices,
and where t h e y were able to, o r could b e forced t o and
did take t h e goods.
T h e r e i s a large amount o f frozen
credit i n the canned goods o f Galifornia.
The other interests o f magnitude i n California might
~
be spoken o f a s rice, o i l production, t h e cotton i n d u s -
try.
T h e cotton industry has grown t o be quite a n item
in the Southern part o f the State. I
need a d d nothing
to what has been said this morning o f the cotton industry.
T h e s e m e c o n d i t i o n s t h a t o b t a i n i n Texas a n d i n
North Carolina a n d other parts o f the cotton-growing
States
i s applied t o o u r Imperial Valley a n d some sect-
ions o f o u r S a n J o a q u i n Valley, w h e r e s o m e c o t t o n i s
grown.
There is, o f course,
a n increasing amount o f unem-
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Federal Reserve Bank of St. Louis
ployment. I
rather l o o k f o r ~ t h a t - t o c o n t i n u e
t o in-
crease a s the activities o f the shipbuilding yards o n
the coast a r e brought t o a close.
T h e y a r e getting sub-
stantially n o new contracts, a n d generally speaking t h e
contracts t h a t t h e y h a d for ships a r e gradually being
completed.
T h e decreasing activity that has already
taken place i n that industry has released a
good deal o f
labor a n d must release more a s time goes o n e
Something w a s s a i d t h i s m o r n i n g o f t h e p a r t b e i n g
played o r not being played i n this process o f liquidation
through which w e have gone, a n d are going,
tailer.
speak, I
b y the re-
N o w , i n the confidence o f this family, s o t o
want t o say that o f m y o w n knowledge t h a t has
proved a great hindrance.
T h e retailer has n o t been
willing t o accept t h e situation.
H e i s holding o n t o
nis p r i c e s a n d t h e p u b l i c a r e n o t g e t t i n g t h e b e n e f i t
the p r i c e s
t o w h i c h t h e y a r e entitled, m e a s u r e d
yard-stick
o f c o s t o f replacement. I
of
b y the
could c i t e 4
very
apt i l l u s t r a t i o n o f this:
During t h e l a s t year v e sold t o one o f the large d e partment stores o f S a n Francisco a supply o f outing flannel. A
great m a n y o f y o u know what t h e y are. A
very
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Federal Reserve Bank of St. Louis
o
staple c
m
m
lined i it y
on the-dry-goods
42-1/2 c e n t s y a r d ,
v
e sold t h e m a t
a n outrageous p r i c e , b u t o n e t h a t h a d
been forced b y the conditions a n d b y the manufacturer o f
the product.
T h e retailer,
price a t 6 0 cents a
yard.
i n turn, m a d e h i s r e t a i l
A l o n g i n September, although
the manufacturer's price had not been reduced, but i n
anticipation o f it, w e reduced o u r jobbing price o n
those goods t o 2 0 cents a
yard. I
neticed @
buyer f r o m
thig d e p a r t m e n t s t o r e o n t h e f l o o r o f m y s t o r e b u y i n g
some o f this merchandize, a n d h e repeated t h e purchase
within t w o o r t h r e e weeks.
est, a n d I
T
t rather aroused
m y inter-
asked o u r d e p a r t m e n t mean w h o w a s w a i t i n g
on
him what those people were getting for those goods a t
retail.
H e said that h e did n o t know.
find o u t , I
would l i k e t o know.
«ell, I
S e n d somebody
said,
u p there
and find o u t what t h e y are selling those goods for.
I found that they h a d reduced their price t o 5 0 cents
I
a yard. T h e y were only making 150 per cent profite
think that i s a n illustration o f the spirit that i s gov-
erning the retailers generally. Unfortunately, t h e truth
cannot b e made a s public a s i t should be, because, a s our
friend f r o m Memphis d o u b t l e s s k n o w s , M r . Mooney, n e w s -
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Federal Reserve Bank of St. Louis
7
papers, l i k e myself,
645
a r e largely dependent u p o n t h e re-
tailer f o r his livelihood.
further
I will n o t take your time t o undertake t o g o
t o us
into the drawing o f the picture t h a t i s presented
out there. I
Ways
f
think I have covered i t i n a very general
out, a n d
e are crippled, b u t w e are n o t d o w n and
very well
I think that o n the whole o u r people a r e being
cared f o r i n the matter o f credits.
T h e r e a r e sections
about t h e
where t h e banks a r e overloaned a n d have reached
Keserve
limit o f their reasonable loans with t h e Federal
loans t o
Bank, where doubtless t h e y a r e curtailing their
i s not true
deserving customers; b u t I think that that
generally. I
think t h a t t h e s i t u a t i o n i s b e i n g v e r y
who
well cared f o r a n d that n o one, generally speaking,
is deserving o f credit,
i s suffering f o r the leck o f it.
was
I agree v e r y heartily with t h e sentiment which
New York last
expressed b y a business friend o f mine i n
Week, 8,-very large merchant a n d manufacturer.
I n dis-
situacussing t h e situation, e s p e c i a l l y t h e f i n a n c i a l
much
tion, h e said t o me, "Mr. Moore, I never had very
g o into
religion before, b u t I have prought myself t o
ex~
the closet three times e a day and thank G o d for t h e
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Federal Reserve Bank of St. Louis
istence o f the Federal Reserve System."
d e said "Shere
in God's world would w e have b e e n without i t s existence
during this calamity".
me
I also a g r e e w i t h t h e r e m a r x t h a t w a s m a d e t o
just a b o u t a
y e a r a g o during a
b y the president
Orient
made o f t h e
tour w h i c h I
o f t h e B a n k o f Japan,
discussing t h e F e d e r a l k e s e r v e b a n k System,
w h e n ,
i n
h e made t h e
ial
statement that i n his judgment i t had been the finance
Paviour
o f t h e world. I
think t h a t t h a t i s n o exaggera-
tion.
Now, a s t o what may be done b y the Federal Keserve Bank
to assistant commerce a n d industry,
i t seems t o me that
cotton and
they cannot g o out and buy all o f this surplus
om-
wheat a n d other r a w materials o r manufactured c
modities.
T h e liquidation o f this surplus m u s t proceed
t is going t o be painful, but I see
in an orderly way.
I
no way t o avert it.
I t i s i n process, a n d i n @ very
is being accomlarge measure has. Degen accomplished, and
plished every day- I
public a s a
whole,
recall, however, a n d I
t h e people
think t h e
o f this c o u n t r y a s a
whole,
warning
have very clearly i n mind that t h e first serious
which they received o f the coming o f this storm, through
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Federal Reserve Bank of St. Louis
which w e a r e passing,
w a s uttered b y t h e Federal Reserve
a n d definitely
think t h a t f a c t i s v e r y c l e a r l y
Banks. I
impressed
o n the public mind. I
think t h a t t h e p u b l i c
eyes turned this
now has i t s e a r t o the ground, a n d its
from
way, a n d i s waiting f o r some word o f encouragement
this Board.
come w h e n
T a o e y would lize f o r the time t o
some u t t e r a n c e
Board,
b y this Board, s o m e a c t i o n b y this
t o p o f the hill
would indicate t h a t i n its judgment t h e
had b e e n passed;
us;
t h e peak o f the load was behind
a n d some hopes
that there w a s light o n the horizon,
i s not for m e t o says
%hether t h a t time h a s come o r not
here a n d studying this
LOW g e n t l e m e n o f t h e Board, s i t t i n g
i t not only nationsituation f r o m all angles, viewing
o f your wonderful
ally, b u t internationally, w i t h a l l
n o t available t o most o f
sources o f information, t h a t a r e
but I
us, a r e certainly t h e best judges,
a m one o f
can b e consistently done,
those that believe t h a t w h e n i t
gome a c t o r s o m e u t t e r a n c e
that I
o f this board a l o n g t h e lines
received,
nave suggested would b e most gratefully
a n d upon inand i t s psychological effect upon comnerce
dustry would b e very helpful.
o f the Federel
Iam n o t i n favor, a n d a s a Director
G46 Reserve Bank o f ban Frenciseo, I-rewld-not-vote for 4
t
reduction o f the present rate o f rediscount.
maintained a 6 per cent rediscount rate there,
e have
i n the
forced
face o f conditions which i n other districts have
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Federal Reserve Bank of St. Louis
a higher rate. I
voting f o r that. I
have n o cause t o regret
u y action i n
think that i t was justified b y the
conditions t h a t surrounded us, a n d that t h e f a d lities
of the bank have n o t been over-used o r unduly used o r
unfairly u s e d a s a result o f the lower discount rate.
I will be very glad t o see the time come i n some o f
these d i s t r i c t s t h a t a r e m a i n t a i n i n g t h e 7
per cent rate
now, when, i n the judgment of the Board, 8 lowering of
that rate would b e possible.
w
Governor Harding.
discussion.
and I
T h e members
e have had a most interesting
o f t h e Federal Reserve Board,
a m sure t h e Governors o f the Federal Heserve Banks,
will ponder very seriously the statements that have been
made this morning.
Some references h a v e b e e n made t o one factor i n the
more t h a n
situation, w h i c h i t seems t o m e should b e given
passing consideration,
a n d that i s the question o f trans-
portation a n d t r a n s p o r t a t i o n C O S T S »
jection, I
T
f there i s n o ob-
longer
think we might profitably devote a little
time, w h i l e w e a r e a l l h e r e t h i s a f t e r n o o n ,
t o 4 Little
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Federal Reserve Bank of St. Louis
647
informal d i s c u s s i o n
o m this gqusstion~-and s o m e o f t h e
other questions t h a t have been brought o u t i n the statements w h i c h were made this morning; a n d i n order t o get
this r a i l r o a d m a t t e r s q u a r e l y b e f o r e u s , I
a m going t o
take t h e liberty o f calling u p o n a gentleman w h o i s
certainly w e l l p o s t e d
i n all matters p e r t a i n i n g
t o rail-
road business, feeling sure that h e c a n give u s a world
information o n the subject.
I a m going t o ask Mre Johnson o f Philadelphia i f h e
will n o t s p e a k a
few words
t o us.
number c f the i e e e B
Mr. Johns one A
Directors o f
the various banks h a v e expressed a n earnest desire, w h i c h
I a m sure i s i n the heart o f all business m e n o f the
United States, that there should b e a speedy reduction
in freight rates.
u
f course,
w e must a l l recognize t h e
fact that t h e freight r a t e i s a part o f the cost o f
every commodity,
a n d everything w h i c h tends
t o reduce
the cost tends t o bring u s back t o the condition o f liquidation a n d stabilization.
Therefore,
i f this reduction
of freight rates c a n b e accomplished without causing
greeter injury t o the business interests o f the country,
it should be, b y all means, done; b u t l e t u s consider
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Federal Reserve Bank of St. Louis
for a moment just what t h e situation-with relation t o
freight rates is.
For s i x o r seven years prior t o the outbreak o f
the war, o w i n g t o regulation downrards under t h e laws
which h a d been passed b y Congress, freight rates h a d been
constantly reduced, offset a t first b y the strongest
efforts o n the part o f the railroad officials t o create
and enforce economies, b u t little b y little t h e profits
of the railroads h a d been dwindling, t h e productiveness
of r a i l r o a d s e c u r i t i e s h a d b e e n diminished,
e n d w e had
come t o t h e p o i n t w h e r e t h e r e w a s n o n e w r a i l r o a d c o n struction.
V a s t areas
o f o u r c o u n t r y d e m a n d e d ratlrosad
facilities, a n d were n o t o n l y without them, b u t without a n y h o p e o f g e t t i n g t h e m , b e c a u s e t h e i n v e s t o r h a d
no inducement t o embark his money i n the line o f investment which was more a n d more becoming unpopular.
T h a t
was t h e situation which confronted u s when the w a r proke
upon U S »
railways,
A
upon the
n unprecedented d e m a n d w a s m a d e
a n d whether
o r not t h e action o f the Government
of the United States i n taking over the railways was fjustibe
fied, t h e y were taken over-e T h e r e i s a great deal t o
Kipsaid o n both sides o f that question, but, a s Kudyerd
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Federal Reserve Bank of St. Louis
ling says, "that i s anothor storys!
During three years t h e railroads were operated a t
a maximum o f their capacity. HKeplecements w e r e n o t mede.
Tne i n c r e a s e
i n equipment w a s v e r y small.
t h e n the
railroads w e r e turned back t o their owners o n the l s t
day o f wlarch l a s t y e a r t h e y w e r e
and i t r e q u i r e d a l m o s t m i r a c l e s
i n a crippled c o n d i t i o n ,
o n the p a r t o f their
management t o carry t h e freight which over-taxed them.
One o f the results o f this condition was that almost a l l
of the money which h a d been invested i n the railroads
had b e e n i n the shape o f bonds o r short-time notes, a n d
the financial structure o f the railways w a s coming t o a
point w h i c h w a s unsound, b e c a u s e t h e i r c a p i t a l r e q u i r e d
fixed payments w h i c h were n o t dependent u p o n profits.
Then C o n g r e s s p a s s e d t h e T r a n s p o r t a t i o n A c t o f 1920, i n -
tended t o deal with this situation,
i n which i t decreed
that t h e healthful s o v e t i c n o f the railways i s a matter
of N a t i o n a l c o n s e q u e n c e ,
t h a t t h e railways m u s t b e kept
in a condition o f high efficiency, that their liability
to break down a t any time under great stress w a s a menace
to t h e b u s i n e s s
o f t h e country;
t h a t t h e capital i n -
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Federal Reserve Bank of St. Louis
t a reasonable return,
vested i n railways w a s e n t i t l e d o
and f o r t w o fears t h a t r e t u r n w a s f i x e d a t a
minimum o f
5-1/2 p e r cent a n d a maximum o f 6 per cent.
T h e Inter-
state Gommerce Commission, l o y a l t o the mandate o f Congress, i m m e d i a t e l y f i x e d r a t e s w h i c h ,
would y i e l d t h e s t a t u t o r y r e t u r n .
i n their judgment,
T h e y d i d n o t begin
to yield t h a t statutory return during t h e t w o o r three
months i n which t h e maximum tonnage o f freight w a s car~
ried, a n d the Interstate Commerce Commission, a n d t h e
business interests generally, w e r e looking forward t o
the realization o f this return b y reason o f the reduction o f the cost o f labor, t h e reduction i n the cost o f
other elements o f operation, a n d i n more efficient man-
agement.
T h e n came the buyers' strike.
T h e de-
struction o f the markets abroad made destruction o f
the demand f o r our commodities a t home, a n d t h e losses
with which the railroad companies o f the United States
were operating mounted u p bigher a n d higher each month
with t h e diminishing tonnage.
Now t h o s e o f u s w h o b e l i e v e
t h e t there should b e
conlower freight rates should think t h e problem through
structively.
W h a t does this mean? ‘ h e r e a r e these
651
lower freight rates to-come f r o m ?
the average cost ¢
f t the present t i m e
operating t h e Class A
reads i s 9 2
per cent o f their gross revenue - S o m e o f the bestmanaged railroads throughout t h e United States, those
railroads which, during t h e past twenty o r thirty years;
have b e e n Gibraltars o f good management, railroads whose
securities h a v e stood o u t among t h e most desirable f o r
the
investment i n the country, h a v e b e e n operating during
cent.
last two months a t a operating cost o f 112 t o 115 per
under
Now what d o w e mean b y urging lower freight rates
those conditions? ‘ h a t would b e the effect o f lower
freight rates immediately upon business?
At a banquet o f the Railways Association o f the
March Sist
‘United States which w a s held i n New York o n
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Federal Reserve Bank of St. Louis
Mr. Daniel sillard, a s spoxesman f o r the railways, m a d e
this statement:
t h a t h e had taken t h e pains
t o come i n t o
contact w i t h upwards o f twenty o f the largest shippers
over t h e Kaltimore «
this question:
Ohio Railroad a n d had asked t h e m
“ I f every pound o f your commodity w e r e
whatto b e carried free, absolutely without a n y charges
your busiever, wheat effect would i t have u p o n increasing
ness?"
have h a d
i v e r y o n e o f them replied that i t would
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Federal Reserve Bank of St. Louis
no effect w
h
a
t
ae hr t
; the freight been care t veven-had
volume o f the
ried free i t would n o t have increased t h e
freight. T h e r e f o r e ,
i f these statements b y this m a z
country
are true, t h e q u e s t i o n w h i c h c o n f r o n t s t h e
of
is one enormously greater t h a n mere reduction
is, i t i s
freight rates. I m p o r t a n t a s that reduction
only a
greater
small f a c t o r a m o n g f a c t o r s i n f i n i t e l y
in
our present economic condition.
Chairman C l a r k
yesterday,
o f the Interstate Gommerce Commission
i n a conversation,
s t a t e d that a n y reduction
precedent t o a
of freight rates made a t this time,
operation, w i l l
reduction i n wages a n d i n other costs o f
cent o f the railimmediately plunge f r o m 2 0 t o 3 0 per
rosds o f the United states i n t o pankruptcy-
N o w those
o f lower
of us who are talking about the desirability
freight rates d o not want that.
w
e have t o think o f
the point o f
this question o f freight rates, n o t from
like t o have
view o f our o w n interests; t h e t w e would
p u t f r o m the
our particular freight carried cheaper,
point o f v i e w o f t h e i n t e r e s t
o f t h e whole countrys
t h e interest
the interests o f t h e railroads themselves,
the railof that vast army o f industry which supplies
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Federal Reserve Bank of St. Louis
roads, i n d u s t r i e s w h i c h a r e c o m p u t e d _ t o e
v
a
h a s large
an invested capital a s the railroads themselves, a n d
ag m a n y w o r k m e n e m p l o y e d
operating t h e railroads.
i n them a s a r e employed
i n
I n other words, f o r every m a n
on the firing-line operating the railroad there I s
another m a n b a c k i n t h e t r e n c h e s w h o i s s u p p l y i n g t h e
material necessary f o r h i m t o carry o n his work. T h o s e
two million m e n who, throughout t h e United States, a r e
engaged normally i n supplying t h e materials which a r e
necessary f o r t h e o p e r a t i o n o f those r a i l r o a d s a r e t o d a y
80 per cent idle,
There i s n o factor i n the prosperity o f the country
which h a s greater influence t h a n activity a n d pros perity
of the railway supply interests.
I t has been shown
that t h e p r o s p e r i t y o f t h e country,
t h e prosperity o f
the railways, t h e prosperity o f the railwey supply i n dustry, a l l g o hand-in-hand, t h a t they a r e interdependent.
Now w h e n w e talk about lover freight rates,
of
course w e predicate it, first o f all, u p o n t h e knowledge
and belief t h a t t h e railroad labor i s commanding a
larger share i n the revenw d e r i v e d f r o m railroad oper-
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Federal Reserve Bank of St. Louis
‘654
ation t h a n i t i s entitled t o , a n d that condition i s one
which c r i e s a l o u d f o r rectification,
a n d o n e which I
be-
lieve will be rectified i n en able and intelligente way
and a s speedily a s i t can b e done b y the Railway Board
in Chicago, w i t h the powerful influence i n the right d i rection o f the administration i n tashington.
B u t when v e want lower freight
course i s fundamental.
rates,
That of
d o w e want t o s a y that the capital which i s in-
vested i n the railways i s for a longer period t o g o without its d u e return?
D
o w e mean t o s a y that w e want
to postpone t h e d a y when the railroads w i l l b e rehabilitated t o the point o f preparedness f o r the avalanche o f
freight which,
i f history repeats itself,
a s i t always
does, w i l l come u p o n them, sooner o r later, a n d will find
them unprepared ? W h e r e a r e w e going t o get the reduction o f freight rates? U n t i l w e c a n see, a s business
men, realizing the business situation, where w e can legitimately g e t that economy, without destroying t h e development o f the Par lpowan, w h i c h t h e ovantey needs s o badly,
without taking away t h e ability t o prepare themselves
for the future, a n d when the whole liquidation o f labor
and prices andmaterials have gone hand-in-hand t o the
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Federal Reserve Bank of St. Louis
point that, w i t h t h e r e s t o r a t i o n
o f a b a n d o n e d traffic,
then a n d t h e n o n l y c a n w e h o p e f o r a
substantial r e d u c t -
ion o f railroad freight rates.
Governor Harding. G o v e r n o r Strong, w i l i y o u say
something o n this subject?
Governor Strong. I
feel generally that the problem
of dealing w i t h the railroad situation,
a s Mr. Johnson
has expressed i t , i s simply o n e part o f the vast National
problem o f e c o n o m y a n d r e a d j u s t m e n t t h a t i s t a k i n g p l a c e
in general a n d must work itself out. t i r . Johnson, I
think, v e r y skilfully l e f t t o the very lest word t h e k e y
to the whole situation i n the problem o f railroad freight
rates particularly, a n d that is, h o w much i s labor going
to get.
T h i s Conference, w h i c h i s the first that I have
attended f o r s o m e time, m a k e s s o m e v e r y s t r o n g i m p r e s -
sions u p o n m y mind about t h e operation o f the Federal
Neserve System.
A t least, i t certainly emphasizes i m -
pressions w h i c h I
have f e l t f o r s o m e y e a r s p a s t .
you w i l l p e r m i t m e , I
will e x p r e s s t h e m r a t h e r
i f
i n the
form o f certain suggestions a s t o what w e might do.
The f i r s t o u t s t a n d i n g i m p r e s s i o n i s that, w h i l e
these Federal neserve Banks a r e twelve banks, called
Regional Banks,
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Federal Reserve Bank of St. Louis
i t i s o n e system that w e are dealing with;
it is a nation-wide
we will b e making
s i t u a t i odnnthat
,a
a fundamental a n d possibly a vital mistake t o think that
we have o n l y o n e situation t o deal with i n New York, a n d
only o n e i n California o r Dallas. I
way about t h e system, a n d certainly,
never have felt that
i f experience w e r e
necessary t o demonstrate t h a t w e were interdependent,
that i s , d e p e n d e n t u p o n e a c h other, w h a t w e h a v e h e a r d
at this meeting m ould
b e convincing enough.
In the course o f our discussions
i n #ashington with
Governor Harding abouta y e a r and 3 half ‘ago, some statements w e r e m a d e
i n regard
t o t h e policy, w h i c h I
think
was finally reduced t o two words i n description, “direct
action", and I would like t o say just a few words about
thate
Numerous expressions h a v e b e e n made b y Governors o f
Federal Keserve Banks a n d b y Class B
Directors a t this
meeting t h a t w o u l d l e a d o n e t o suppose t h a t i n c e r t a i n
instances t h e N e w York banks h a v e brought pressure t o
bear upon their correspondents
o r borrowers
i n other
inparts o f the country, a n d that i t has resulted i n
creasing p r e s s u r e
i n other Reserve Histricts.
w
e have
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Federal Reserve Bank of St. Louis
657
been guilty o f making t
h e
bemm e York,
er
a t - k sri na New
cause m a n y banks i n New Y o r k claim that that pressure
in other parts o f the country has h a d a similar reaction
with u s e I
had a
have a stronger impression today t h a n I
half a g o t h a t t h e s o c a l l e d p o l i c y o f
year o n d a
direction action,
i f i t i s applied t o reducing bank loans,
is rather similar i n our instance t o a dozen m e n chasing
a rat around throvgh t h e house.
F i r s t h e i s i n one hole
and then another, b u t h e i s there i n the house a l l the
timee
T h e t i m e f o r direct action,
upon the banks,
f o r direct pressure
t o control their policy i n loaning money
to their customers w a s w h e n this damage w a s being done;
when t h e expansion was taking place. I
a m inclined t o
feel, a f t e r what h a s been expressed a t this meeting,
that t h e time f o r that kind o f pressure i s passed.
is o n e o f t h e reasons,
i f y o u please,
why I
I t
personally
felt that this progressive r a t e w a s a n unfortunate plan.
It has a n unfortunate effect o f making t h e needy bank,
which i s doing i t s best t o take care o f its customers,
pay t h e highest rate, sometimes a
the bank.
I t certainly c o s t s 4
rate which i s serious t o
great d e a l o f t h e p r o f i t
which w a s made o n the l o a n t o its customer, a n d consider-
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Federal Reserve Bank of St. Louis
658
able i n addition.
B u t t h e r e is. another d e v e l o p m e n t
that i s liable t o take place j u s t n o w that I
saould b e dealt with.
think
y e are getting statements n o w
country.
of conditions o f borrowers throughout t h e
- S o m e of
They have b e e n coming i n for three months
a n d i n some
them show conditions t h a t a r e difficult,
instances desperate.
O
n a very narrow a n d technical
justio the Federal Reserve A c t i t might
constructionf
fy, i n ordinary times, a
Federal Keserve B a n k i n dec lining
eligible.
the paper o n the ground that 4 4 was n o longer
should
I think the time i s past when a severe formula
be a p p l i e d a s a
t e s t o f eligibiiity.-
I n other y a d a
I
bo use a statement which h a s become axiomatic
think i n
me, a s I was about
panking, w h i c h Dr. Miller quoted t o
English financier
to quote i t t o him, i n 1875 a great
banking b y genpractically changed the idea o f English
eralities which h e made.
H e said that i n times o f
freely b u t a t
strain the central b a n k must l o a n money
a high rate.
t h e opera~
T h e a t policy h e s characterized
o r more,
tions o f the bank o f #ngland f o r forty years
since h e m a d e t h a t statement. I
think t h a t s h o u l d b e
Banks.
the p o l i c y o f t h e F e d e r a l K e s e r v e
N o w there seems
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Federal Reserve Bank of St. Louis
to b e a n i d e a - e x p r e s s e d e v e r y n o w a n d then--wWe h e a r d
it yesterday--that
i n some w a y o r other lower rates w i l l
do some g o o d i n this situation. I
might, sentimontally, b u t I
admit thas they
a m wondering whether any-
one believes t h a t a greater volume o f credit i n the
United States will lead t o 4 more promptcorsumption
shelves.
of this surplus o f goods t h a t seems t o b e o n the
I doubt i f i t would.
in N e w York,
According
t o a l l o f m y expertence
i f w e haul down the flag which w a s p u t u p
the
eighteen months ago, t h e fleg o f warning, a n d teil
g o ahead,
country n o w that everything i s all right, t o
I a m afraid t h a t t h e f i r s t t o t a k e a d v a n t a g e
o f the spirit
borrowwhich w e w o u l d i n d u c e w o u l d n o t b e t h e s e n e e d y
ers, b u t
i t e e
b e those wise m e n possibly, m e n o f
cheap stocks,
foresight, w i t h credit, w h o would b u y first
w e might a s
possibly, a n d then cheap commodities, a n d
we
a result o f such warning induce the very thing that
o f credit
did not want, w h i c h i s the creation o f a mass
than
which would g o t o the speculative markets rather
to take care especially o f these needy farmers,
order t o p e r m i t t h e m t o m a k e a
On the whole, I
in
new crope
think that that policy that was s o
well enunciated b y Mr. Salter Bagchot should continue
for a while i n the Federal Reserve System; t h a t w e should
charge a
r e a s o n a b l y h i g h r a t e f o r o u r credits,
but
lend i t freely where i t i s needed.
The last thing that w e should d o now under present
level
conditions w i t h these prices marked d o w n t o the
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Federal Reserve Bank of St. Louis
t o those
that t h e y are--the l a s t thing that W e should s a y
banks w h o a r e carrying t h e producers o f cotton, wheat,
copper, o i l , w o o l , a n d h i d e s - - c o m m o d i t i e s
o f t h a t char-~
acter-~-"pay u p your loans".
of
I happen to have been brought u p in the neighborhood
in
a stock exchange, n o t that I ever h a d a n y experience
the exchange. I
life. b u t I
never bought s t o c k o n a margin i n m y
did happen t o remember a n experience o n the
stock exchange--and I
think Mr. Johnson will remember i t
well--that,expressed i n terms o f stock exchange, almost identical t o what i s happening i n commodities
of
We woke u p one morning, M a y 13th, 1901, conscious
Pacific
the fact that someone h a d cornered Northern
12 or
stock, and from 10 o'clock i n the morning until
down s o
1 o'clock that day the values o f stocks went
books, at:
fast that b y 1 o'clock sall Street, o n the
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Federal Reserve Bank of St. Louis
the q u o t a t i o n s
o f t h a t hour, W a s w i p e d o u t .
B r o k e r s
was loaned
could n o longer respond t o margins a n d money
at 1 0 0 p e r c e n t o n t h e board.
T h e word was passed
A t would
around--it came f r o m Mr. Morgan's G f ice--that
be well i f the banks n o t only d i d n o t call
e i r loans;
but were n o t t o o exacting about margins +,
T h e institu-
tion w i t h w h i c h I
was c o n n e c t e d a r r a n g e d
t o participate
the
4,000,000 o r s o i n a loan fund. B e f o r e 3 o'clock
street w a s solvent.
the board,
Y o u could hardly l o a n money o n
a n d what h a d happened w a s t h a t t h e quotation
had been met.
I f these people h a d been required t o
have been
sell their stocks a t 1 o'clock t h e y would
wiped out.
fortunes
B y 5 o'clock some m e n would have made
have b e e n
out o f the occurrence, b u t t h e street would
d i d t w o things,
wiped out. F o r t u n a t e l y t h e wise m e n
which I
would advocate f o r t h e Federal Neserve System
in commodities,
w h e r e t h e process
4 s more deliberate
I
and t h e results w i l l n o t s h o w s c promptly.
say;
loans a n d
let u s g o a little s l o w about calling these
today a r e
requiring people t o register losses which
only quotations.
be h e l p f u l
F u r t h e r t h a n that, I
think i t might
need
t o let them have s a e t h i n g w h e n they
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Federal Reserve Bank of St. Louis
it, b u t L would n o t l e t them have i t a t 6 per cent, b e cause t h e right fellows w i l l n o t get it.
Governor Harding.
D o e s anyone e l s e wish t o continue
discussion?
Mre Moore. I
was very greatly interested i n the
remarks o f sir. Jonnson o n the subject o f raiiroad rates,
and quite heartily agree with everything that h e said.
However, t h e misfortunate f a c t i s that t h e railroads
the
ave being operatedby a rigid rule. I
owners,
t h e r e a l cperators
think that
e n d
o f the Northern Pacific Rail-
road a n d the Great Northern Railroad running i n t o ‘ashington a n d Oregon, w h i c h have derived great revenus heretofore f r o m carrying lumber f r o m these States t o the
Middle West, o r i f the managers o f the Southern Pacific,
the western Pacific,
o r the Atchison a n d t h e other
railroads running i n t o Scuthern California w h o have
derived g r e a t r e v e n u e f r o m t h e c a r r y i n g
o f citrus f r u i t s
to the Atlantic Sesboard, were allowed t o meke their own
rates that would f i t t h e occasion, t h a t lemons would
not be rotting o n the ground i n Southern California
and thet some o f the lumber mills o f Oregon and iashington
might b e operating. I
think t h a t i s t h e g r e a t m i s f o r t u n e
665
of the situation.
G e r t a i n l y t h e railroads w i t h empty
and
cars s t a n d i n g i d l e , w i t h t h e t r a c k s
i n existence,
with a l l o f t h e e q u i p m e n t n e c e s s a r y
t o m o v e t h e lumber,
could afford t o move i t under existing conditions
at a lower rate t h a n has b e e n prescribed,for t h e y would
be g e t t i n g s o m e r e v e n u e w h e r e n o w t h e y a r e g e t t i n g none.
I think that i f some principle could b e applied t o
railroad rates t h a t i t would b e most helpful t o this
country under t h e present circumstances.
In making this statement, I
am fully aware o f ths
handicaps t h a t e x i s t i n t h e m a n a g e m e n t
reason o f G o v e r n m e n t c o n t r o l
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Federal Reserve Bank of St. Louis
Mr. Mooney.
luncheon,
I
o f railroads
by
o f rates»
s i t the intention, a f t e r this
t o continue t h e discussion
i n the former
meeting-place?
Governor Harding.
N o . I
think not, Mr. Mooney.
These gentlemen have left their business a n d have
come a
long weyse
S o m e o f them are anxious t o get
pack o n e a r l y trains,
a n d unless t h e y w i s h t o stay o f
their o w n accord, t h e Board will n o t a s k them t o give
up any more o f their time after leaving this room.
My. Mooney.
T h e r e i s a little matter that 1
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Federal Reserve Bank of St. Louis
664
would like t o raise again with this Board, somewhat
suggested b y the very able remarks o f the gentleman f r o m
New York, getting back t o this freight rate business
just f o r a
moment.
It w o u l d b e t h e g r e a t e s t c a l a m i t y t h a t c o u l d h a p p e n
to this country if, o n top o f all o u r troubles, t h e
railroads
would follow
t h e course
o f the street-car
Companies, t h e gas companies, a n d t h e city public utilities generally,
o f which most o f them are n o w i n the
hands o f a receiver, o r just waiting for somebody t o
make a claim.
I
t would b e a great catastrophe i f
these roads should g o into t h e hands o f a receiver.
You gentlemen remember 1 8 9 3 a n d 1394 a n d 1395, those
years, w h e n m a n y o f t h e r o a d s w e n t i n t o t h e h a n d s
receiver, a n d how badly they were t h e n operated.
of a
I t
seems t o me that w e have got t o approach this cut i n
freight rates from a different angle.
T h e railroads
must g o on. T h e y ought t o be kept out o f receiverships,
even i f the Government would have t o give t h e m further
privileges, extensions o f credit,
that. I
o r something l i k e
dislixe t o say "subsidized", though, because i n
my part o f the country I
have already committed great
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Federal Reserve Bank of St. Louis
heresy t o the party t h a t I-am a
member -of b y announc-
ing myself several years a g o i n favor o f subsidizing
incurred t h e wrath o f a lot o f m y Democratic
ships. I
friends f o r advocating that, b u t i t seems t o m e that
this freight rate matter m u s t b e approached i n this
way: t h e railroads now, e v e n a t these rates, s o m e o f
o get i n a dollar.
them i t i s costing # 1 . 1 0 t
P a r t
of t h e s y s t e m o f t h e S o u t h e r n R a i l w a y i s u n d e r g o i n g
that experience now, a t the p e a k o f the rates.
as I
A l s o ,
understand i t , e v e n w h e n t h e r e w a s t r e m e n d o u s t o n -
nage, t h e present rates were n o t yielding t h e income
necessary
t o p a y t h e Government guarantee a n d operating
expenses, t a x e s a n d interest.
than mere wages.
N o w ,
i t runs further
T h e percentageé o f wages a s t o operat-
b e cut.
ing costs i s excessively h i g h a n d ought t o
hen I
wes a
boy d o w n i n the country 4
long time ago,
for the
when things g o t slack, w e got c u t cross ties
railroads.
T h e railroads
i n those days p a i d 4 0 cents
class cross
for a cross t i e a n d 2 0 cents f o r a second
tie, a n d usually t h e m a n who cut ties made himself
solid with the railroad b y docking about half o f the
f r o m $1.40 t o
ties. N o w a d a y s t h e railroads a r e paying
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Federal Reserve Bank of St. Louis
666
gle75 f o r a cross tie; whereas i n 1914,
i n m y part o f
the country, t h e y were paying f r o m 9 0 cents t o pile55
for a ton o f mine-run coal, t h e railroads a r e n o w paying
S o there are other elements that enter
2.50 and 3.00.
into this cost o f operation besides labor.
It seems t o m e that w e approach t h a t problem, keeping
the labor problem uppermost i n our minds.
are t w o m e n b e h i n d t h e f i r i n g l i n e ,
a s wr. J o h n s o n says,
furnishing supplies t o the railroads,
those men are idle. I
go any higher,
N o w , i f there
8 0 per cent o f
doubt i f the freight rates can
s o unisss w e are going i n t o a general par-
e
o
d come, i t looks t o me
alysis when this r e a d j u s t m e n t s
as i f the railroad people might l o o k weel into t h e cost
of other things.
w
e cannot expect a n y cheaper freight
the hands
rates i f these railroads a r e t o stay o u t o f
of a receiver, under present conditions.
The d i f f i c u l t y w i t h t h e l e b o r s i t u a t i o n ,
o f course,
is peculiar i n that--I think labor's greatest offense
is
is not now i n the wage that they receive, b u t i t
in t h e o u t p u t o f t h e labor.
T
t takes t w o o r t h r e e m e n
to d o a job which i n 1914 o r 1912 o n e m a n did.
T h e |
men i n shifts
employment o n the part o f the railroads o f
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Federal Reserve Bank of St. Louis
where t h r e e
o r four m e n n o w d o a
day's w o r k ,
‘when I
three m e n u s e d t o d o t h e s a m e work.
boy I
was a
two or
was a
telegraph operator working f o r t h e Louis-
ville « Nashville kailroad, w h i c h was made 4 great system
by Mr. Murphy, p r o b a b l y t h e g r e a t e s t r a i l r o a d m a n o f
his day, w h o has j u s t recently died.
w e ran a little railway station.
of u s there o n thet job.
It was a
junction point. I
man worked i n the daytime »
worked nights a n d t h e other
k e had a negro there w h o
transferred s o m e baggage f o r us.
a month.
T h e r e were t w o
W e gave h i m g5-00
H e lived with his
T h a t was a l l h e wanted.
mammy, a n d lived very well, too.
B u t there were t w o
of u s there a n d w e worked twelve hours a
not kill me. I
I t did
a m 5 5 years o l d and still living.
did n o t kill m y friend.
ame
day.
I t
d e i s more fortunate t h a n IT
n e i s worth t w o o r three million dollars a n d
lives i n Chicago;
a t least, h e was worth that much
before the deflation set in, but I think he is only
deflatsd t o a million.
I was b a c k home a few weeks a g o a t the o l d station
and there a r e three m e n there n o w operating t h e little
station. I
got #35.00.a month. I
was v e r y well paid.
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Federal Reserve Bank of St. Louis
I paid ~6.00 a month f o r m y board. I
paid i t t o
mother, a n d s h e was n o t very execting, y o u know.
find t h a t t h e r e t h r e e m e n o p e r a t i n g t h a t station,
the b o y w h o was formerly hustling t h e baggage a n d
~5.00 a month, I
found o u t that there w a s a white
who h a d r e t i r e d f r o m h i s f a r m ;
h e rented h i s f a r m
he toox this j o b a g transfer agent, a n d under t h e
lations n o w h e i s drawing ~125.00 a month.
We operated that station f o r g100.00 a
it costs 4 3 0 . 0 0 a
S o , once
month a n d n o w
month t o operate t h e same station.
Now that i s where labor i s doing its damage.
hurting this country.
It i s the newspapers.
I t is
I t i s not only i n the railroads.
I
t i s i n everything t h a t labor
itself i n the last t w o years h e s b e e n doing this stunt.
Coming b a c k t o the other thing, t h i s q u e s t i o n I
want t o raise about this progressive rate--I know o f
one o r two instances i n our particular district, with
the bank.
A s y o u know, t h e rate i s fixed, giving t o
the bank a loan o r rediscount credit o r privilege
based upon certain factors, o n e o f those factors being
the amount o f deposit that bank has.
resulted
i n o n e o r t w o Cases.
N o w this has
T h e bank was within its
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Federal Reserve Bank of St. Louis
669
loan.
I t owed the Federal Keserve B a n k ~200,000--it
was a
small bank.
deposits
N o w , because o f the withdrawal o f
i n that bank, t h e bank could n o t sell the
cotton o n w h i c h t h e l o a n w a s pledged,
a n d o u r people
in St. Louis d i d not g o out a n d g e t it, y o u know, a n d
make t h e m pay.
T o e result o f the falline o f f o f the
bank deposits h a s p u t that loan, which i s the same
loan,
o n renewal--has
ive r a t e class.
put a
p a r t o f i t i n t h e progress-
I n o t h e r words, t h e r e i s a
bank w h o
hes borrowed »200,000 a t 6 per cent, a n d o n the renewal
of that loan, o n part o f it, because h i s line o f credit
has b e e n r e d u c e d b y r e a s o n o f t h e d e c l i n e
is p a y i n g m o r e t h a n 6
progressive class.
rate that I
p e r cent.
i n his deposits,
P a r t o f i t i s i n the
T h e difficulty about that progressive
find a s a n editor i s that i t i s ¢ mtinually
advertised, sometimes falsely, s e n u n t o u r system.
[ I
really think t h e workings o f the rate generally i n
St.Louis h a v e b e e n good, b u t i t does s e e m t o m e that
if a going bank has some frozen loans, w e know that
sometime,
i f the country does n o t collapse a n d the
world does n o t collapse, t h o s e loans will thaw, e n d
it does s e e m t o me that when that bank gets t o the
point where t h e progressions r u n s i n t o 1 0 per cent o r
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Federal Reserve Bank of St. Louis
or
more, then that bank may be. put into @ special class,
neces-~
something l i k e that. A d d i t i o n a l loans absolutely
sary t o t h e s a f e t y o f t h a t bank,
a n d f o r n o purpose
of
amount--to have
expansion, b u t o n l y t o carry o n the same
cent o r 9
the m a x i m u m o f t h a t r a t e a t 1 0 p e r
and t h e n a f t e r t h a t ,
per cent,
i f t h e b a n k h a s u p t o t h a t point,
rate might n o t b e
if i t were safely solvent, t h a t t h e
bank be set
increased over 1 0 per cent; but let that
in a class
treatment,
b y itself a n d b e given special
or perheps a
parent
guardianship o n the part o f the
has b e e n suggested
pank itself. S o m e t h i n g o f that sort
to me and I have thought o f it- f
believe the Federal
by 4
Reserve S y s t e m i s more generally misunderstood
misrepresented,
great many peoples, a n d more generally
until a
finelly t h e :
year o r t w o ago, u n t i l i t b e c a m e
only refuge, t h a n a n y other system,
o r more t h a n y o u men
I
here, w h o are high i n position, realize.e
de bhetieve
a little more
that i f that matter could b e looked into
b e done that
‘carefully possibly something else might
the same time
would a c c o m p l i s h t h e s a m e e n d a n d a t
different.
have t h e public viewpoint o f i t a little
Dr. Miller.
G o v e r n o r Harding, I
would l i k e t o s a y
a f e w words.
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Federal Reserve Bank of St. Louis
I would just_like -to- take one o r two sspects o f
b u t which I
tae situation here t h a t are pretty broad
think v e r y important,
a s bearing u p o n t h e aifficulties
of
the present situation, a n d upon the likelihood that
o f the
no short o r easy w a y i s going t o b e found o u t
situation.
lire Coker this morning,
s p o k e o f the fact that
o n e o f the
the deflation h a d been very unequal -~-That i s
striking c h a r a c t e r i s t i c s o f the liquidation that
set i n last autumn.
how
T t i s a question i n m y mind
System i s
largely t h e operation o f the Federal Reserve
i s due t o causes
responsible f o r that a n d h o w largely i t
Federal Neserve
that reach f a r beyond, n o t o n l y the
System, b u t even o u r o w n National frontiners.
very
In past times, w h e n that was t h e condition
generally, t h e expansion o f industry reflected,
2s
credit,
it usually was, i n corresponding expansion o f
with a
the thing culminated i n @ sharp crisis, usually
panic.
T h e colapse w a s pretty complete a r d widespread.
p y different
There w a s little o r n o escape f r o m i t
sections
o f t h e country,
o r b y different industries.
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Federal Reserve Bank of St. Louis
672
All participated i n the common let, a n d went through with
tt, with a l l o f the wreckage a n d havoc t h a t i t involved,
in about t h e same period o f time.
The Federal “eserve System has served a s a buffer
egainst that process t o a very large extent, b u t i t has
not b e e n a b l e t o d o i t w h e r e v e r t h e c a u s e s
o f tnois d e f l a -
tion have originated i n world-wide conditions.
T a o re=
sult i s that i n sections o f the country that a r e mainly
concerned w i t h t h e p r o d u c i n g o f f a r m products,
a n d with
manufacturers w h o are mainly consumers o f farm production, t h e f a r m products h a s sustained t h e brunt o f
the liquidation that remains today, a n d those t h a t consume t h e materials t h a t c o m e f r o m u n d e r t h e earth, i n -
stead o f from the t o p o f the earth, h a v e b e e n i n a
position,
nity.
S
u p t o the present time, o f comperative immuo w e f i n d t h a t t h e liquidation,
w h e n y o u look
over t h e c o u n t r y a t large, h a s b e e n e x t r e m e l y u s e v e n ,
even a s anongst t h e agricultural commodities
i t has b e e n
unevene T h a o s e that a r e dependent o n the foreign market
have b e e n the most seriously hit.
most s t r i k i n g e x a m p l e
example.
o f that.
C o t t o n i s the
l e a t h e r i s another
C o t t o n products i s another.
Cereals,
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Federal Reserve Bank of St. Louis
which f i n d t h e i r p r e p o n d e r a t i n g m a r k e t
country, w h i l e t h e y h a v e s u s t a i n e d a
i n their o w s
severe l o s s , h a v e ~
not h e d t o f a c e a n y w h e r e n e a r t h e s a m e d e c l i n e s t h a t
yool a n d c o t t o n a n d c o m m o d i t i e s
o f t h a t kind, t h a t h a v e
to look for s considerable p a r t o f their sales abroad.
So that while w e heve h a d cancellation o f about
three fourths o f the advancing prices since w e went i n t o
the w a r i n wholesale c o m m o d i t i e s g e n e r a l l y ,
it has been f a r greater,
i n some cases
i n the case o f many materials
it has been f e r less.
Another v n e q u a l c h a r a c t e r @
the d e f l a t i o n , a s p o i n t e d
to b y Mr. Moore, i s something which i s very much i n evidence,
a n d t o m y mind presents j u s t n o w t h e m o s t sensitive
point o f all.
liquidation
h
i
l
e there has been very Steg t a e s i e
i n the wholesale trades
o f t h e country, t h e r e
has n o t b e e n c o m m e n s u r a t e l i q u i d a t i o n
How t o bring that about,
i n retail trades.
i f i t c a n b e brought about
through a n y concerted action, I
should s a y was immediately
was o n e o f t h e m a t i m p o r t a n t p r o b l e m s
t o which business
ought t o address their attention i n this country a t the
present t i m e .
U n t i l y o u have g o t liquidation o f t h e
retail m a r k e t y o u c a n n e v e r e x p e c t a n y v e r y f a r - r e a c h i n g
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Federal Reserve Bank of St. Louis
674
liquidation o f “labor, a n d u n t i l t h e r e is- liquidation
of labor, t h e r e n e v e r w i l l b e r e s t o r a t i o n
o r approach
t o
the condition o f normal health.
of
I think t h i s i s t h e f i r s t t i m e i n t h e h i s t o r y
great c a p i t a l i s m i n bus iness i n d u s t r i e s
o f t h i s country ,
where labor has b e e n the last thing t o b e liquidated,
if that phrase i s permissible.
G o v e r n o r Strong h a s
quoted t h e famous m a x i m o f salter Bagchote
I
t was
Bagohot
an almost equally famous m a x i m i n the days w h e n
was writing that o n a rising movement wages are the last
thing t o raise and the first thing t o fall. T h a t i s
not i n evidence a t the present time.
Governor Strong.
Dr. Miller.
L a b o r i s better organized now.
T h a t i s i t exactly» L a b o r i s better
timidity, o r
organized now. T h e r e i s a n attitude o f
of
at any rate a n attitude o f apprehension o n the part
the country a t large toward the mind o f the laboring mane
t o b e some
we are hoping against hope thet there i s going
worked
method b y which a n economic adjustment c a n b e
out u p o n a
basis t h a t w i l l o n c e m o r e m a k e i t possible
its
for business t o resume i t s ordinary course w i t h
ordinary profits, without a revision o f wages,
i n ac-
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cordance w i t h t h e n e w conditions.
Wow, t o relate these things t o one another; I
see
no prospect f o r success o f any drive that might b e organized t o effect a
reduction o f wages until y o u c a n point
to the fact that t h e cost o f living has declined t o a
degree t h a t clearly indicates t h a t t h e laborer has arrogated t o himself theposition o f privilege i n the community; t h a t h e d e s n o t propose t o accept his part o f the
set-back; b u t ,
o n t h e o t h e r hand,
a s long a s your re-
tail prices a r e maintained a t something o f a n artificial level, a n d a t the present moment t h e y are a consider-~
able d i s t a n c e a b o v e t h e w h o l e s a l e p r i c e a n d t h e m a n u f acturing cost, l a b o r i s i n a
very s e c u r e , p r o t e c t e d a n d i n -
trenched p o s i t i o n t o resist a n y m o v e m e n t
wages.
t o reduce
S o that, i n my analysis o f the situation, ‘
e improvement. I
see n o p r o s p e c t ’ f
see n o prospect o f
public opinion o r business opinion getting i n t o a psychological p o s i t i o n w h e r e
i t is i n a
position t o point t o
labor a s having i t s share o f responsibility i n the re-
turn t o good conditions until w e bring about more liquidation i n the retail markets t h a n w e have today»
Now, I
have w o n d e r e d a n d p u z z l e d o v e r t h e facit t h a t
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liquidation i n the retail markets goes o n slowly. T h e r e
are s o m e o b v i o u s r e a s o n s
to a
competent p a r t y ,
b u t they
do not a n d cannot have enough o f i t t o satisfy him.
For o n e reason,
o f course, t h e retailer deals with a
body o f buyers w h o a r e u n o r g a n i z e d ,
who a r e m o r e o r l e s s t h e v i c t i m s
w h o a r e inexpert,
o f circumstances,
who
are t h e victims o f impressions, w h o are t h e victims o f
advertisements, a n d s o on. E v e r y retail dealer w h o has
@ thousand customers i s , t o the extent o f those thousand
customers, a
combination f o r himself,
i n a community t h a t
is served b y a few predominant retail dealers,
i f there
is a normal understanding a s t o the program t o b e followed,
and t h e y r e p r e s e n t a
type o f trust infinitely stronger
than most o f the trusts t h a t g o b y the name o f trusts i n
the a p p r e h e n s i o n
o f t h e ordinary layman.
accounts f o r i t i n part.
buyer.
That, I
think,
T h e retail buyer i s a strong
s e i s able t o present h i s c l a i m a s against t h e
wholesaler,
a n d h e c a n force a
r e v i s i o n o f prices,
and
the wholesaler c a n force i t back u p o n the manufacturer;
but t h e r e t a i l e r c o n f r o n t s t h e customer,
a n d a s against t h e
customer h e usually has t h e trump cards i n his hand.
Now, another reason,¢cE think, -that there h a s b e e n
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i es
relatively s l o w p r o g r e s s . o f l i g u i d e t i o n
trade i s the fact that the
prosperous
i n the retail
ash extremely
r e t a i l e ervbeen
i n t h e p a s t f e w years,
a n d they are i n a
position o f g r e a t e r i n d e p e n d e n c e t h a n t h e y p e r h a p s e v e r
have been i n the past; less dependent perhaps upon
credit financing t h a n was true s i x o r eight o r t e n
established
reserves f o r all sorts o f
nave/good
T
h
e
y
years agde
contingencies, a n d they are n o t under urgent pressure
such a s the manufacturers a n d wholesalers are, i n order
to force t h e movement o f their goods t o reduce prices,
particularly a s t h e c o n s u m e r d o e s n o t k n o w a n y l o n g e r
what i s a
fair a n d p r o p e r p r i c e t h a t h e s h o u l d p a y f o r
a pair o f shoes o r a n undershirt o r a pair o f suspenders.
I confess
a t this t i m e I
do not know what the proper
price o f those things are. I
ago a b o u t w h a t I
knew four o r five years
ought t o p a y f o r a
T h e
pair o f shoes.
dealer k n e w that I knew, a n d knowing that I knew t h e
prices--customery p r i c e s
a s they always a r e i n the r e -
tail trade were fixed a t something like what was
necessary i n order t o make t h e retail business 4
sonably profitable business.
B u t , beyond that, I
reaam
inelined t o t h i n k t h a t t h e e a s i e r c r e d i t c o n d i t i o n s
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Federal Reserve Bank of St. Louis
that h a v e b e e n p r o v i d e d b y t h e - e s t a b l i s h m e n t
Federal n e s e r v e S y s t e m h a v e b e e n a
o f the
very considerable
I f I felt that
and consistent force t o the retailer.
it were a t a l l p r e c t i c a b l e f o r t h e F e d e r a l h e s e r v e B a n k s
to e x e r c i s e a n y t h i n g l i k e d i r e c t a c t i o n
liquidation, I
i n vringing a b o u t
should s a y that o n e o f the important o b -
jectives would b e t o g o after t h e retailer, wherever
credit pressure could b e exerted,
t o a degree t h a t
would n o t penelize t h e merchant w h o was conducting h i s
affairs u p o n a reasonable basis, b u t i t could b e ex-
erted i n order to force the retailer t o begin marking
down n i s g o o d s
i n proportion
t o t h e reduction
facturers'’ costs a n d i n wholesale prices,
i n manu-
i n order that
this might reflect itself t o the community a t large i n
the lower cost o f living. P r i m a r i l y , because o f m y conviction t h a t w e shall never have & return t o the safe
and sound condition o f t h e iadustries
i n this country
until what i s called liquidation o f labor, though personally I
think that phrase i s a little energetic,
a little o f f e n s i v e ,
b u t a t any rate a
in accordance with the cost o f living.
or
r e v i s i o n o f wages
Y o u will never
get a reduction o f wages i n this country with labor
as well organized a s i t i s a t t h e present time a n d with
Gongressional opinion a s sensitive a s i t is; politicians
of every grade a n d description i n every section o f the
country a s sensitive a s they are t o the opinion o f labor,
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Federal Reserve Bank of St. Louis
organized a n d unorganized,
labor;
b u t particularly organized
u n t i l y o u can point t o the register there
on the wall which says t h a t your cost o f living has gone
down and you, too, must bear your share of the burden,
iinless w e are t o expect t h a t labor, u n d e r o u r American
social a n d economic system, i s henceforth t o b e treated
ag privileged.
F r o m the point o f view o f the operation
of t h e F e d e r a l k e s e r v e S y s t e m , t h e r e f o r e , i
tnink L t
deserves consideration whether there i s anything that w e
can with propriety d o t o apply the accelerator t o the
liquidation i n retail markets.
I f there i s anything
that w e can with vropriety do, i t ought t o be done.
there i s not,
w e h a v e t o a w a i t t h e s l o w process
inevitable n a t u r a l force. I
i f
o f the
a m afraid t h i s p r o c e s s w i l l
be extremely slow a n d extremely deliberate, a n d i t will
be a
l o n g time, n o t m e r e l y months,
but I
toink p e r h a p s
country o n
a year o r two, before w e get things i n this
an e v e n keel, w h e r e
i t c a n g o forvard- M e a n t i m e , I
am
in complete sympathy w i t h the positiermoef Governor
Strong, t h a t t h e Keserve S y s t e m i s a very, v e r y s e -
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Federal Reserve Bank of St. Louis
rious, w g e n t responsibility,
can w i t h i n t h e l i m i t s
prudent
o f prudence,
i m m y conception
time t h a n I
t o d o everything that i t
and I
o f prudence
would b e l e s s
a t t h e present
would under normal conditions,
i n order t o
maintain t h e integrity a n d solvency o f business t h a t
is liquidated,
b u t t h a t i s still betveen t h e devil
and t h e deep blue sea, w i t h wages h i g h a n d with dull
markets - I
do not think there has ever b e e n a time i n
the history o f this country when credit conditions b o r e
guch a
vital r e l a t i o n t o business c o n d i t i o n s
e s they d o
at t h e p r e s e n t t i m e , a n d i f w e o p e r a t e t h e h e s e r v e
Banks s i m p l y w i t h a n e y e t o t h e i r t e c h n i c a l s a f e t y ,
may find ourselves s o m e d a y i n the face
w e
ok
e a situation
where o u r banks a r e sefe a n d business i s i n a highly
precarious situation. I
trust that w e will take that
fundamental prine iple for o u r guidance i n regulating
credit, w i t h t h e view t o accommcedating customers a n d
business,
a n d t h e accommodation
o f commerce a n d business
at this time requires a conception t a t goes far beyond
the o r d i n a r y b a n k e r ' s c o n c e p t i o n
o f t h e administration
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Federal Reserve Bank of St. Louis
of credit.
Mr. Mooney. I
want t o a s k Dr. Mitler a question.
You d i r e c t e d y o u r r e m a r k s a b o u t t h e c o s t o f l i v i n g a n d
so forth,
a s t o f o o d a n d clothing.
D o n ' t y o u think
that the labor costs are going t o be greatly controlled
also b y t h e e l e m e n t o f h o u s i n g a n d r e n t i n g ?
I s a ' t the
renting a n d housing relatively higher t o the laborer
than the retail price o f food a n d clothing is, a n d isn't
that condition one that i s general all over the country?
Dr. filler.
question.
fies itself.
I
m
o
Y e s , undoubtedly, a n d a very t r o u b l e s e
t will probably b e t h e last o n e that rectiT h e cost o f shelter i s about one-fourth
of the ordinary working man's outlay.
Mie. Mooney.
M e n d o not like t o puild houses n o w
and the
for m e r e shelter, b e c a u s e t h e c o s t o f t h e l u m b e r
cost o f the labor i s s o high that when the readjustment
that
does come h e will not get a return o n the investment
he p u t s i n t o i t now.
why,
Dr- viiller. Y e s , a n d that i s just the reason
as a very general proposition, I
think i t i s a debatesble
question--and I say this not jocosely, but f say it very
break-down i s not
seriously, w h e t h e r t h e o l d - f a s h i o n e d
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Federal Reserve Bank of St. Louis
preferable
t o t h e slow, p a i n f u l p r o c e s s t h a t w e h a v e
at the present time. I
mean b y that that when the
collapse o f prices comes on, i t comes o n universally.
Everybody goes through i t a t the same time, a n d while
i s insolvent, t e c h n i c a l l y e v e r y -
technically e v e r y o r e
one i s solvent because everybody i s insolvent.
Mr. Coker. I
little statement
nave prepared a
of what I consider the average one-horse crop 4nd what
thought y o u
it means t o the landowner a n d tenant. I
gentlemen might like t o have that.
The averege o:.e-horse c r o p i n the Scuth,
section, w i l l c o n s i s t
o f a b o u t 2 5 acres,
acres will b e planted i n cotton, 6
i n my
o f which 1 8
acres i n corn, a n d
the other would b e garden.
The landowner furnishes this land, buildings, c o t t o n
seed, fertilizer f o r the cotton.
T h e value o f the land ,
at a very conservative estimate, w o u l d b e 1250.00.
The e x p e n s e
per
t o t h e landlord, t h e r e f o r e , w o u l d b e 1 0
and
cent o n t h e v a l u e o f t h e l a n d f o r interest, t a x e s
repairs,
o r p1l25.00.
the cotton, $ 1 4 4 . 0 0 .
his expenses.
Fertilizer
a t 9.00
T h a t makes a
H e receives o n e - h a l f
a n acre f o r
total o f 6269.00 f o r
o f t h e cotton.
A n
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Federal Reserve Bank of St. Louis
average p r o d u c t i o n o f c o t t o n f o r t h e l a s t f i v e y e a r s
i n
the South i s one-third o f a bale o f cotton t o the acre.
de w o u l d t h e r e f o r e r e c e i v e t h r e e b a l e s
is one-half o f six bales.
seed.
T a r e e t o n s o f seed.
p50.00 a
bale.
H
o f cotton, which.
e receives a l l of the cotton-
T h e price o f cotton i s about
T h e s e e d h a s b e e n a b o u t »~20.00, a n d
therefore h e receives ~150.00 f o r t h e c o t t m a n d »~60.00
for the seed, a n d this would b e the revenue o f the lando r 210.00.
owner,
d i s loss, therefore, would b e »59.00,
which allows h i m nothing a t e11 for supervision, a n d he
is really entitled t o something f o r supervision.
The tenant furnishes t h e mule e n d feed f o r the mule
and a l l the labor f o r t h e crop.
T h e tenant's expense
would b e i n t e r e s t a n d d e p r e c i a t i o n
Feed f o r his mule, 1 0 0 . 0 0 .
his t o o l s , p 2 0 . 0 0 .
o n his mile, 2 5 - 0 0 .
T a x e s a n d depreciation o n
F e r t i l i z e r f o r n i s corn, 5 . 0 0 ,
o r a
total of 9163-00, plus the labor of his family of five,
but w e will n o t p u t that i n n o w . ©
The receipts t o the tenant a r e three bales o f cotton
at 1 0 cents a pound, ,150.00.
90.00.
N i n e t y bushels o f corn,
O n e a n d o n e - h a l f t o n s o f fodder,
45.00,
a total of 9235.00. D e d u c t i n g ~1653.00, which he
o r
Dividing
actually h a s t o p a y out, l e a v e s h i m ylze-.00.
that b y 365, h e gets themagnificent s u m o f 5 5 cents a
day for t h e support o f his family.
T h a t i s all h e gets,
unless h e c a n work o u t a part o f the time, which h e c a n d o
if h e i s near a town, a n d which h e cannot d o i f h e i s
isolated i n the country.
The figuresof 5 5 cents a
predicated
day that I
mentioned were
half a
pale o f c o t t o n
o n the production o f a
to t h e a c r e ,
woich
i s about t h e average
f o r t h e p a s t year,
'4n South Carolina.
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L T a m a retailer.
Now, j u s t o n e w o r d a b o u t t h e retailer.
I expect I
a m the o n l y retail merchant here.
D o w n i n our
country t h e situation that the gentleman from California
and t h e gentleman f r o m N e w York and others have described,
I d o n o t t h i n k exists.
O u r merchants m o s t l y reduced
their p r i c e s r a d i c a l l y l a s t fall, t a x i n g a
their goods. I
we h a d m a r k e d
severe l o s s o n
«now that i n m y o w n store, clothing t h a t
u p i n august,
r h e n i t w a s received,
a t 75.00,
we cut t o y37.50 a suit, w o i c h was less t h a n the replace-~
ment value along i n the fall.
i e did that because v e Kner
that t i m e s w o u l d b e h a r d a n d t e n e e d e d t o l i q u i d a t e a n d
get t h e money out.
w e did that a l l through t h e store,
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Federal Reserve Bank of St. Louis
cost.
reducing t h i n g s r i g h t d o m t o - a t l e a s t t h e p r e s e n t
I do wot think t h e retailer d o w n i n our section has done
i n most
what t h e g e n t l e m e n h a v e s a i d h e r e h a s b e e n d o n e
places.
I know that s e sold sugar a t 1 0 cents a pound for whica
pound, t a k i n g a
we p a i d 2 7 c e n t s a
our stock o f sugar.
loss o f p e ? ,O000.00 o n
T h e cost o f the necessities o f
materlife i n our section o f the country have gone d o w n
Lally.
I n working o v e r a n d watching t h e read justment
in m y store recently, I
thinx o n e o f m y experts worked
out a reduction i n the cost o f labor.
H
e found o u t
h a d t o buy fran
that t h e reduction i n the goods t h a t they
other costs
us h a d gone down 2 5 per cent a n d that t h e
of living h a d gone down scarcely a n y a t all.
d e fig-
wages w a s
ures t h a t 1 0 o r 1 2 per cent reduction i n
w e put
all that t h e y could stand, a n d that i s a l l that
one
Governor Seay» I
all t h e r e p o r t s
would l i x e t o ask Dr. Miller i f
t o t h e Board d o n o t s h o w rather uniformly
a good retail trade tnroughout t h e c o u n t r y -«
Dr. s#iller.
V e r y good.
Governor Seay.
T n e y c a n sell t h e goods a s long 4 s
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Federal Reserve Bank of St. Louis
G86
they h a v e b u y e r s ,
their prices.
t o reduce
w h a t i s t h e remedy?
Dr. Miller.
buyers
a n d there i s n o incentive
well, I
think they e r e attracting
b y p r i c e reductions.
T h e r e i s n o doubt t h a t price
reductions a r e p r e t t y g e n e r a l
i n t h e r e t a i l trade, b u t
they a r e n o t commensurate w i t h t h e reduction i n the wholesale costs.
v i r . Moore gave y o u a n illustration. I
not K n o w h o w t y p i c a l t h a t i s i n your experience,
Wag a merchant w h o paid 2 0 cents a
do
b u t there
yard f o r outing flannel
and h e sells i t for 5 0 cents, whereas o n outing flannel
that h e paid 4 2 cents f o r h e was selling f o r 6 0 cents.
I presume t h a t h e estimates a
loss o f 4 2 cents t h e r e
(Laughter).
Governor Seay.
x h a t I
want t o get a t i s this, i s
there a n y correction for t h e retailer, except abstention o n the part o f the individual buying public?
Dr. willer.
k e l l , yes.
Governor Seay.
A
s l o n g a s h e c a n sell his goods
why
at t h e p r i c e h e fixes a n d h i s t r e d e c o n t i n u e s g o o d ,
should h e reduce h i s price?
Governor Strong.
T h e r e i s a correction coming along,
but i t has n o t reached h i m yet.
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Federal Reserve Bank of St. Louis
Governor Seay.
I t was i n the badc of m y mind. I
was
coming t o that i n a few words.
Governor Strong.
T h e r e are a
few people
i n the
retail business t h a t have n o t got their shelves stocked
with high-priced goods.
T n o e y are going t o have goods i n
competition with those pretty soon.
T h e i r prices will
cone down, a n d they will come domn pretty fast.
Governor Seay. I
places
have n o doubt that has taken
i n the s m a l l e r p l a c e s
i n t h e country,
b u t i t has
not taxen place i n cities, a n d i t still continues t o b e
true, a s I gather from the reports turned i n from our
district generally a n d from the reports o f the Federal
HKeserve B o a r d a n d f r o m t h e o t h e r districts,
t h a t the re-
tail trade is' remarkably good.
Dr. Miller. Relatively speaking, i t is.
Governor bdeay. N e l l , with relation t o last year, i n
many cases, w h e n i t was a t its maximum,
i t i s still good.
Dr. wiiller. Y e s .
Governor Seay.
S o i t only remains t o think t h e n that
his time i s not very f a r off-and that his reckoning will
come.
Dr. Miller.
Yes.
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Federal Reserve Bank of St. Louis
Governor darding.
w e l l , gentlemen, t h e Federal
Neserve B a n k Governors, I
their d e l i b e r a t i o n s ,
further I
know, a r e a n x i o u s
t o resume
a n d unless s o m e o n e wishes
think w e h a d better adjourn.
(shereupor the Conference was edjourned).
t o say
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Federal Reserve Bank of St. Louis
689
(The C o n f e r e n c e
o f t h e Gevernors
o f the Federal
Kheserve banks w a s resumed a t 4:25 p m ,
tan Bank Building,
a t the Metropoli-
i n the Conference Room, a n d t h e fol-
lowing proceedings were had):
The Chairman. G e n t l e m e n , l e t u s come t o order a n d
would l i k e t o a p o l o g i z e f o r sir.
start o u r proceedings. I
nerrison's a b s e n c e e
d e was unavoidably called a w a y o n
a matter o f much importance, a n d I said that I would t r y
to p e r s u a d e s o m e o n e
t o take notes
c f what was done a t
this meeting, because h e will dictate those notes s o
that w e will be prepared t o answer questions a t the joint
meeting w i t h t h e F e d e r a l K e s e r v e Beard.
Governor Fancher. I
move that Governoz V a n aandt
act a s s e c r e t a r y p r e tem.
Governor Van wandt.
M y eyes are bothering m e very
considerably a n d I cannot s e e t h e paper.
is a splendid m a n t o act a s secretary.
G o v e r n o r Seay
H e will b e here
in eae few moments.
The Chairman.
perrassed, I
kithout «
secretary w e will b e e m -
a m afreid.
*hen w e c o n c l u d e d
t h e meeting yesterday,
W e were
in t h e c o u r s e o f d i s c u s s i n g t h e p o u c h i n g o f mail, a n d I
690
had j u s t m a d e t h e s u g g e s t i o n t h a t e a c h b a n k ,
i f satisfactory
to the meeting, should send the result o f their inquiry
as t o the volume o f mail going t o their Keserve Banks
to Mr. darrison, a n d when w e had the inquiry i n hand,
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Federal Reserve Bank of St. Louis
and a n y facts bearing o n themetter t h a t were necessary
to a conclusion,
w e would w o r k u p a program t o submit t o
the Postmaster General for t h e direct pouching o f mail.
If that suggestion i s satisfactory t o the meeting, a
motion t o that effect w i l l conclude this topic.
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Federal Reserve Bank of St. Louis
Gcvernor Norris.
The Chairman.
Y o u will receive a conmunication,
Governor Norris, explaining exactly wnat w e want,
so move.
Governor Fancher. I
Governor B i g g s e
i T second thse m o t i o n e
Governor Calkins.
D o y o u think i t i s seriously
necessary t o rave a secretary f o r this meeting?
The Chairmen. I
do.
I nominate G o v e r n o r F a n c h e r ,
nomination
(Governor
Fancher
o f Gover-
w a s unsnimously electe
pro tem and took his place a s such.)
The Chairman. G o v e r n o r McYougal calls m y attention t o t h e f a c t t h a t i n t h e d i s c u s s i o n
o f the pension
fund yesterday attention w a s n o t directed t o the fact
that this p l a n has been svbmitted tentatively t o the
Federal Reserve B o a r d for consisaer:
t
h
a
t after
the F e d e r a l R e s e r v e B o a r d h a s a c t e d u p o n t h e m a t t e r
it i s proposed t o refer i t back t o each Federal Reserve B a n k f o r consideration b y their airectors, a n d
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Federal Reserve Bank of St. Louis
Z a m n o t s u r e w h e t h e r M r . K e n z e l w i l l b e h e r e tomorroyw
or nob,
I
f h e does c a n e w e c a n discuss t h e p l a n i n
more detail.
n o t , I suggest i t be left i n the hands
of t h e c o m m i t t e e
t o pursue w i t h t h e Federal R e s e r v e
Board until ready t o b e referred t o the respective
Federal Reserve Banks.
Is t h e r e a n y o b j e c t i o n ?
I
f there i s n o objection
we will consider that t o be the action o f the meeting.
The next topic i s ¥#i),*
"(7)" R e p o r t b y the conmittee o n codes,
Governor hevougal.
h a v e a
very brief memoran-
dunmiin regard t o that, i f you will give m e a moment.
The C o d e C o m m i t t e e
has
t o réport progress
a n a that
final i n s t r u c t i o n s w e r e g i v e n t o t h e b u s i n e s s c o d e c o m
pany i n February t o complete the code, a n d w e are advised i t w i l i b e r e a d y f o r d e l i v e r y
o n o r about t h e
15th o f May.
The Chairman.
I
t w o u l d b e i n order t o receive
this r e p o r t w i t h o u t a c t i o n a n d h a v i n g
proceedings,
iy s) 3
.
i t noted i n the
i f n o objection i s made,
S h o u l d e a ec h jeF e ds e*r a l r e s e r v e( b a n k i n :s u r e i t s
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Federal Reserve Bank of St. Louis
693
own incoming Shipments o f Federal reserve notes received
from other Federal reserve banks."
Governor Biggs,
T h e insurance rates extended t o
the Federal Reserve Banks a r e n o t uniform.
S o m e of
eserve Banks a r e n o w using "hat i s termed
a flat rate, o r average rate,
A S a result t h e r a t e
from o n e p o i n t t o another d e p e n d s u p o n w h e t h e r t h e i n -
Surance i s placed b y the shipper o r b y the consignee.
It w o u l d a p p e a r r e a s o n a d l e t h a t s u c h i n s u r a n c e
b e placed
by the b a n k t o whom the notes a l e shipped, Which b a n k
bears t h e expénse,
a n d the result would undoubtedly
reflect a sure condition a s t o insurance expense and
would ¢liminate accounting f o r insurance b y the shipping bank, w h i c h bank really i s net c o n c e r n e d n
i such
cost.
Under t h e present method t h e Federal Reserve B a n k
Places i t s registered mail w i t h 4 New York firm.
Each
bank insures a l l currency received b y registered mail,
with t h e exception o f their o w n Federal Reserve notes
received
f r o m other Federal
Reserve banks,
In view o f each Federal Reserve B a n k a b s o r b i n g
the cost o f transportation o n its o w n issue o f Federal
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Federal Reserve Bank of St. Louis
694
Reserve n o t e s r e c e i v e d f r o m o t h e r F e d e r a l R e s e r v e B a n k s
>
it i s necessary f o r the shipping Federal Reserve b a n k
to bill t h e issuing b a n k covering tbis cost, w h i c h i n -
that seach Federal R e s e r v e
nsure: i t s o w n incoming shipments
o f Federal R e -
serve notes received f r o m other Federal Reserve Banks,
and under this p l a n each Federal Reserve B a n k will
effect a l l t h e i n s u r a n c e f o r w h i c h i t i s responsible.
U n f i t notes
Governor hellborn.
i s that?
The Chairman. T h a t refers t o all the shipments
F e d é r a l ieserve
‘
of notes, f i t o r unri é
Bank t o another Federal Reserve Bank?
Governo
i g o
t
h
e
r
e are
n o unfit notes---
I understand,
The Chairman. G o v e r n e r Biggs! m o t i o n i s that a
uniform practice b e adopted o f each F e d e r a l Reserve B a n k
insuring i t s o w n incoming shipments o f Federal Reserve
notes r e c e i v e d
f r o m other Federal
place t h e i r i n s u r a n c e
Reserve Banks
a t t h e i r o w n bank.
and
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Federal Reserve Bank of St. Louis
695
Governor MeYougal.e A r e you sure the practice i s
not u n i f o r m a t present?
Governor Biggs, E o , i t is not, s o Mr. Hale reports.
I s there a n y objection t o the corse
The Chairman.
proposed b y Governor Pigges?
Governor C a l k i n s . I
The Chairmen.
I s there a n y discussion o n it?
Governor Young.
briefly.
second t h e m o t i o n .
Yes, I
would like t o aiscuss
O u r people t o o k i t u p before I
are dividédias
left a n d
t o who should p a y the shipping cost.
Theoretically t h e y thought t h e receiving bank should
it was n o t apparently worth while a n d the shipping bank
they thought cught t o pay it.
Governor McDougal.
T h e bank receiving the notes
in most cases pays a t present.
Governor Biggs,
T h e Federal Neserve Bank sends
you a bill for t h e cost, t h e y charge f o r it.
N o w the
idea i s t o eliminate t h a t a n d p a y i t yourself.
T h a t
is about t h e substance o f it.
The Chairman.
S o m e m a y recollect that this sub-
ject w a s very actively discussed i n the early days, a
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Federal Reserve Bank of St. Louis
696
an early conference i t was i n fact agreed that t h e cost
of t h e s h i p p i n g o f n o t e s
o f this character should b e
borne b y the bank Which i n the
the notes,
I t was debated a t great length, a n d while
there m a y b e some arguments i n support o f the theory that
the bank that ships t h e notes i n should p a y the cost,
I think the action o f the conference almost unanimously
favored t h e p l a n o f having t h e bank which issued the
notes i n the first instance p a y the c o s t o f Shipment,
Governor V a n Zandt.
The Chairman.
B u t not unanimously, I
N o , i t was n o t unanimous. I
assure
remem—
ber Dallas objected, a n d then afterwards gracefully ac.
quiesced,.
Governor Young. T h e n I have been misinformed
on
this, because t h e y told m e that t h e b a n k that shipped
the notes paid the charges now except i n two cases,
I n
any event, i t was not uniform.
The Chairman.
N o , i t is not uniform.
Governor Young.
long a s i t i s uniform.
pay i t ?
i t makes n o difference t o u s s o
Y o u want t h e shipping b a n k t e
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Federal Reserve Bank of St. Louis
Governor Mcbougal.
Governor Biggs.
N o , t h e receiving end.
T h a t e a c h Federal Reserve B a n k
insure i t s o w n i n c o m i n g s h i p m e n t s
o f notes received f r o m
other Federal Reserve Banks.
move t h i s recommendation b e
Governor McDougal. I
concurres in, i f that i s i n order.
The Chairmane C e r t a i n objections are made.
Governor Young. I
rill withdraw m y objections
if i t i s made uniform.
The Chairman.
T h e motion is to make i t uniform
by making t h e receiving b a n k take insurance a n d p a y the
insurance ,
(The motion was put and unanimously carried.)
Governor Wellborn.
C n the subject o f insurance I
have a suggestion from the cashier o f our bank that i
would like t o read t o you.
The Chairman.
Y e would b e glad t o hear it.
Governor Wellborn (reading):
t P e r m i t m e t o sug-
gest a topic f o r discussion a t the next Governors! C o n ference,
I t seems t o be the desire c f all the Federal
h
t manner o f handling insurReserve Banks t o s i m p l i f y e
ance o f shipments
o f unfit Federal Reserve n o t e s s e n t
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Federal Reserve Bank of St. Louis
to t h e Treasurer o f the United States a t Washington.
It i s proposed that instead o f each bank charging t h e
other F e d e r a l R e s e r v e B a n k t h e c o s t o f s h i p p i n g t h e i r
unfit Federal Reserve notes t h a t each Federal Reserve
Bank absorb this cost a n d thus eliminate m a n y entries
++
and considerable accounting involved i n the charging
of t h i s e x p e n s e
t o e a c h other.
U n d e r this plan w e rould
absorb t h e cost o f a l l o f o u r shipments o f unfit Federal R e s e r v e n o t e s a n d o t h e r b a n k s v o u l d d o likevise.
#11 that i s necessary i s for the banks t o agree t o
i
W do if
this plan, which the Governors u n d o u b t e d l yl
it is discussed b y them."
I would like t o have y o u consider this.
The Cheirman.e T h i s i s a further proposal towards
simplifying t h e currency Shipments a n d contemplates t h a t
a bank that ships notes t o other Reserve Banks for redemption s h o u l d p l a c e t h e i n s u r a n c e ,
Governor Calkins.
f i h y should w e follow o n e course
in o n e c a s é a n d a n o p p o s i t e c o v r s e
The Chairman.
i n the other case?
A s I understand it, w e all have
these blanket insurance policies a n d n o additional book-~
keeping i s i n v o l v e d t o t h e r e c e i v i n g b a n k i f i t arranges
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Federal Reserve Bank of St. Louis
the insurance a n d pays t h e cost; b u t i n >
case o f
shipments t o the Treasury c f the United States t h e amount
ef the cost o f the insurance h a s
b
other eleven R e s e r v e Banks a n d i t 4
e recovered b y the
involve a
lot o f
bookkeeping.
Governor »ellborn.
extra w o r k .
The C t
Governor Fancher, a c t i n g a s
follows:
"Tt i s proposed that instead o f each bank charging t h e other Federal Reserve B a n k t h e cost c f shipping
their u n f i t F e d e r a l
Reserve notes
t h a t each Federal
Re-
serve B a n k a b s o r b t h i s c o s t a n d t h u s e l i m i n a t e m a n y
accounting involved i n ths
Pi
Gkpenss
is p l a n v e w o u l d a b s o r b t h e c o s t o f
all o f o u r shipments o f unfit F e d e r a l Reserve notes
and o t h e r b a n k s w o u l d d o likevise.
cessary i s f o r t h e b a n k s
« a l l that i s ne-
t o a g r e e t o t h i s plan, w h i c h
the Governors undoubtedly w i l f
i t i s Urscussed
by them,"
Governor Fancher,(continuing)
T h i s will simplify J
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Federal Reserve Bank of St. Louis
the matter o f accounting,
i n m y judgment.
The Chairman. T h a t would include postage and inSUraANce »
I t seems t o m e a simphification t h a t j u s t i -
i the e n d
fied and p r o b a b l y will work o u t s t b s t a n t i a l l yn
the same whichever course i s pursued.
Governor McDougal. I
would like t o induire what the
general policy i S noWe
tne Chairman. I
think the uniform policy i s to
recover t h e shipping c o s t from each o f the Reserve Banks
whose n o t e s a r e s h i p p e d
Governor Wellborn.
i n f o r redemption.
4 n d a book entry made t o t h t
effect.
I move t h a t t h a t b e adoptved.
Governor B i g g s . I
sécond t h e m o t i o n ,
ri"
me a
(the motion was p u t a n d unanimously carried.
Chairman. W e will go to the next item, then
which is "(k)."
"(k) S h o u l d Federal reserve banks begin t o carry
part o f t h e f i r e i n s u r a n c e
o n new buildings e r e c t e d where
the risk is slight?”
Governor Fancher, T h i s was put o n to make inquiry
of t h e other Governors a s t o whether t h e y h a d been giving
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Federal Reserve Bank of St. Louis
this matter thought.. S o m e o f the banks are well along
with their buildings a n d I would like t o kmor “hether
they have piven thought t o the matter o f carrying their
omm fire risks.
T e insure.
Governor 2eay.
Governor Van Zandt, I n the Dallas District we
have p r a c t i c a l l y c o m p l e t e d c u r building.
l
e have n o t
accepted i t from t h e contractors y e t although w e ure
occupying i t from t o p t o botton.
L a s t week, a s o f March
5th, w e took over a l l o f t h e fire insurance f r o m the
contractors.
The Chairman. Governor Morss?
W i e p r a c t i c a l l y c a r r y a l l insurance,
Governor K o r s s ,
the Chairman.
B o y o u mean t h a t y o u insure?
Governor Horss,.
Yes,
i n all stages, a n d b y talik-
ing t o the insurance people w e were able t o g e t such l o v
rates that i t does n o t amount t o very much, a n d rather
than f e e l w e a r e t e k i n g a n y c h e n c e s
w e practically cover
everything.
Governor Fancher,
T h e n y o u centemplate t h a t when
your b u i l d i n g i s c o m p l e t e d y o u w i l l p a y f o r t h e i n s u r -
ance instead o f carrying i t yourself?
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Federal Reserve Bank of St. Louis
Governor Morss.
Y e
Governor Van Zandt. I
meant t o say,
that w e b u y o u r i n s u r a n c e ,
Governor MeDougal.
W e have given consideration
to t h e m a t t e r sand propose
t o carity o u r o r n insurance,
ved i s not large,
irmean.
3 Yemen
4 b
e already c o m p l e t e d o n e build-
v
warehouse building, w h i c h
the
carried f u l l i n s u r a n c e
w
r
i
t
t
e
n
b y insurance com-
+
intend t o c o n t i n u e t h a t
not t h i n k I
understood
61est, . That 3 S 0 0 r
practice.
The Chairman.
Dboes
Governor F a n c h e r ,
the Chairman.
N o action i s
LOpLCs
"TT. ACCOUNTING A N D AUDITING
"(a) s u r v e y o f ;
in t h e s e v e r a l
Federal
accounting and s
Reserve Banks,"
ystems
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Federal Reserve Bank of St. Louis
The Chairman. T h i s topic v:
Ur. Oakey, w h o i s our n e w auditor,
we h a v e h a d i n t h e b a n k f o r a b o u t a
year
in
ana o n e o f t h e m o s t c o m p e t e n t m e n F e h a v e i n our-.or=
ganization.
A s y o u know, h e has visited a fev reserve
and l o o k e d i n t o t h e i r m e t h o d s .
Governor Norris. I
d o not find this item. ‘ W h i c h
topic i s i t ?
The CHaarman. S e c t i o n I I of the program o f routine
topics, o n accounting and auditing, sub-topic a, “ S o r
vey of che accounting and procedure systems i n the
several Federal
I have n o t s u b m i t t e d t h i s v o l u m i n o u s r e p o r t
of iss
committee o f which Mr. Oakey i s Chairman f o r t h e purpose
of a s k i n g a n y a c t i o n b y t h e C o n f e r e n c e ;b u t E F would v e r y
much appreciate having t h e Governors o f the Reserve
Banks e x a m i n e t h i s r e p o r t a n d a d v i s e u s i f s i m i l e r
studies a r e made i n their o w n respective banks i f they
will be good enough t o exchenge ths results o f those
studies
w i t h us.
This particular report i s aimed t o bring about e
system o f control o f securities i n the banks o f which
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Federal Reserve Bank of St. Louis
ment o f security involved i s s o great i t cannot b e insured, t h e amount i s too vast, a n d w e are n o w a p proaching the point where w e are proposing t o make a
very
radical a n d fundamental change i n the method i n the ofsdingly anxious t o get t h e benefit o f
comments o f the other reserve banks
I t will b e brought o u t b y
in work o f like character,
your reading this rather voluminous report after y o u
return home.
Governer S e a y . I
would b e g l a d t o g e t i t ,
W e
have one, o f which t h e originators a r e quite proud,
at
home »
Ths Chairman.
i I think a copy was handed t o you
among t h e forms handed t o y o u b y Mr. Harrison.
Governor Seay. I
have that, yes,
Governor Young.
putting i n o r i s i t i n now?
The Chairman.
I t has been approved tentatively
by the Committee o f f i c e r s of.the Bank, with the reservation t h a t i t Ww t
be p u t into operation finally
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Federal Reserve Bank of St. Louis
until a few o f the departmental managers a r e convinced
cf the feasibility o f the plan.
T h e r e were some objec-
tions made t y a few o f t h e m e n i n the departments. I
think the objection came f r o m a feeling that this partidivision
cular p l a n i n v o l v e d a
o f authority a n d re-
Sponsibility which t h e y hesitated t o recognize a s sound
practice; b u t I
think the officers o f the b a n k a s a
vhole, Frith one possible exception, a r e convinced
that some s u c h method a s this i s the o n l y way i n which
loss f r o m time t o time b y having securities stolen,
or even inadvertSntly lost i n the handiing o f sucha
mass o f stuff.
Governor Young,
ell,
n e have n o t gone into i t
quite a s elaborately a s this p i a n e f yours. I
read
it over, ° t 6 have the same thing i n operation nov,
and i t i s very successful a n d very satisfactory--central c o n t r o l ,
i t i s e l l i n o n e place.
Governor C a l k i n s .
w
e have h a d i t for a
long
time.
Governor Seay.
W e have a special department
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Federal Reserve Bank of St. Louis
that character, a f t e r handling i t under t h e o l d system
for a
long while, w h i c h w e found t o b e i n a
account o f the volums, a n d v e advised a new system,
which, a s 1 say, i s entirely satisfactory.
Ghairman. I
been g i v e n a
think each o f the Governors h a s
copy i n the bundle
o f papers h a n d e d j o u
)" under Il.
The report o f the committee o n 'Method
of H a
1
g Gollections S e n t Direct b y Member Banks i n
Cne District t o Federal Reserve Banks o f Other Districts!
rill b e submitted b y the committee o n standardization
of inter-Federal reserve bank forms,’
This ras referred t o the committee o n standardjzation o f inter-bank forms.
Y o u have received a vol-
umé containing t h e result o f the studies o f this com-
mittee, together with photostatic copies o f all the
forms proposed t o b e used,
this report? I
u m a t i s your pleasure about
think before discussing i t I vould
like t o read a memorandum handed t o me b y Mr. Raasch,
vho h a s served o n the committee, attached t o o u r bank:
"The attached report o f the Committee o n Standard-
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Federal Reserve Bank of St. Louis
ization o f Inter-Federal Reserve B a n k Forms h a s received
the v e r y careful consideration
senting C h e Chicago, Cleve. i
o f the committee, repreI t
j e w York banks,
has been referred t o the operating m e n o f all the banks,’
and every effort h a s b e e n made t o meet their viers,
"The report, therefore, p r o b a b l y comes a s close
to representing t h e unanimous opinion o f t h e banks a s
it will ever b e possible t o get. Because o f this,
there vould not s e e m t o b e a n y advantage gained i n
referring t h e r e p o r t
it is, therefore,
report b e a p p r o v e d
to a
s u b - c o m m i t t e e f o r study, a n d
m y recawmerdation that t h e attached
b y the Governors
a s i t stands,
with
the understanding t h a t vhnerever t h e volume o f work i n
@ bank would n o t warrant t h e u s e o f a
special f o r m f o r
any o f the transactions covered i n the report, that i t
would not be obligatory o n the part o f such bank t o
install t h e forms recommended, b u t t h a t i n s o far a s they
do use forms f o r t h e transactions covered i n the report,
Uhat t h e y w i l l u s e t h e s t a n d a r d f o r m s s u g g e s t e d ,
"Tt may be o f interest t o you t o know that the
forms a s recornmenied a r e n o t t h e f o r m s n o w i n u s e i n
this bank, o r i n the Cleveland and Chicago banks, a n d
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Federal Reserve Bank of St. Louis
that m a n y concessions have b e e n made p y the three
banks o n the committee,
i t i s recognized that some
£ the other banks will also have t o make concessions
put i t i s our belief t h a t t h e resuits will more than
justify the apparent sacrifice,"
The Chairman. ‘ h a t i s your pleasure?
Governor F a n c h e r , I
have a
mémorandum here f r o m
our officer w h o served o n the committee a n d h e strongly
recommends t h a t i t b e adopted,
Governor Young. O u r auditor has gone over it very
carefully a n d h e h a s made a
few suggestions; b u t h e i s
in favor o f the whole plan. a v e r y b o d y vill have something t o s u g g e s t
o n this I - s u p p o s e ,
a n d s o far a s the
Suggestions o f o u r m a n a r e concerned,
i t Will n o t inter-
fere i f they are n o t adopted.
Governor Seay.
T h e Richmond B a n k h a d a n auditor
on this a n d h e states that t h e plan meets h i s views e n LIFE Lys
Governor V a n 4andt,
T h e o n l y objectiors found b y
our officer v h o studied t h i s matter a r e that h e raises
the question that n o mention i s made o f the amount o f
the i t e m s
o n which wire advice
i s t o b e furnished,
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Federal Reserve Bank of St. Louis
The Chairman.
N o general instructions appear
wire
ag t o which items a r e entitled t o the penefit o f
advice.
Governor V a n Zandt,
T h a t i s t h e o n l y real o b -
jection.
The Chairman.
I s there n o t a little block i n one
b e tréated
form w h i c h i n d i c a t e s t h a t i t e m s c h e c k e d a r e t o
by wire advice o f non-payment?
Governor V a n 4andt,. I
that.
have n o t b e e n a b l e t o f i n d
i t i s very evident that h e refers t o the text
of the report,
The C h a i r m a n e
G o v e r n o r V a n Zandt raises t h e
point t h a t p r o v i s i o n 4 0 6 s n o t a p p e a r
t o b e made, a c -
cording t o the report o f one o f his men, f o r indication
or i n s t r u c t i o n a s t o w i r e a d v i c e
o f non-payment. a
that i s omitted i t would appear t o m e t o b e a material
omission f r o m the form.
a r e y o u Willing t o i n gener-
al a d o p t t h e r e c o m m e n d a t i o n s
o f the committee
o n that
one item?
a
V Zandt. S u b j e c t t o investigation o n
G o v e r n o rn
that matter, yes.
Governor Biggs.
H a s atryone a set o f forms here
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Federal Reserve Bank of St. Louis
their n u m b e r s ?
Governor Young.
G u r auditor refers t o the matter
way:
Me are
collections
t h e confirmation w i r e advices
collections s e n t direct, f o r the reason that r e
receive... n o C o l l e c t i o n s d i r e c t f r o m m e m b e r hhanks i n
However, w e have very similar form
of advice w h i c h w e s e n d t o other F e d e r a l R e s e r v e B a n k s
and t o our other member banks covering their collections p a i d e:
a y , a n d w e vill b e glad t o accept t h e
suggested forms when w e begin handiing collection items
direct from members o f other districts."
pparently,
The C h a i r m a n .
i t must b e i n there.
M y impression
Governor Y o u n g ,
i s that i t is.
H e says w e will b e plad t o u s e
the f o r m 3
w
from m e m b e r b a n k s
i n other districtse
The Chairman.
e begin handling t h e forms
n
e Suggestion i s we adopt i t
subject t o the proper treatment o f wire advice o f nonpayment.
Governor V a n Zandt. I
offer t h a t motion.
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Federal Reserve Bank of St. Louis
TA:
Governor S e a y .
T h e . conmittee h a s h a d t h e m t t e r
in charge already for several months,
it.
a s 1 understand
Y e might approve i t nov o r refer i t back t o the
COMMLLLEE «
The Chairman.
“ v e mis p p r o v e i t vith ths under-
standing that these sugrestions t h a t have b e e n made b e
taken into account.
Governor Fancher.
A s I understand i t this c o m
mittee has been i n correspondence with all the banks,
and that all sorts o f suggestions a n d comments have
been made, and i t has been a work o f months and months
have spent a
great deal
or all sorts o f suggestions a n d vhat they are
doing, a n d this
a l l y a
canpromise,
I t may be
if w e p u t these forms i n operation slight changes
will h a v e t o b e m a d e b u t y e t r e a d o p t a
adopt
report a n d
t h e forms.
Governor C a l k i n s ,
A s I
understand
i t Governor
Van Zandt moved the adoption o f t h e report a n d I secamd
the motion,
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Federal Reserve Bank of St. Louis
The C h a i r m a n .
T h e committee
will still have some
this i s printed,
i f some-
discovered that ought t o b e given atten-
These a r e t o b e p r i n t e d y
b each
—
the committee's report.
(c) S t a t e m e n t s prepared b y Federal Reserve Banks
ana submitted t o Federal Neserve soard.
The Chairman.
“ c " was put o n the program with
her a n y Suggestions
.ction a r e
t o b e expressed
e t this meeting
in regard t o the f o r m o f the reports o r the number o f
them,
a s w e have almost e v e r y meeting
discussed
a s t o these reports,
they b e c a m e v e r y v o l u m i n o u s
Governor Young. I
v
m e suggestion
i W i l l re.-enber
at
have o n e t i ing i n mind. I
would
like t o request t h e Board t o reGuire’the basic line
report e v e r y t w o w e e k s r a t h e r t h a n e v e r y t e n days.
Governor McDougal.
T h a t would suit m e all right.
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Federal Reserve Bank of St. Louis
Governor V a n Zandt.
Y o u mean t h e fifteenth a n d
last o f thé month, f o r instance?
Governor Young.
Yes.
T h a t i s the time w e figure
Go tne basic line,
Governor Norris. I
second that motion..
T h a t requires a
Governor Biggs.
tra work i n the office I
think,
great ©ceal o f ex-
t o get that o u t i n betreen
times, a n d I think t h e sugsestion i S & f004% o n e .
The Chairman.
D o you offer that a s a motion Gover-
nor Y o u n g ?
Governor Young. Y e s .
(Thé motion was p u t a n d unanimously carried.)
Governor McDougal.
C o u l d w e stop long enough t o
hear Mr. Young's definition o f a basic line?
Governor Calkins. I
I think i t i s d e s i r a b l e
have n o observations except
t o urge a
decrease
eréasing volume o f the reports required,
i n the i n -
T h e volume
is still increasing.
Governor Seay.
T h a t would b e a decrease i n fre-
quency.
Governor N o r r i s . I
vould
t
o a s k What knowl-
edge i f a n y the other Governons
a
s t o a very great
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Federal Reserve Bank of St. Louis
increase i n the collection o f statistics b y the agents
Reserve
and the Federal/ Banks, I
recently directed,
understand t h a t the Board n a s
each bank put i n
o r sug ~
a very greatly incrdased statistical organiZation,
which if it is to be put in our bank will involve a ve
great additional expense,
I t seems t o m e that i t i s
all right f o r the Federal Reserve B o a r d t o cellect those
atistics, a n d i t may b e a l l right f o r the N e w York
Bank, with its large business a n d its national and international t o u c h ,
t o d o it; b u t I
cannot s e e r h y i t i s
necéssary f o r other banks t > c o it, a n d I do not k n o w
whether i t i s the result o f a direc} order f r o m the
Federal Seserve Board o r whether i t is just a sugrestion.
If any o f the other Governors have information o n the
subiect I
would like t o hear it.
The Chairman. Governor Norris, you possibly refer
particularly t o that department i n New York which I
you have seen.
imagiz
I t was found a good while ago i n the New
York Bank that w e d i d need t w o things.
“ W e needed a
Statistical review o f our own business, which had become S o vast that t h e ordinary daily report d i d not
give y o u t h e i n f o r m a t i o n y o u r e q u i r e d
t o k e e p i n touch
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Federal Reserve Bank of St. Louis
with the business, a n d we also r e q u i r e d acertain
amount o f statisticel information bearing u p o n the
business b u t not originating i n the bank, a n d the
Federal t e s e r v e B o a r d w a s c o n s u l t e d
o n this m a t t e r
and expressed a keen desire, a s I understand it, t o
have that department developed somewhat f o r their
own benefit,
a s w e l l a s f o r ours,
a n d i t has n o w
grown t o c o n s i d e r a b l e p r o p o r t i o n s .
a large plant.
W
e have quite
Y o u r point about t h e conditions
peing different i n New York a n d some o f the other
districts i s o f course perfectly true. I
not understand, however, f r o m what w e have
that a similar organization i s expected t o
in a l l t h e o t h e r A e s e r v e B a n k s .
(Informal discussion followed.)
do
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Federal Reserve Bank of St. Louis
A r e y o u ready t o proceed v i t h
The Chairman.
the program, gentlemen?
Governor V a n Zandt.
a f t e r t h i s v e r y voluminous
Aiscussion I move w e pass number "(c)*
(The motion was p u t a n d unanimously carried.)
STANDARDIZING T H : sUDITING METHODS I i
RESERVE BANKS.
The Chairman. I
from t h e a u d i t o r
have Quite a
long memorandum
o f o u r b a n k containing recommendations
and arguments t o demonstrate t h a t b y standardizing t h e
audi i
i
n the r e s p e c t i v e r e s e r v e B a n k s
re
rill a f f o r d t o e a c h o t h e r a d d i t i o n e l s e c u r i t y o v e r
the present method o f e a c h bank having quite a n i m e
dependent system o f auditing from ell o f the others,
yhich i s probably the case,
M y theory i s i t i s a
technical matter, ~ h i c h r e a r e n o t p r e p a r e d
o r Capable
of discussing here, a n d i f any action should be taken
on this topic I would like t o suggest that i t be referred t o the Federal reserve agents f o r their program,
inasmuch as the auditing o f Federsl Reserve Banks i n
mest cases i s under t h e girection o f the Federal Reserve
agents.
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Federal Reserve Bank of St. Louis
Governor McDougal. I
would make s u c h a motion,
either that, o r t o the next C o n f e r e n c e o f auditors.
THE auditors meet about once a year, a s you Fill remember.
The Chairman.
‘ h a t i s your pleasure about this
topic, gentlemen?
Governor Seay.
a
m opposed t o reporting-to t h e
of
Federal Reserve agents a s a board/Directorg. I
think
it i s perfectly proper for i t to come u p i n your scssiong
Governor Calkins,
U h y not refer i t t o the Gon-
ference o f auditors?
The Chairman.
I f that i s your pleasure,
Governor Calkins, I
s o move.
(The motion was p u t and unanimously carried.)
{<=} s t a n d a r d i z a t i o n
o f Inter-Federal naeeeee
Bank forms.
The Chairman.
T h e next topic is"({f)."
Governor Wellborn.
D o e s that mean t h e accounting
forms, Mr. Chairman?
The Chairmen.
Yes,
Governor Calkins, I
to a
committee.
move t h e adoption,
o r report
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Federal Reserve Bank of St. Louis
(The motion was seconded, )
The Chairman.
T h e s a m e remarks a p p l y t o that
report w h i c h a p p l i e d t o the r e p o r t
o f the same com-
mittee o n the subject o f forms applicable t o direct
The m o t i o n i s t o a p p r o v e a n d a d o p t t h e
report, w h i c h means t h e adoption o f the forms b y the
respective reserve banks,
T s there any discussion?
If not,are y o u ready for t h e motion?
(Ihe motion was p u t a n d unanimously carried.)
Lis C O L L E C T I G N A N D CLOsRING
(a) U n i f o r m indorsements u p o n inter-district
cash a n d collection items s e n t direct b y member banks
one d i s t r i c t
t o Federal Heserve B a n k s
(This m a t t e r w a s r e f e r r e d
o f other districts.
t o t h e Federal R e s e r v e B o a r d
at the last governors' conference w i t h the request that
Counsel f o r t h e B o a r d p r e p a r e a
structions,
uniform letter
o f in-
o r a regulation covering indorsements t o
be ‘exchanged b y the twelve banks -
Suggested b y the
Federal Reserve Bank o f Vhicage.
The Chairman.
that a
a s 1 understand it, i t was found
variety o f indorsement forms were being u s e d
upon inter-district items, a n d inasmuch a s questions
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Federal Reserve Bank of St. Louis
Fi
of responsibility a r e involved i n the form o f indotsement i t was desired t o have t h e Federal Keserve B o a r d
rule u p o n t h e matter,
T
t h a s b e e n ~eferregd t o t h e Fred-
eral Reserve B o a r d a n d n o ruling h a s been made t o m y
know Ledge «
I
t might b e appropriate o n this particular
topic t o renew the reGuest t o the Federal Reserve Board
that the f o r m o f indorsement b e reviewed b y the Board,
or b y the Board's Counsel, u n d a report made back t o
the Reserve Banks,
Governor Young, i
so move ycu,
(The motion was seconded.)
T
Governur V a n Z a n d t ./ e200 c o u n s e l
i s working
on
jt, becuuse o u s counsel h a d a consultation i n regard
to i t here, a n d they are i n correspondence o n the
thing right now. I
think there r o u l d b e n o harm t o
Stipe t h e m u p s e tittle,
The Chairman.
T h e n the motion will b e t o ask the
Federal Reserve Board i f w e m a y not b e favored w i t h a
report i n this mtter.
I s that your motion, Governoat
yan 4andt?
Governor Van Zandt, I
nor Fancher seconding it.
made that motion, yes, Gover-
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Federal Reserve Bank of St. Louis
{The m o t i o n w a s u n a n i m o u s l y c a r r i e d . )
T h e next i t e m i s "(b.)"
The Chairman,
(bo) D e s i r a b i l i t y o f having adequate uniform
circulars covering collection o f caSh a n d coilection
items , e d e r a l Reserve Bank o f New York) including
direct routing o f collection items payable i n other
11 ReserveBanks a n d direct routing o f cash items
by member banks t o other Federzl Reserve Banks a n d
(Federal Reserve Bank o f Cleveland.)
The Chairman. T h i s topic "(b)" i s the most important o n the whole program.
the F e d e r a l R e s e r v e B a n k o . w
both. I
T t Was suggested b y
York a n d o f Cleveland
a m going t o ask ir. Harrison t o discuss t h
but i n general I
want t o call.the attention
Governors t o t h e fact that t o a certain extent t h e
liability which rests u p o n a Keserve B a n k a s a collecting agent i s determined b y the terms under which
it agrees
t o perform t h i s service; t h a t those t e r m s
are sent o u t i n circulars, s e n t o u t b y the secretary o f
the R e s e r v e B a n k s .
-
a n d that where those circulars
aif-
fer i n their terms there m a y be a different degree o f
responsibility a s s u m e d b y o n e b a n k o v e r a n o t h e r b a n k ,
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Federal Reserve Bank of St. Louis
and even the degrees o f responsibility Fhich exists a s
between t h e Keserve Banks m a y b e a n important consideration.
Mr. Harrison a n d Mr. Hart have b e e n Considering
this m a t t e r
i n New Y o r k a n d t h e y have prepared a n argu-
ment o n the one hand and a proposed form o f circular,
which I
believe h a s also been delivered t o ir. L o g a n for
his c o n s i d e r a t i o n ,
a n d they feel that this oreposed form
of c i r c u l a r a b o u t c o v e r s t h e l i a b i l i t i e s w h i c h s h o u l d
be assumed b y the Federal Reserve B a n k i n making collections,
H a v e y o u the papers necessary, Mr. Harrison,
to discuss t h i s m a t t e r ? I
Mr. Harrison. L
think c o p i e s w e r e d e l i v e r e d ,
think that I
can cover t h e points
raised i n this topic b y reading briefly from a section
of a
report I
made t o G o v e r n o r S t r o n g .
"at t h e present time e a c h o f the tvelve Federal
Reserve B a n k s h a s i s s u e d c i r c u l a r s
o n these m a t t e r s , "
that i s the subjects o f the circulars ccvering collections
o f c a s h items,
a n d t h e so-called regular
collection i t e m s .
Governor Seay. T h a t i s between Federal Reserve
districts?
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Federal Reserve Bank of St. Louis
Mr, Harrison.
W o , i n t r a district collections.
UtThere h a s been n o attempt t o provide a
circular f o r the System.
uniform
I n view o f the fact that
under t h e present collection procesure eaéhhFederal R e serve B a n k i s a p t t o u s e e a c h o t h e r ' s B e d e r a l R e s e r v e
Bewk o r branch a s a collecting agent,
parent t h a t e a c h R e s e r v e B a n k h a s a
j t becomes a p -
very direct inter-
est i n the collection circulars o f each other bank,
particularly i n that clause o f those circulars defin-
ing the obligations a n d liabilities o f the issuing
pank a s a collection agent.”
We have g i v e n considerable time. a n d thought t o
the preparation o f a new Clause defining t h e l i a b i l i t y
ting branch a n d its responsibilities, r h i c h
we believe covers t h e best ideas presented i n all o f
the F e d e r a l R e s e r v e B a n k circulars,
W
e have studied
each o n e o f t h e m i n d i v i d u a l l y a n d wre h a v e t r i e d t o
incorporate i n one clause a l l o f those points t h a t
the Federal Reserve Banks h a v e
s
i i n different
language, end i n sometimes fairly loose language.
will r e a d t h a t paragraph. I
i I
m a y s e y beforehand, h o w e v e r ,
that w e have already put this paragraph into effect i n
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Federal Reserve Bank of St. Louis
our c i s t r i c t b a n k s b e c a u s e
important
w e f e l t i t ras particularly
t o heave i n o u r c i r c u l a r s o m e s p e c i f i c statemert
to the effect that w e could s e n d a n item direct t o draree
banks f o r payment, ¢ither i n cash o r a bank draft, and,
second, that we could send an item for collection
through another Federal Reserve Bank with authority
to that other Federal Reserve B a n k t o send direct i n
collection
i n c a s h o r b a n k draft.
T h e reason for
that i s this, t h a t while t h e Federal Reserve B a n k o f
the originating district m a y b e protected i n sending
the item direct itself, a n d while i t may be protected
in r e c e i v i n g p a y m e n t a
b a n k d r a f t i n s t e a d o f cash,
it
would not b e p r o t e c t e d i
f i t sent i t t o another Federal
Reserve B a n k who took payment i n that manner, unless i t
had s p e c i f i c a u t h o r i t y f r o m t h e s e n d i n g m e m b e r b a n k t o
seni t o another agent v i t h s u c h authority. I
wanteéu
outjine t h a t a little b i t s o y o u will catch t h e purpose
of t h i s p a r t i c u l a r c l a u s e a s I
read i t :
"Every bank sending checks o r other cash items
to us, o r t o another Federal Reserve B a n k d i r e c t f o r
our account,
w i l l b e understood
t o have agreed that
in
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Federal Reserve Bank of St. Louis
agent
o f the sending bank; t h a t w e will b e
only for d u e diligence a n d care i n forwarding s u c h
items p r o m p t l y ;
t h a t w e are authorized t o send such
items, f o r payment i n cash o r bank draft, direct t o the
bank o n vhich they are drawn, or, i n our jiscretion, t o
forward t h e m t o another agent w i t h authority t o send
them, for payment i n cash o r bank draft, direct t o the
pank o n which t h e y a r e d r a w n ;
a n d that w e a r e authorized
to charge b a c k t h e amount o f a n y items (whether o r not
the items themselves c a n b e returned) w h i c h actually
i n cash o r collected bank
have n o t p e e n paid,éither
draft."
I think that covers pretty nearly every point o f
protection t h a t each o f the other Federal Reserve Danks
has’ put i n their circulars.
thet s o m e
o f the Federal
I t covers m a n y points
Keserve
Banks
d o not cover
a t
all, t o t I think that i t does cover t h e aggregate o f
all protective clauses i n the other Federal Reserve
Bank circulars,
Governor Van Zandt, I
think w e include all of
that i n our. circular, except v e g o a little bit further
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Federal Reserve Bank of St. Louis
in one case,
i ¢ wind u p b y saying:
“assumes n o liability until collected
payment are actually i n its hands."
ie p u t that i n b y reason o f the f a c t the claim
might b e made that i t h a d been paid i n the event a
received e n d h a d b e e n c r e c i t e d t e o u r
acccunt i n a busted bank, instead c f remitting for
it a s under instructions.
Mr. Harrison. I
think that point vas intended
to have been covered.in this clause:
Nand that ze are authorized t o charge back the
gmount o f a n y items (whether o r not t h e items themselves
can b e returned) « h i c h actually have n o t been p a i d 61
in cash o r collecteai draft."
Governor V a n 4andt.
Mir. Harrison.
‘ O r collected craft?
Y E S »
Governor V a n Zandt.
Governor C a l k i n s .
T h a t i s é11 right.
L i l l
that cover the losses
the F e d e r a l R e s e r v e B a n k i n this c a s e ?
o f
T h e Federal
Reserve Bank sends a n item t o a small bank, ‘ r e member
bank c r e d i t s t h e i t e m a n d n o t i f i e s t h e F e d e r a l R e s e r v e
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Federal Reserve Bank of St. Louis
Bank, w h i c h accepted t h e credit, a n d subsequently finds
C a n you avoid responsibility i n
st hee n o t pein p e d .
that c a s e ?
GovernaeVan Z a n d t .
N o .
You m e a n t n a t t h e p a y m e n t
i n that
The Chairman, w h i c h would b e charges
count t o
Mir, Harrison.
I f you, o n their advice t h a t t h e y
all
have/given y o u t h e c r e d i t c h a r g e f o r t h e R e s e r v e a c c o u n t
that s e t t i c s t h s t h i n g .
Governor Calkins.
T h a t i s What I think,
have pea some very acute Isssons, I think,
i
t e
n re-
gard t o the collection o f checks,and the necessity o f
t
uniform practice b y all Federel] Reserve Banks i s s o
acutely cbvious t h a t this thing should b e settled once
ard-for e l i e n e r e ,
Mr, Harrison. I
want t o call t h e attention o f the
Conference that i s only one phase o f the matter, that
a circular should b e prepsred o n this whole subject.
This i s the only cilamse w e have a s yet definitely
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Federal Reserve Bank of St. Louis
decided,was
i n the N e w Y o r k bank e n d issued t o our member
b u t hir, H a r t a n d I
banks,
have p r e p a r e d a
circular, w h i c h
we are taking the liberty o n our own account o f taking
up with Mr, D o g a n i n order t o get h i s views o n the
matter.
C u r thought w a s that i t would b e
not o n l y t o a d o p t a
u n i f o r m c l a u s e o f t h i s character,
but also a uniform circular s o far a s local c m d i t i o n s
permit o f a circular being uniform.
Governor Calkins,
a r e there a n y conditions “hich
do not permit o f uniform practice?
Mr. Harrison. I
t h i n k n o n e a t all, e x c e p t
fact that i t m a y b e necessar
o f the
i n c l u d e i n some bank
circulars reference t o their o w n branches, vhereas other
Federal Reserve Banks might not have branches end may
mot have s u c h exceptions a s that.
The Chairman. I
think there i s a possibility,
Governor Calkins, where modification o f practice,---I
do not know that i t would reach the f o r m o f this c i r cular necessarily,---but vhere some modification o f
practice w o u l d arise.
D a l l a s f o r instance, h a s a n
inter-bank settlement arrangement.
j e are developing
that i n New York, a n d w e have t o nave a special circular o f s o m e k i n d t o c o v e r i t e m S r h i c h a r e t o b e c l e a r e d
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Federal Reserve Bank of St. Louis
in these so-callea c l e a r i n g arcas w h i c h w e are establishing.
Governor Calkins. T h a t i s a aifferent matter.
The Chairman.
I t is a little different, but as a
matter o f fact w e send items f o r collection through that
machinery just t h e same a s a n y bank would.
Governor C a l k i n s . I
w o u l d l i k e t o move, i r , C h a i r -
committees b e a p p o i n t e d
man, t h a t a
t o formulate a
circu-
lar f o r adoption b y all t h e twelve Federal Reserve Banks
covering clearings a n d colisctions 4 s sugrested.
Governor M c D o u g a l .
W o u l d y o u a m e n d that a n d per-
mit i t t o b e given t o the regular committee represented
by three good banks ard three very good men o n it, the
Committee o n Forms?
I think, Governor McDougal, this i s
more t h a n a
Question
o f forms.
nical matter relating morsudirectly t o
e
r
t rh a nu i td d oee s ct o othis,
p rhe
t
h
e questions i n -
volved a r e n o w becoming more o f a legal nature than a n y
other.
course
Governor Calkins. Of/they would have to have ths
adwice o f yourself and advice o f cur counsel. I
supplement t h a t m o t i o n
rill
b y t h e s u g g e s t i o n t h a t t h a t corn-
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Federal Reserve Bank of St. Louis
mbttee b e e s s e n t i a l l y a
l s g a l committee, N r . H a r r i -
son being a member,
The Chairman. M a y I make this further suggestion
before y o u r m o t i o n i s
Governor C a l k i n s .
The Chairman. I
Certainly.
think the subject ¢
c o ilect-
b e dealt w i t h
fons i n c l u d e s t w o m a t t e r s w h i c h h a v e t o
right now.
O n e i s the procedure that i s -followed
safely
in collecting checks a n a getting t h e oroceeds
into o u r hands.
T h e other i s distinctly t h e circu-
lars a n d forms employed t o carry o u t that procedure,
o f a disNow this circular i s more t h e outgrowth
cussion i n our bank o f certain defects o f procedure
mhich a r e liable t o develop.
suggested e
G o v e r n o r V a n Zandt h a s
topic, w h i c h w i l l c o m e u p i n t v i s c o n n e c -
tion i n a moment, which h e would like t o discuss,
to
which I think will bring/light
t h e fact that there
are weaknesses i n the procedure w h i c h w e now pursue,
not
and i t h a s l e d u s t o consider w h e t h e r t h e t i m e i s
coming w h e n w e m a y gradually impose a
requirement
that they
upen b a n k s u p o n w h i c h w e c o l l e c t c h e c k s
shall remit t o u s i n Federal Reserve B a n k funds,
that would b é the last, extreme development o f this
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Federal Reserve Bank of St. Louis
system, b u t i f the time ever comes w h e n i t i s understood
that S e t t l e m e n t s f o r c o l l e c t i o n s s e n t o u t b y Federal
Reserve Banks shall b e settled o n the books o f the Federal Reserve B a n k b y a draft o n that bank, w e are going
to eliminate e
up a
very large part o f the risk o f giving
c o l l e c t i o n i t e m i n exchange f o r a
piece o f p a p e r
drawn b y one bank o n another b a n k without absolute
assurance t h a t t h e b a n k o n w h i c h i t i s d r a y m i s g o i n g
to p a y it.
T h a t i s a Weakness w h i c h i s developing
just n o w d u r i n g t h i s p e r i o d w h e n t h e r e a r e a
great m a n y
banks i n the United States that a r e o n the verge o f failure.
I t probably i s not a n exaggeration t o s a y that
there i s possibly n o bank that c a n fail i n the
States t o d a y where t h e #ederal Reserve B a n k System will
not b e found t o have some items i n that bank i n some
form o r other, a n d I would like t o see t h e action
taken b y t h i s m e e t i n g g o i n g S o f a r a s t o r e f e r t h e
whole subject o f the procedure a n d the forms a n d circulars w h i c h a r e t o b e e m p l o y e d
i n carrying o u t that pro-
cedure, t o a conmittee o f which I should like t o have
Mr. Harrison serve a s a member upon, because h e i s
both a lawyer sand he i s giving Supervision t o this
department i n our bank just now.
I t might b e a good
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Federal Reserve Bank of St. Louis
751
plan t o have counsel o f the Federal Reserve Board serve
on that committes, a n d possibly some m e n from the Reserve
Banks w h o are especially familiar w i t h the whole subject
Or ecliections. I
d o n o t p r e t e n d t o be.
more o f the general Questions involving a bank that i s
handling Something like #300,000,000 collection items
every d a y now,
Governor V a n 4andt.
T h a t i s the intent o f m y
motion.
Governor Fancher,
have g i v e n a
I t is a subject t o which w e
g o o d d e a l o f thought,
a n d w e brought i n t o
frequent consultation o n e o f the members o f our firm
of counsel that are -
n g retained, a n d h e has been
giving this subject a good deal o f thought and from
a good many angles, working o n these v a r i m s things,
various complications t h a t have arisen, a n d w e c a n
see a r e likely t o arise i n handling this b i g volume o f
checks a n d collections w e a r e getting now,
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Federal Reserve Bank of St. Louis
The Chairman.
O f course, i r . Fancher h a s made i t
perfectly o b v i o u s t h a t w e s h o u l d a p p o i n t h i m a n d h i s
counsel.
N o t a t all.
Governor Fancher.
this a good deal o f thought.
matter.
I
t e have simply given
I t is a very important
t has impressed v s that there a r e a good
weak
many/ links i n our procedure i n handling checks o n collection,
a n d t h e volume
i s increasing a n d o u r liability
to loss i s also increasing.
The Chairman.
G o v e r n o r Fancher, I
o f this Conference
o n every committee
served
think y o u h a v e
o n this
subject s i n c e these Conferences w e r e held, a n d w e would
not feel safe i f y o u were n o t o n that canmittee.
Mr. Bacher. T
think I
a m entitled t o a decoration
and l e t someone e l s e serves
Governor V a n gandt-. I
The Chairman.
will second t h e motion.
A r e y o u ready f o r the question o n that
motion?
Governor V a n aandt. I
one remark o n that.
I
shculi like t o make j u s t
n the preperation o f this circu-
lar i t may b e the committee will adopt what i s the practice,
as I
understand i t ,
i n most o f t h e Federal “eserve
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Federal Reserve Bank of St. Louis
t c send these c a s h letters o u t a n d simply s a y
Banks,
"we enclose for cellection,"or something o f that kine,
but o u r letters a r e very explicit i n that, a n d o u r cir-~
Guiles. i e Goat i t ts for remittance only i n funds immediately a v a i l a b l e
t o u s f o r ressrve,
a n d W e should hate
to drop back a n d receive funds w h i c h were n o t immediately
available u p o n receipt.
Toe Chairmen. H a v e you ever had the experience,
Governor Van Zandt. o f getting a checx i n settlement o f
a cash collection a n d later i t w a s n o t paid, s o the
funds voetie were r o t immediately available u p o n receipt?
Governor V a n wandt.
Y e s sir, many a time.
The Chairman. T h e n you are referring t o a recent
decision i n policy b y t h e bank.
Governor V a n Zandt.
The Chairman.
Governor
effect
B y our bank.
B y your bank?
V a n wandt.
Y e s , a
o n the 1 5 t h o f F e b r u a r y
circular
that went into
i n o r r bank.
W w e require
a remittance f o r o u r rediscounts n o w that w e send o u t for
collection.
pooks
w e d o not l e t t h e m charge t h e m u p o n their
t o o u r account.
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Federal Reserve Bank of St. Louis
I n case o f your member banks?
Governor Seay.
Governor V a n Zandt.
Governor G a l k i n s .
Yes.
T h a t i s n o t u n d e r discussion.
J u s t with regard t o the terms
Governor ellborn.
of t h e circular.
Governor Calkins.
N o t a s f a r a s t h e rediscounts
are concerned.
N o , but I
Governor sellborn.
am talking about
the c a s h letters.
Governor Galzins. I
assume t h i s c o m m i t t e e w i l l
submit their suggestions before final adoption.
(fhe motion was put and unanimously carried).
The Cosirman.
think,
N o w t h e point i s the committee.
i f i t i s entirely agreeable
t o y o u ;:
I would greatly appreciate having Mr-tarrison serve o n
that committes.
Governor Fancher. I
think your suggestion t o have
dir. Logan serve would b e very desirable.
The Chairman. I
think that would b e very desirable.
dave y o u a n y o t h e r s u g g e s t i o n s a b o u t t h e m e m b e r s h i p o f
the committee?
Governor C a l k i n s e N o n e , e x c e p t G o v e r n o r Fancher.
Governor Weilborn.
T h e y will b e submitted t o the
other banks, w i l l t h e y not?
The Chairman.
V f course.
Governor Hellborn.
additional committce, *
Chairman.
Then I
fovw m e n there working together
D
o y o u not think w e should have serv-
them s o m e o f f i c e r s
acquainted
do n o t s e e a n y use o f a n
o f t h e Heserve Banks w h o a r e
i n detail w i t h t h e t e c h n i q u e
o f handling collect-
ions?
Governor kxellhborn.
The Chairman,
ernor #ellborn.
and W e h a v e a
h
a
v
e a l i that
i n your b a n k ?
Y e s , b u t y o u s c e b y d o i n g t h a t , Gcev-
i t would b e a sort o f New York Bank job,
littie d i f f e r e n t
point
o f view about col-
lections in New York, it is a new business with us there.
Governer hellborn. I
Same @ 8 every
certainly t h i n k i t w o u l d b e t h e
cther district, t h e
Mre Harrison. I
think i t i s very necessary t o get o n
that c o m m i t t e e o n e o f t h e b e s t t r a n s i t m e n i n t h e system,
and w h e that i s I
if I
a m not qualified t o say myself. I
should h a p p e n t o b e a
member
o f t h e committee I
know
would
not feel qualified t o act without a n extremely able transit
Mane
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis
Governor Biggs.e I
know a
gocd o n e i n Chicago.
Governor McDcugal.
C o u l d not the committee call upc:
such men as they might want t o help o r werk with them?
The Chairman. I
of y o u r v i e w s
should l i k e t o get a n e x p r e s d n
o
a s t o who a v e t h e best m e n i n the system
Of course,
i n t h e o l d days,
W e used
aii o n Mckay f o r a gocd d e a l o f
Governor V a n Zandt.
H e r a laaoe 5
u t y Governor,
whom y o u ali know, M r . Tally.
Governor Fancher.
Governor M s D o u g a l .
Bockmen,
W e have a
w
very good man, Mr.
o bavye a n o t h e r g o o d man, w r .
i n our t r a n s i t department.
i f h e could b e o f
r a. gure b e would b e glac t o essiste
Me C h a i r m a n e
convenience,
I f there w e r e n o other r e a s o n t h a n
i t would b e desirable t o have men, i f w e
can g e t real. g o o d t i p - t o p m e n f r o m b a n k s t h a t a r e n o t t o o
far f r o m
Governor Seaye
H e heve recently h a d a very ccmpli-
cated case involving t h e s u m c f abcut ~500,000 i n one
particular bank, a s all o f y o u Federal Keserve Banks
know, wire Greenwood. |
k
w e covered
i t b y o u r cir-
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Federal Reserve Bank of St. Louis
cular very thoroughly, b u t i t has provided a n experience
which c o n f i r m s
u s i n the v i e w t h a t y o u expressed t h a t
this i s one o f the most important things w i t h which w e
have t o deal.
e have a l s o a
w
think
very a b l e man, I
he will compare favorably w i t h most o f them.
d e was
on the committee o f handling collections, a n d s o forth,
at the meeting a t Cleveland.
# i l l someone suggest a n appointment
The Chairman.
for t h e Chairman t o make o f s a y t w o good transit men?
Governor kellborn. I
nominate t h e o n e from Kichmond
I t i s close t o vashington, a n d Gov-
for o n e o f them.
ernor Seay spoke v e r y highly o f him.
Governor Calkins.
w h e n I offered t h e motion, I
intended t o say a committee appointed b y the chair.
The Chairman. I
t o make.
appointments
the t r a n s i t
was scraping around f o r t h e best
G o v e r n o r “%ellborn suggests t h a t
m e n o f the Federal.“eserve
bank
a t Richmond
be appointed.
Governor kellborn. I
for a
only d i d that because y o u asked
suggestion.
Governor S e a y .
an officer.
H
d e is a
e i s Assistant
l i t t l e m o r e t h a n that,
t o t h e Governor.
d
he is
e has
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Federal Reserve Bank of St. Louis
these matters o f forms a n d accounting i n charge, a r d
he has technical inowledge, a n d h e i s a good man. i
39
not claim h e * s surericr t o all others; b u t h e i s a
good Maite
H e i s trained i n this particular busi-
To Chairman.
ness?
a i n n
Governor Seay. ‘
has sufficient official knowledges, I
think.
d e has attended a l l these tran-
Governor ‘iellbcrn.
sit conferences.
this business a n d
H e i g available t o y o u i f desired. I
am n o t p r e s s i n g h i m o n t o t h e committee,
you
I wish t o leave that t o the chair.
The Chairman.
subject t o your convenience a n d t o Mr. darrison's c a l l
for additional help i f h e i s not available, l e a v e i t a
little flexible.
I s that entirely satisfactory?
Nie. Q a r r i s o n .
Governor Seay.
w h a t
M r .
i s t h e name?
J » S e xalden.
(e) D e v e l o p m e n t o f inter-city a n d country clearing
settlements
Thre Chairman.
i n Federal Seserve funds.
T h i s disposes o f topic tb). Topic ( c )
to
is a n inquiry b y the N e w York Bank f o r information a s
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Federal Reserve Bank of St. Louis
whether t h e o t h e r K e s e r v e
city a n d country cisaring sett leneit:
settlement
a line i n New Y o r k upon t h e success
oY
are anxious t o get
are being
or non-success o f a n y cleering pians w h i c h
ned, which have that a s their o h ject. I
may s a y
have a number o f such operations under
New York, extending
f
e S y r a c u s e , w h e r e banks t h a t
+
are conveiiently l o c a
o a common center t o
settleexcharge cheeks emong themselves a n d effect the
ment b y drawing u p o n o r giving credit i n
Keserve B a u k o f
Governcer Norris.
Trenton, a n d
ITH
eo.
+
e
r
a
e Pa
AaIrnane
.
Governor Norris.
Yese
Governor Calkins.
w e heve n o system except that
covering the community about Les Angsles, which i s a very
extensive community,
a s y o u know.
Toe Ghairman. D o e s that extend out t o Passadena?
of
Governor Calkins. Y e s , Long Beach and several
those towns there.
S e t t l e m e n t s a r e made o n the books
of the Federal Neserve Bank.
Governor S e a y .
and m a y r e s u l t
i n some cases
The Chairman.
in New Yorke
I t is a
highly interesting m o v e m e n t
i n e s t a b l i s h i n g branches.
T h a t i s very much what has developed
* @ have g o t t h e brooklyn bankers t o work
up a clearing plan; w e have t h e bankers o f the northern
section o f New Jersey, across t h e river;
ment u n d e r w a y o u t i n N e w a r k now, I
w e have a
believe;
settle-
w e have o n e
in t h e u p p e r p a r t o f N e w Y o r k City, t h a t i s b e y o n d t h e
douse; then we have north Jersey, which actually meets
in our o v n building i n New York a n d exchanges items a n d
settles
o n o u r books.
to s e t t i e m e n t
d a s there b e e n objection raised
i n reserve f u n d s
i n the experience
o f any
of y o u ? |
Governor Fancher.
x
e have b e e n endeavoring
t o es~
tablish/clesr ine centers a t Colunbus, Ohio, which, geographically, i s the center o f the State, a n d around which
a substantial zone might b e built.
w
e have not u p to the
present time g o t t h e Golumbus banks sufficiently inter-
ested.
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Federal Reserve Bank of St. Louis
“
@ had i n mind there might b e established a n
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Federal Reserve Bank of St. Louis
agency o r b r a n c h o r s o m e t h i n g o f t h a t s o r t there,
and we
are trying t o work along with t h e banks a n d g e t them
sufficiently i n t e r o s t e d a n d u n d e r p r o p e r c o o p e r a t i o n
at
T h e r e h a s b e e n some interest displayed
on
the start.
the part o f the bauks a t Toledo, arcund Toledo w e could
build quite a svbstantial zone i n the northvestern cor-
yet
ner o f the State, put we have not got anything a s
very tangible.
I
t is a matter which i s being ¢on-
sidered a n d worked along very quietly.
Governor Galkins.
C l e a r i n g house settlements e r e
Kemade i n all o w branch cities o n beoks o f the Federal
serve Banik.
in theo 1by.
yashington i n a very setisfactory mannere
The Cheirman.
A r e efforts being made
extend this plan?
Governur Calkins. Slowly, i n our State.
N o , n o t i n our district.
Governer Young.
The Chairman.
x
e are beginning
nave @ location, w i t h Albany o n ore 8
t o p u s h i t now-
n e
d e and Detroit o n
c a n all
the other, Schenectady a n d Hensaeller, t h o s e
u p there a n d save
be brought together i n one settlement
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Federal Reserve Bank of St. Louis
742
a lot o f checks coming t o us.
Governor Fancher,
s @ find,
matter, d i f f e r e n t a t t i t u d e s
a s r e investigate this
o n t h e p a r t c f t h e banks,
and some monthly checks t o float a n d not t o b e presented
for payment.
Governor Norris.
O n e happy result
o f t h e establish-
ment o f t h e system i n Scranton w a s that i t disclosed t h e
fact t h a t o n e b a n k t h e r e w a s d o i n g that, w h e r e u p o n t h e
rest o f the banks a l l jumped o n it, a n d finelly there
was a n absorption, t h e y g o t rid o f the weak member w h o
had been giving u s a great d e a l o f trouble.
have n o a c t i o n t o a s k o n this
The Chairman. I
topic.
(ad) C o l l e c t i o n
o f checks
unsatisfactory c
o n banks w h i c h a r e i n a n
mcition o r from which u n -
satisfactory returns a r e being received.
Discussion o f the credit r i s k involved.
The Chairman.
T h e n e x t i s i t e m (d), G o v e r n o r V a n
Zandt's item, collection o f checks o n banks which are
in unsatisfactory condition.
Governor V a n Zandt.
G o v e r n o r V a n aandt?
T h a t collection will undoubtediy
be cOvered almost entirely b y the committee t h a t has j u s t
been appointed, o f f which wir. t a r r i s o n i s t h e chairman.
ve nave h a d some v e r y serious situations arise d o w n i n our
district, one we are tied u p in now. F o r instance, ¥ e
had a member t a n k i n the t o m o f Kanger, Texas,
oil fields.
T h e r e were three non-member banks.
i n the
k r e
sent o u r items t o our member b a n k i n Ranger f o r collection
on all o f the other banks, with the understanding that i t
was s i m p l y o u r a g e n t f o r them, a n d i t w o u l d g o t o t h e s e
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Federal Reserve Bank of St. Louis
other banks, present the items, get such money as it
thought w a s safe, a s i t was willing t o guarantee f r o m
the other banks, a n d would t h e n send u s its draft o n
T h e First National B a n k o f Ranger
the Fort ‘orth Bank.
failed a n d w e h a d i n transit t o u s a n d from u s t o the
Fort Worth B a n k three drafts representing t h e three
days prior t o the day the bank closed.
T h o s e represented
items thet had been collected from these three solvent
banks.
N o w what is our responsibility o n these items?
items
Of course, t h o s e d r a f t s w e r e n o t paid, a n d s t i l l t h e
which w e sent vere paid, p a i d b y the bank o n whom drawne
Governor Norris.
G o v e r n o r S e a y c a n tell y o u all
about that.
Governor Seay.
N o , h e cannot.
Toe Chairman.
W e will entertain a motion of sym-
pathy f o r Governor V a n “sandt.
Governor V a n Zandt. S y m p a t h y does n o t g e t u s anyyhere.
se are n o t going t o lose anything.
ie. darrison.
Van sandt, I
I reed.
T h a t w a s j u s t t h e v e r y point, G o v e r n o r
intended t o b e covered b y this paragraph that
T h e othor Federal “eserve Banks a r s a p t t o
lose i n thst very case i f their member banks a r e wise,
for the reason that there i s not a one o f the Federal
neserve Eanks which h a s sent a n y draft drawn o n that
particular b a n k a n d paid i n thet particu lar manner,
by
bank a r e f t s n o t r e a l i z e d u p o n t h a t w e u l d b e protected,
for t h e reason that there i s n o #ederal Keserve B a n k
that has authority t o send items t o another Federal Re-~serve B a n k w i t h a u t h o r i t y
bank draft.
I
t o send direct f o r payment
i n
n other words, t h a t i s o n e o f those acts
of common l a w negligence f r o m which n o circular o f a n y
Federal neserve B a n k exempts i t .
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Federal Reserve Bank of St. Louis
The Chairman.
A l t h o u g h t h e y might,
i f they were
properly d r a w n ?
iy. marrison. A l t h o u g h they might i f they were
properly drawn, a n d although t h e y would b e i f all the
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Federal Reserve Bank of St. Louis
Federal “eserve banks would adopt this particuler paragraph
which I
read t o y o u a few moments ogo.
Governor Fancher.
D o u n d e r s t a n d t h e items i n the
non-member banks w e r e p a i d b y their drafts o n some correspond.
and t h e Kenger National R a n k collected t h e drafts a n d
its drafts ageinsy you were not paid?
Governor V a n Zendt.
Y e s , i t collected t h e items,
receiving i n payment Fort worth exchange,
Fort « o r t h e x c h a n g e
T h e y sent this
t o their correspondent a n d i t was
collected a n d crerited t o their account, b u t b y the
time their items grt thore, the drafts they sent t o us
at the came time, t h e bank hac failed, a n a o f course t h e
drafts wers unpaid.
Governor tellborn. I
to the tims o f the day.
Governor V a n uwandt.
Mr. Chairman.
O
was going t o call attention
I t is ten minutes efter 6.
J u s t a n o t h e r p o i n t o n this,
n this point I vant some information
from the otner Governors.
%
6 have n o t only o n e bank,
but probebly a hundred that w e ara efraid ere geing t o
fail, t h a t w o never know w n e n tos time i s going t o come
when o n e o f t h e m i s g o i n g t o pope
I n sending items-~
at least i n collecting items o n a member bank i n 4
precarious c o n d i t i o n ,
w h a t method s h o u l d b e pursued?
If we send them direct, there being n o other bank i n
the town, w e are liable t o get them caught, t i e d up,
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Federal Reserve Bank of St. Louis
and a s we have knewledge that the bank i s i n a precar-~
ious condition, i t would b e negligence.
them b y express,
I
f we send
w e precipitate t h e closing.
Mr. saarrison.
I n our District v e have a
force
to a
that v e use merely f o r the purpose o f sending o u t
bank o f that kind,
t o b e right o n the premises a n d t o
receive o u r c a s h l e t t e r s t h a t day.
Governor V a n Gandt-
. @ probably have a
force t w o
same work,
or three times a s large a s yours doing that
but y o u cannot cover t h e whole district.
suggest tnat a s probably t h e o n l y
wir. darrison. I
answer.
Governor Seay.
constantly
u
e have a
f t e n o r twelve m e n
t e a m o
o n t h e r o a d i n t h a t matter.
Governor aandt.-
B u t sometimes
v e d o not have the
men $0 send to this district and have to send the items
by express.
Governor sicDougel.
Y o u have some regularly appoint-
ed agents a t some o f these points?
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Federal Reserve Bank of St. Louis
Governor °eay.
‘ % ’ e bave a few banks i n North Caro-~
Lina which will n o t remit u s a t para m talking about member banks,
Governor V a n Zandt. I
Governor Seay.
Governor Seay.
well, I
Y o u are talking about member banks?
have n o reason t o alter m y statement with respect
to the situation.
The Chairman. G o v e r n o r Seay, t h e thing that impresses
me v e r y m u c h a b o u t t h i s s i t u a t i o n ,
which I
sdmit i s n o t
disas serious nearly i n our district a s i t is i n other
tricts,
i s the fact that v e have really represented
to
o n all banks
in
the c o u n t r y t h a t w e c a n c o l l e c t c h e c k s
the U n i t e d States,
a n d t h a t i n t h e c a s e o f m a n y banks,
nave n o d o u b t t h e r e a r e h u n d r e d s
stitutions,
t h e o n l y ones
o f banks, s m a l l i n -
i n t h e town,
w e are i n a po-
time;
sition where w e are bound t o get caught from time t o
there s e e m s
t o b e n o e s c a p e f r o m i t unless
w e modify
United
our position a n d s a y there a r e some banks i n the
States o n which w e d o not want t o collect checks, a n d i f
we d o w e will probably close those banks.
Governor F a n c h e r .
T
h
i
s c u s t o m has prevailed, i
where returns are
think, i n the regular commercial banks
unsatisfactory,
conditions,
t h e draft protested
r
o
o r u n s a t i s f a c ty
y o u simply s a y t o your customers t h a t a con-
tinuance o f their return was n o t satisfactory a n d kindly
-$6 handle it.
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Federal Reserve Bank of St. Louis
w e have done that repeatedly.
1 0 % better o n the whole t o g o
The Chairman. L
to such a
@
n k and 5 2 "Pht. 7
g
‘
do y o u w a n t u s {
o
situation, n o w what
t + o put your shop i n
order." C e r t a i n l y they would have t o justify us i n
some w a y i n continuing t o handle these checks o r else
we w o u l d h a v e t o d o something.
I f w e d o too5,
3 1 Wo sey
we w i l l n o t h a n d l e t h o s e c h e c k s , t h e n w e d e v e l o p a
black
list, n o t a non-var list, b u t a black list, t h a t Kould
possibly precipitate t h e very thing W e are seeking t o
avoid, b a n k failures.
Governor Seay.
par list. I
i
think I
will certainly fustify a
e r e inevitably coming t o a noncan demonstrate conditions w h i c h
non-par list.
the b e s t o f t h e situation,
and I
v e are making
do not believe t h a t
ingenuity c a n discover a n y things t o d o which w e have n o t
been m a d e f a m i l i a r w i t h , b u t I
a m just a s certain a s
can b e that a non-par l i s t i s inevitable.
w
e have that
matter f o r d i s c u s s i o n w i t h t h e F e d e r a l K e s e r v e Board,
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Federal Reserve Bank of St. Louis
and I
think I
can demonstrate a
severe n e c e s s i t y f o r a
suppose similar conditions prevail
non-par list, a n d I
and I
Feceral
National
nar collections
Bank
o f Atlanta
i n i t s district,
i f the
wins i t s suit a n d starts
i
wu
t will have n o t
a
hundreds; i
toyernor McDougal.
know
s inevitable
W i l l that cover t h e question o f
member banks y o u cannot collect from?
T h a t i g not intended t o cover t h e
Governor Seay.
totuk w e have t o deal with
question o f membsr banks. t
them a s within t h o system a n d use c u r o n n collective methods
there.
Governor C a l k i n
m
o
s
t @ifficult problem i s
with momber banks?
T n a t i s not o u r most difficult problem.
Governor Seay.
The Chairman.
G o v e r n o r Young:
Governor Young.
W w e have h a d a great deal o f exper-
fence w i t h i n t h e N o r t h w e s t a n d w e have, I
should s a y , @ &
the present time, 1 0 0 , 0 0 0 . 0 0 worth o f items, a n d i t i s
ona
a question whether o u r bank i s liable o r nct. I n / c a s e
where w e had a member bank that we thought should have
closed l o n g before,
w
i t was closed,
e kept sending
the i t e m s o u t t h e r e a n d n o t g e t t i n g a n y return, s e n t
men o u t t h e r e a n d f o u n d o u t h e c o u l d o n e p a y them, f o u n d
out t h e checks w e r e chargedup t o customers’ accounts,
we then proceeded t o notify a l ] endorsers o n those checks
and thought t h e bank should have been closed, b u t this
chap running t h e bank was rather a
and i n d u c e d t h e C o m p t r o l l e r
resentative
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Federal Reserve Bank of St. Louis
o f t h e Currency,
o f the Gomptroller
t o attempt
him t o s t a y o p e n ,
convincing talker
o r the rep-
o f t h e Currercy,
t o allow
t o see i f h e could n o t raise
the money, a s s u r e d h i m h e could,
s o " 6 have ~3,000.00
worth o f checks i n theree u h e t h e r w e are liable o n
those checks w e d o not know, although w e have plenty o f
excess colleteral,
s o w e should w o r k o u t o f tne situation
even i f w e a r e liable.
we have adopted this p l a n with t h e member banks,
where t h e N a t i o n a l e x a m i n e r d i d n o t s e e m t o w a n t t o
close t h e banks,
w e e n t e r e d t h e c h e c u s f o r collection,
notified t h e b a n k s t h a t h a v e s e n t t h e m t o us, a n d w e
believe a
non-par system i s necessary, y o u cannot avoid
it, t h a t i s a l l t h e r e i s t o it, a n d r e a l l y t h e n o n - p a r
list has t h e opposite effect f r o m what w e thought i t
s o
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Federal Reserve Bank of St. Louis
F51
would have, t h a t is, w e thought i t would grow, b u t when
the banks found o u t that there was a
non-par l i s t out,
T h e r e t s o n e b a n k i n South Dakota
they w o u l d increase.
thet i s suing o u r bank a t the present time f o r 955,000.00,
and a s soon a s w e p u t this non-par l i s t out, h e went o n
the p a r list and i s still suing us»
H e catches y o u coming a n d going?
Toe Ghairman.
Governor Biggs.
Y e s , but h e i s off o f the non-par
list; h e does not want t o go o n the par list, but does
not want t o g o o n the non-par list.
Governor Seay.
A e believe t h e non-par l i s t would
have a@ very salutary influence i n maxing the banks behave
themselves.
w
e a g r e e w i t h y o u t h a t i t w i l l n o t multiply,
but i t will gradually diminish.
a
The Chairman.
e have, gentlemen, a dozen different
topics left o n our program, aside from the program for digcussion with t h e Federal neserve Board, w h i c h has b e e n
partly covered.
morning
at 9
I
f y o u are willing
o'clock, I
t o meet tomorro®
will u n d e r t a k e
t o pusn this a s
fast a s I can get down t o a point where w e should b e through,
I should think,
night.
b y Saturday noon, a n d possibly tomorrow
Gevernor Seay.
L e t u s make i t tomorrow night.
The Chairman. P o s s i b l y v e c a n d o it.
Upon m o t i o n b y G o v e r n o r P e a y , d u l y s e c o n d e d a n d carried,
the C o n f e r e n c e a d j o u r n e d u n t i l tomorrow, F r i d a y , A p r i l
15,
1921, a t 9 o'clock a m.
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Federal Reserve Bank of St. Louis
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Federal Reserve Bank of St. Louis