Full text of Federal Reserve Governors Conference : Meeting Documents : April 7-10, 1920, Thirteenth Conference of Governors of Federal Reserve Banks : Joint Conference Proceedings, Volume 4: April 10, 1920

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2

PROCEEDINGS


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OF A

CONFERENCE

O F THE FEDERAL RESERVE B O A R D

WITH

THE

GOVERNORS O F THE FEDERAL RESERVE BANKS

ASSEMBLY

R O O M

FEDERAL RESERVE BOARD
METROPCLITAN BANK BUILDING
WASHINGTON,

D . CG.

APRIL 10, 1920 |

Luews M.HULL H . H . P E C H I N , ° " W A L T E R S,COX.
@.¢.pIaMUKES
M a i n 4309 R O B E R T F. ROBE

ASSOCIATED S H O R T H A N D R E P O R T E R S

,

4

2

SUITE 18-29 APPEALS BUILDING.
6 FIFTH STREET, N.W..
WASHINGTON, D.C,

FOURTH D A Y

Saturday, April 10, 1920.
Te Conference reassembled pursuant t o adjournment

at LO. o'clock A, M s |
Present:

T h e Governors o f the Reserve Banks, 4 8

indicated i n yesterday's record, Governor MeDougal,

of

the Federal Reserve B a n k o f Chicago, presiding.

The Chairman.

T h e meeting will pleasd@ come t o

order.

tre have prepared--I say "we"~-Mr. Hoxton has
prepared a

resume,

a s brief

a s h e thought

h e could

make it, outlining t h e proceedings o f the conference
from the very beginning t o the end, a n d when w e
meet with t h e Board I
for a

report

t o them,

intend t o use that a s a basis
I f y o u have opportunity

advance o f our meeting w i t h the Board I
to have y o u look i t over, because I

in

would like

think i t i s going

to b e very helpful t o all o f you, b o t h a t home a n d
while w e are with the Board this morning.
The only subject I

know o f o n the regular pro-

gram which was p u t o f f for action this morning i s No.
ee


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4 on t h e supplementsl l i s t ,

No. 4 . Cashing Government warrants a n d

checks drawn o n t h e Treasurer of
the United S t a t e s f o r disbursing
officers.
Mr. Kenzel.

T h e purpose

o f bringing this matter

up f o r d i s c u s s i o n h e r e t s w i t h t h e i d e s o f d e v e l o p e
ing s o u m o r e b u s i n e s s l i k e r e l a t i o n b e t w e e n t h e F e d e r a l

Reserve Banks i n the metter o f cashing warrents a n d
checks drawn b y disbursing officers f o r t h e Treasury
Department. ,
not

s o that the Federal Reserve Banks would

b e pleced i n the position o f paying cheeks that

possibly w o u l d b e r e t u r n e d

t e t h e m f o r o n e o f several

reasons, possibly that the disbursing officer's sccount
was not i n funds, o r payment may have been stopped
with n o advice

o f the fect g i v e n t o t h e reserve banks;

possibly checks would ‘ b e c e s h e d without aveiting
identificetion o f t h e endorser ~

all o f h i c h things

are s e t o u t i n t h i s memorandum.

The Chairmen. ( A f t e r further discussion)

T h e con-

clusion i s i f w e d o indulge i n the ceshineg o f t h s e
checks that t h e plan should

b e a s follows:


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499
As & matter o f ordinery business prudence i t seems
to m e n o t only desirable b u t necessary t h e t t t e Bedenes
reserve benks e n d branches, before undertaking t e cesh
Government warrants

a n d checks, should require:

1. F u l l euthvrity covering signaterial powers o f
each a n d every disbursing officer.
Properly euthenticated specimen sienetures.
All seuthorities a n d stenatures

t o b e

considered i n full force a n d effect u n til revocetion i n writing i s received a n d
acknowledged b y the Federal reserve banks
end branches.
A definite understending thet n o responsibility
will b e assumed f o r stop psyments unless
proper notification h a s been received b y
Federal r e s e r v e b a n k s

a n d branches

i n time

to prevent payment.

Protection against overdrafts.
Complete freedom f r o m restriction o r res~ponsibility a s t o the emount o f checks cashed,
That whatever operating errengement f o r c a s h i n g
Government checks a n d warrants i s agreed to,


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500
4f a n y , should

b e expressed i n writing

and under n o cireumstences s h e n u l d b e
governed

b y a circuler conteining a n y

such @onditicns a s t h e folleving,which
appears i n T r e a s u r y D e p a r t m e n t circuler
No. 176:

"The Secretary o f t h e Treesury
may withdraw
time

e t eny time,

o r from

t o t i m e e n y o r all o f t h e pro-

visions o f this circular."
unless w i t h c o n s e n t o f respective Federal
reserve banks.
In brief, e s ,

if,

o r when

t h e Federal reserve benks

end brenches a r e required t o c a s h Government checks a n d
werrents,

t h e stetus

c f these b a n k s s h o u l d b e toe.

o r thea

benks desling with their own customers, and governed i n
their actions b y sound business principles a n d methods,

or

thet t h e y c o n d u c t t h e w h o l e b u s i n e s s f o r a c c o u n t a n d r i s k

of the Government, a s its agents e n d without recourse t o
benks e x c e p t

a e negligence.

Mr. Kenzel. A t t d thet the Federal Reserve Boerd b e
reauested t o take t h e metter u p w i t h t h e Treesury Depart~
ment t o t

hat e n d ,


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50%
The Cheirmen.

Fithout objection

that rill

b e the

sense o f the Conference.
Let u s now dispnse o f t h e t o p i c suggested b y
Governor Fancher,

f o u n d o n t h e second supplemental

list o f topics,
Should Federel reserve benks a c t under
instructions f r o m departments o t h e r t h e n the
Secretery o f the Tressury.

(Informel discussion was had o f this topic e n d
no ection t a k e n b
y the Conference.)
The Chairman. T h e last topic i s another o n e o n

the supplementsl list submitted b y Governor Fancher,
Advisability o f Federal reserve banks
absorbing f l o a t

o n c u r r e n c y shipments

to

member b a n k s .

( After discussion this topic w a s passed w i t h

the understanding that t h e matter vould b e given cone

sideration.)
The Chairman. T h a t completes t h e progrem,
gentlemene
(The Conference t h e n entered i n t o informal discussion with Mr. R . C .Leffingwell, Assistant Secretery o f

the Treasurye)

502
JOINT GONFERENCE O F THE FEDERAL RESERVE BOARD
with t h e
G O V E R N G S OF THE FEDERAL RESERVE BANKS,

Weshington,

D, G.,

April 10, 1920.

At 11 o'clock A. M., Governor Harding, accompanied by Messrs. Hamlin, Miller, Williams, Mohlenpah and Jacobson, entered t h e conference room,

Governor Harding took the chair, a n d the joint conference proceeded a s follows:
Governor McDougal. G o v e r n o r Harding a n d gentlemen,
we h a v e p r o c e e d e d

to a

point n o w w h e r e w e have c o n c l u d e d t h e

program, o n d I believe t h a t a l l subjects t h e t were enumerated therein have b e e n discussed a n d many o f them have b e e n

ected upon, and, through the very valuable assistance that w e
have received from Mr. Hoxton, w h o was worked late a t night
in order t o d o so, w e have prepared here a brief resume o f
the p r o c e e d i n g s a n d t h e a c t i o n t a k e n b y t h e C o n f e r e n c e t h e r e o n .


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EOS

It was m y understanding, Governor Harding, t h a t y o u wish
the Conference t o report b a c k t o the Board. I

know o f

no better w a y t o d o s o than t o submit this memorandum t o
which I

have m a d e r e f e r e n c e .

E a c h topic i s dealt w i t h

there i n its order, a n d i f there b e a n y o f these topics concerning which y o u would like t o heve special discussion o r
ddditioral information,

w e will b e v e r y glad t o d o what w e

can ,
if that proceeding i s satisfactory,

w e i l l j u s t con-

Sider t h a t w e submit. this a s o u r report, a n d i f you will i n -

dicate the subjects that you will care for u s t o discuss,
we will b e v e r y glad t o have y o u d o so.

Governor Harding. I

notice thst the Governors sug-

gest that a non-par list b e published. t

strikes m e a s o n

excellent suggestion, a n d the Federal Reserve Board will discuss the matter i n due course,

I n the meantime I

think i t

would b e a good idea a n d 1 would request each Governor, u p o n
his return,
namés

t o send t o the Federal Reserve Boerd a

i n his district checks u p o n w h i c h f o r a n y reason c a n

not b e h a n d l e d a t p a r b y t h e F e d e r a l R e s e r v e B o a r d ,
that w e m a y p u b l i s h a


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list o f

i n order

non-per l i s t t h a t c a n b e c i r m l a t e d

504

ang Sent t o trade associations, a n d might aid i n this pro»
ject o f d i s c r i m i n a t i o n a g a i n s t n o n - p a r c h e c k s ,

Governor McDougal.

I t was not our intention t o dis-

continue Publishing a par list.

T h a t must b e done, for

very g o o d reasons.

Governor Harding.

O

h yes.

Goyernor McDougal.

O r e reason being that i n the die

vided states the par list i s used b y the member banks i n determining t h e routing o f checks,

a s t o whether, f o r i n -

stance, t h e y g o t o northwest Wisconsin o r southern Wisconsin,
Governor Harding. I

understand t h a t , b u t I

think t h e r e

ought t o b e a supplementary non-pear list, t o b e used for a
different purpose.
Acting Governor Case. I
tent,

O n this non-par list,

should b e placed. I

would like t o ask t o what e x e

y o u feel t h a t v e r y week banks

understand from one o f the Governors

that i n his particular district there a r e six, eight o r t e n
banks t h a t a r e v e r y weak, a n d t h e y a r e n o t v e r y k e e n t o col-

léet checks upon them,


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Governor Harding.

M a y I ask i f the names o f

banks a p f a r o n t h e p a r l i s t a t t h e S o t a y

Acting Governor Case,

J ] really d o not know,

Deputy G o v e r n o r P e p l e . I

that question, Governor Harding.
on t h e p a r i s t e

time?

guess I

hadbetter a n s w e r

W e have j u s t p u t V i r g i n i a

T h e r e a r e probably several banks w i t h w h o m

we W i l l h a v e trouble. I

a m not prepared

t o name t h e banks

just now, b u t I know that there a r e several w i t h which w e
are Likely t o have trouble o n c e i n a while,
State B a n k i n g D e p a r t m e n t ,

T h r o u g h the

o r through other sources,

w e get

information t h a t would rather l e a d u s t o decline t o accept
these checks a s cash.

I t occurs t o m e that when w e

North a n d South Carolina, w i t h t h e extension o f the
if w e should follow o u r policy o f putting t h e whole
the p a r list, there a r e there a
small State banks.

very large number o f very

S o m e o f these banks checks a r e n o t ac-

cepted b y the country clearing houses i n the various cities,
because t h e y d o n o t s t a n d w e l l .

On thé'one hand, i f w e publish a blak list, a

list o f

banks w h o s e c r e d i t w a s s o d o u b t f u l t h a t w e w o u l d n o t b e wille-

ing t o handle t h e i r checks, w e might make ourselves liable
to suits f o r damages.


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W

e probably would b e sued v e r y

506
promptly. I

made t h e S u g g e s t i o n w h e n t h i s m a t t e r w a s c o n -

sidered t h a t cases o f that kind might b e handled b y including
the names o f these banks o n a non-psar list, without stating
any reason w h y w e would n o t handle them.
Governor Harding.

O h yes,

T h e suggestion i s that a

list o f all banks i n each district,

o n which f o r a n y reason

the Federal Reserve B a n k cennot o r will n o t collect a t par,
be transmitted t o the Board w i t h a n y information.you w a n t t o
give, a n d w e will discuss a n d decide i n whet f o r m the nonpar l i s t s h o u l d b e published.

Mr, Mohlenpah,

M a y I suggest this, i f they desire t o

get the banks that a r e not parring t o come in, that i f
the F e d e r a l R e s e r v e G o v e r n o r s h o u l d w r i t e a

letter

t o these

banks, suggesting for the convenience o f the trading public
that they contemplate publishing this list for their convenlence a n d information, a n d a s k them, invite t h e m again t o
reconsider a n d see i f i t would n o t b e feasible f o r them t o
come in, before w e take enother course--I d o not like t h e
idea o f a black list, t o speak frankly; I

d o not like t h e

idea o f anything t h e t might s e e m t o a d d t o their belief that

we are foréing, compelling o r coercing them.

T h e y are

using these words,,you know, b u t this would b e a n appeal t h e t


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oought

t o have i n f l u e n c e w i t h them, c o m i n g f r o m t h e j o b b i n g

houses a n d m a n u f a c t u r e r s a s s o d ations a n d c r e d i t m e n ' s a s -

sociations. I

would suggest that w e i n this w a y invite t h e m

once more t o come in. I

just offer that e s &

s u g g e s t i,
n
o

Governor,

Governor Harding, W e l l , that i s merely e statement
of: faes. S o m e banks have written i n here complaining v e r y bitterly that their names have b e e n Placed o n the p a r list without their authority, w h e n w e know b y what authority t h e y are
printed,

I t seems t o me, onversely,

t h a t i f the Federal Reserve

Bank i s not collecting a t par o n a bank i t i s another statement

of fact,

O f cowse,

i f some o f the banks knew that this list was

going t o b e published, t h e y might call i t a black list, b u t that
would b e their o w n designation o f it, a n d after all, i t i s mere-

ly a statement o f fact.
Mr. Mohlenpah. I
That p a r t i s a l l right,

a m perfectly w i l l i n g
but I

accomplish t h e s a m e r e s u l t

Governor Wellborn. I
Governor McDougal.

t o c o m e t o that.

would l i k e t o s e e i f w e c o u l d n o t

i n a p e r f e c t l y f r i e n d l y way.

think that i s covered i n our report.
T h e action o n that topic, w h i c h i s

sub-topic (c) o f Topic 3, "Clearing and collection system,"


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508
found o n page 8

of this resume, regarding t h e publication

of a. non-pervlist,

I t states - 3

"Inasmuch a s some o f the districts h a v e n o t progressed

as rapidly as others i n s ecuring par points, i t is the opinion
of t h i s c o m m i t t e e t h a t t h e b a n k s s h o u l d c o n t i n u e
a p a r l i s t f o r t h e present.

t o publish

N e v e r t h e l e s s , because

of

the banks o f doubtful standing, your committee recommends
that a non ~ par list should a l s o b e published o f banks
in states where practically a l l banks a r e o n a par basis."

That was y o u r idea, Mr. Peple, was i t not?
Deputy Governor Peple.

T h a t w a s m y idea, p u t I think

I will nave to modify that idea. I

had a talk with Mr.

Case t h i s m o r n i n g a n d e s k e d h i m w i t h r eference

t o the

clearing house rules o f N e w York, whether, i f , f o r instance,
we w o u l d p u b l i s h a

l i s t o f e i g h t o r t e n banks

i n the State o f

Virginia, making a non-par list, f o r eny reason whatever,
whether t h e N e w Y o r k C l e a r i n g H o u s e w o u l d d e p r i v e t h e w h o l e

State o f Virginia o f the preferential rate, a n d h e said h e
thought t h e y hould.
Goyernor Harding.

T h e y would have t o d o it.

Deputy G o v e r n o r P e p l e .
other m e t h a @ .


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S o w e w i l l h a v e t o adopt s o m e

Governor Harding.

T h e r e h a s been distributed f o r

the information o f the members o f the conference a
table p r e p a r e d

b y the Board's statistician,

M r . Jacob-

son, showing t h e number, reserve balances a n d total o n
paper d i s c o u n t e d f o r r e p o r t i n g m e m b e r b a n k s w h i c h h a v e

been granted discounts

i n excess o f their reserve bal-

ance m a i n t a i n e d w i t h F e d e r a l R e s e r v e B a n k s c o m p a r e d w i t h
Similar d a t a f o r a l l m e m b e r b a n k s ,

a s o f M a r c h 19th,

1920,
Take t h e Chicago District, f o r example.

Y o u will

find i n that district t h a t t h e reporting banks have been _
granted discounts i n excess o f reserve balance a r e thirty

eight o f one hundred and thirty one member banks i n the disGY LOG;
excess

T h e ratiojof reporting b a n k s w h i c h h a v e d i s m u n t s
o f reserve b a l a n c e

i n

i s 2 . 8 p e r c e n t o f a l l m e m b e r banks.

The reporting member banks granted d i s c unts i n excess o f

reserve balance, $125,1355,000.

A l l member banks i n the dise

trict having $277,560,000 reserve balances.
reserve b a l a n c e

S o the percentage ©

o f t h e banks w h i c h have excess lines

t o all

banks is: 4.51,


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Federal Reserve Bank of St. Louis

Under the heading "Discounts with Federal Reserve

510

Bank," reporting banks granted discount i n excess of reserve balance, (250,942,000, while all member b a n k s have
discounts amounting t o $334,092,000.

S o that i t apmars

from this that the percentage o f 2,8 o f the total number
of mémber b a n k s

i n that district h a s 7 5 . 1 p e r c e n t o f a l l

of its discounts.

I n another district t h e figure i s

8.2 p e r cent.

Governor McDougal. C l e v e l a n d was the same,
happens towork o u t that way.
Governor Harding.

F o r the system as a whole, w e

find that 3 7 5 banks, whose loans were i n excess o f their

reserve balances, o r 4.1 per cent o f a total o f 196
metiber banks, s h o e d 44.3 p e r cent o f the reserve balances
with the Federal Reserve Bank, b u t 76.3 p e r cent o f the
total loans, A p p l y i n g t h e same standard o f comp rison,
that is, ratio o f reserve balances t o total borrowings,

we find that the largest disproportion exists i n the Dallas
and S a n Francisco Districts.

I

n the former dis-

trict 1 4 banks out o f 761 members, w i t h 17.8 per cent
of t h e t o t a l l o a n s c a r r i e d o n t h e b a n k s
Neserve B a n k ,


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Federal Reserve Bank of St. Louis

I n San Francisco

o f t h e Federal

concentration

o f bor-


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Federal Reserve Bank of St. Louis

rowing i s o n l y s l i g h t l y l e s s p r o n o u n c e d .

banks o u t o f 764, w i t h 1 5 . 3 per c e f
serve balances, report 6

S

g

t

the total reh

e total loans

carried b y the Reseral
In the Minneapolis district t h e
Similar; f o u r t e e n b a n k s o u t o f 9 3 0 m e m b e r panks, w i t h 2 6 . 1

per cent o f the aggregate reserve balances, report about

75 per cent o f all the loans standing o n the books o f the
Federal Reserve Banks.

T h e latter percentage i s higher

in the N e w York a n d Philadelphia districts, t h o u g h t h e relatively l a r g e r a m o u n t

o f accommodation

i n thosc t w o d i s i -

tricts i s distributed among a larger number o f banks i n
the larger cities w h i c h carry considcrably o v e r o n e half
of the total reserve balances o f member banks i n the reSpective d i s t r i c t s .

Governor Young.
this r e p o r t

G o v e r i n g Harding,

is p

Goveinor Harding.
Governor Young. I

d o I understand

cpared f r o m b a n k s t h a t r e p o r t w e c k l y ?

Yess
a m quite s u r e t h a t i n our district

there a r e a t least forty o r fifty banks a t the moment that
are borrowing i n excess o f their reserve carricd w i t h us.
Mr. Jacobson.

T h a t i s true cnough, a n d


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Federal Reserve Bank of St. Louis

n provail t h a t t h i s i s t h e f u l l
want t o h a v e t h e i m p r e s s i o

storye I

only have weekly reports f r o m a restricted number

of cities, a n d therefore i t docs n o t t e t h e whole story,
but i t gives cnough o f a n idca o f the concentration o f
ercdite

A l l I want t o s a y i s that inijinneapolis there

are f o u r t e m b a n k s ;

y o u cannot d e n y that t h a t i s a

fact,

that there a r e fourteen baks, w h i c h have 7 5 per cent
of all the loans.

Goyernor Young. I
ured, because I

just wanted t o know how i t was fig-

was sure there Were more banks t h a n that

porrowing i n excess o f their reserve n o s
Governor Harding.

Gentlemen,

y o u r discussion here

must have convinced y o u that w e nave n o w i n the Federal
the part
Reserve System which calls f o r t h e exercise& o n
a n d its exc~
of the Governors o f the Federal Reserve B a k
qualities
utive committee a n d directors t h e very highest
of banking acument a n d leadership.

N o w ,

i n the early d ays

that brought
of the System, t h e r e was n o t s o much about i t

and i n war
into play the qualities o f a great banker,
were
times, w h e n ordinarily rules w e r e suspended a n a w e
control
of rating m o r e o r less directly under Governmental

themall the way through, when your banks had resolved
w h e n y o u were
selves i n t o great bond selling organization,


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Federal Reserve Bank of St. Louis

encouraging t h e granting o f creddt¢ asking people t o
Subseribe f o r bonds, k n o w i n g t h a t t h e y h a d n o w m esent

abSlity t o pay, cncouraging t h e m t o make loans with t h e
member banks, asking t h e momber banks t o come i n and rc~
discount w i t h youe-alli o f t h a t w e s n o t c o m m e r c i a l banking.

1919 presented a

very mixed situationsup

the Victory L o a n y o u hed some o f
your war-time problems l e f o v e r ; after t h e flotation
of that logn w e entered a

transition period, t h r o u g h which

we have been passing f o r several months, b u t i t seems n o w
that w e are apnroaching t h e e n d

o f the trensition period.

We are coming d o w n n o w t o a point where t h e mot}
have b e e n more accustomed t o i n your o l d banking relations
%y

must b e brought i n t o play.

B a c h o f y o u has banks i n

your d i s t r i c t w h i c h s h o w a

disposition

t o borrow excossively.

The suggestion h a s b e e n made, a n d I think i t a good one,
as o n e o f t h e m e m b e r s

o f t h e Board,

the b a n k s h o u l d c a u s e

t o b e presented

already d o i n g s o ,

fs 4

a t the beginning

1 2

1

6 Governor

t o him,

of

i f h e i s not

o f t h e business day, a

list o f ail the banks i n his district which m a y b e borrowing o n collateral notes o r b y redisaunts amounts i n excess

of their reserve balance, showing the percentage o f loans


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Federal Reserve Bank of St. Louis

and r e d i s c o u n t s

t o o t h e r o r m e m b e r banks,

a s i s shown i n

this tabda t i o n which w e p w esented to y o u a day o r two
agoe

I n that w a y you c a n keep i n touch with the trend o f

your loan accounts, especially t o the large borrowers, a n d
it might b e i n order f o r y o u from time t o time,
the large borrower i s a local bank,

2

with

8

i n case

t o discuss t h e situation

4 f f i c e r s , o r i n case i t is a n out o f town

bank t o write a

letter, tactfully worded, b u t letting t h e m

know that you are keeping i n touch with .the situation.
In the matter o f fixing a normal discount line with
progressive rates,

i t seems t o ve the concensus o f opinion

that that i s a problem t e i ,

t h most instances m u s t b e care «

fully studied before i t i s e k e into effect. I

want t o ask

that you be careful not t o give the impression that this amen +
a
ment will not b e utilized, that i t is going t o remain
dead letter, b u t let the idea get out that you are making a
close s t u d y o f t h e s i t u a t i o n a s a

e

t o your o w n banks, ,

teke

that you are not going t o All advice o r hasty action,
but t h a t y o u w i l l n o t hesitate,
essary,

t o adopt a

i f i t should become

nec

normal l i n c w i t h p r o g r e s s i v e r a t e s a n d

“put them into offect. M e a n w h i l e cxecssive borrowers might
20 p oF
be asked t o reduce b y 1 0 per cent o r 1 5 per cent o r


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Federal Reserve Bank of St. Louis

cont t h e amount o f lines t h a t they have b e e n carrying
for s o m e time, t h o s e requests,
Such a

o f course,

t o b e worded

w a y a s t o c a u s e n o g e n c r a l apprehension,

in

and to

have a s little o f a n unfavorable effect u p o n t h e mind o f

We all-know i n the conduct o f
business, w h o r e y o u h a v e a

custoncer w h o s e

2

S a r e extend~

ed, t h a t y o u call h i m i n for a friendly consultation,

or

if h e i s not immediately i l a b l e y o u w e i t e h i m a letter.
You are careful t o word your letter i n such a way a s t o
avoid a n y fecling o f dismay o r panic o n his w r t , a n d I

am

sure t h a t t h c s a m e m e t h a l s t h a t c o m m e r c i a l b a n k s e m p l o y

in holding down some o f their large commercial borrowers
may b e employed t o good advantage w i t h your member banks
in t h e p r e s e n t circunstances.
I think t h a t a l l o t h e r p r o b l e m s t h a t c o n f r o n t

us

are trivial i n comparison w i t h this matter o f exercising
a legitimate a n d proper control o v e r your credit situation,
of maintaining y o u r pescywss t o a point where t h e y should
be maintained.
I know t h a t y o u rep o r t that i t i s not feasible
to discriminate directzkly between essential a n d noneesscntial l o a n s .

Personally I

think that i s a very wise con,

clusion, b u t I

do holieve t h a t your member banks a r e

advised thet y o u are scrutinizing closely their lines
of
credit t h a t i f y o u show a gentle b u t f i r m repressing hand,
that your member banks themselves w i l l begin t o discriminate
between essential a n d non-csscntial loans, a n d i n turn
the borrowers f r o m your member banks w i l l begin to. exer cise
more discretion i n the matter o f their purchases.
Will b e many a

man who has i n mind the purchase o f some

luxury,which h e i s really better o f f without, w h o when h e
finds there is-a question raised a s t o his borrowing, w i l l
decide n o t t o purchase t h a t luxury, a n d thereby t h e real
purchasing vower f o r essentials w i l l b e extended, t h e reserve position o f your member b a n k will b e maintained, a n d
your o w n p o s i t i o n improved. I

think i n t h a t w a y t h e

discrimination can be brought about i n a perfcetly natural
way, a n d y o u w i l l b e e n t i r e l y r e l i e v e d o f t h e c h a r g e f r o m

attempting arbitraily t o impose your judgement u p o n the
individuals throughout t h i s country.
Now, there i s o n e other point that I think ought t o b e

emphasized.

W e hear a good dval about the decreased

purchasing p o w e r o f t h e d o l l a r
Of c o u r s e t h a t i s true.

i n t h e t e r n s o f commoditics.

T h e dollar w i l l n o t purchase

anything like a s much a s i t would have done four o r five


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Federal Reserve Bank of St. Louis

years ago,,but I

think that i t i s well f o r the people t o
the

understand t h a t t h e p o w e r o f t h e d o l apres |

paying debts h a s n o t decreased.

h

A matter

of

e dcbt-paying power

of the dollan i s a s great a s i t ever was, a n d there i s n o
time s o opportune f o r the payment o f debts a s a time like
the present, w h e n a dollar will n o t g o very f a r i n the
purchase o f anything t h a t m a y b e necded, b u t will g o a s
Las.a6 over: i n t h e l i q u i d a t i o n -of a n Obligation,
s

a n d there

many @ man who has had a debt which was not cramping
i

b
y
)

him, carrying i t along a t his option, a n d times have come
up w h e n h e c o u l d h a v e p a i d t h a t d e b t i n full o r i n part,

but h e gocs along a n d buys something t h a t h e docs n o t
really necd a n d continues t o carry t h e debt. T h e r e will
come a

time, u n l e s s h i s t o r y r e v e r s e s i t s c l f , w h e n t h e p u r -

by

chasing power o f the dollar will b e gveat/enhanced.

y

e

of nigh prices a n d eras o f
WG G o not know h o w

s o o n w e will come

into a comparatively l o w price cra, b u t I think i t i s the
verdict o f history that these cycles d o come a bout. T
have always c o m e i n the past a n d I

think they will come

againe


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Federal Reserve Bank of St. Louis

Now, &

man who misses a n opportunity b u t has t h e abilit

to l i q u i d a t e n o w a n d f a i l s

continues

t o expand,

and i s overlooking e

t o d o so0,and o n t h e c o n t r a r y

i s jeopardizing h i s o w n interests
very favorable opportunity t o put

soun
If there were more o f this d c b t paying going: o n all
over this country, t h a t would mean a shrinkage o f bank
deposits a n d bank loans.
your reserve position.

I t would m e a n a n improvement o f
I t would m e a n that t h e t w o billion

dollars o f gold which i s held i ¢

Federal Reserve Bank

will b e far more potential a s a basic reserve f o r the entire c r e d i t s t r u c t u r e t h a n i t i s i n t h e p r e s e n t d a y , w h e n

this structure i s s o greatly expanded.
I think perhaps o t h e r members o f the board would
like t o make some farewe 1 1 remarks t o you, s o I will n o t
continue m y part o f the discuss ion.
For t h e B o a r d a n d f o r myself, I

wish t o t h a n k y o u

for t h e t i m e a n d a t t e n t i o n y o u h a v e g i v e n t o t h e s e p r o b =


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Federal Reserve Bank of St. Louis

lems» I

wish t o assure you that the Board i s desirous

of upholding your hands i n e v e r y t h i n g t h a t y o u d o o r may
do towards bringing t h e situation back towards a
and more normaj basis,
situation.

W

stronger

W e fecl that y o u understand t h e

e know that y o u will d o all i n your sower

619°
t o meet t h e responsibilities w h i c h a r e n o w facing you,


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Federal Reserve Bank of St. Louis

and I bid you God-specd i n your work.
I may s t a t e t h a t t h i s r e s u m e

givon carcfu 1

o f your action will b e

consideration b y the Board a n d that i n due

course, following o u r usual custom, 2

lctter will b e

written t o each Governor stating j u s t what t h e Board's v i c w
is,,or what action has b e e n taken b y the Board upon e a c h
matter which has b e c n discusscde.
Mr. Miller. I

would like t o say, j u s t b y way o f

addition t o w h a t G o v e r n o r H a r d i n g h a s said, a

word u p o n

T h e Governor

this general subject o f credit control.

does n o t p u t i t a n y t o o s t r o n g l y w h e n h e s a y s t h a t a l l y o u r

other responsibilitics a r e trivial a s compared w i t h this.
s now where i t has g o t t o stand
The Federal Reserve S y s t e m i
the acid test.
In the matter o f c redit control, I
myself with a n y false expectations. I

do not deceive

haven't t h e slight-

est idea that t h e youngest m a n i n this r o o m will ever live
long enough t o sce a condition that i s commonly described

asnormal, i f that means conditions a s they were i n 1915
and 1914.

D e f l a t i o n a f that kind i s going t o b e a

very slow, tedious, c o s t l y a n d diffi
control,

t o m y mind, t h e r e f o r e ,

p

} :

C r e d i t

a t this juncture, docs n o t


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Federal Reserve Bank of St. Louis

mean contraction,

I

t means p r e v e n t i n g a

further e x p a n

sion, e x c c p t a s t h a t f u r t h e r c x p a n s i o n c a n b e d e f i n i t e l y

convalidated b y the necessities o f industries t h a t a r e
tributing t o the sum-total o f goods i n the country.
even productive industry,
put industry that,

N o t

4 s that i s commonly understoda,
shows

b y the dofinite d a t a o f S e i k o ,

that that use of credit is to help produce more bushels
less bushof wheit, n o t simply more bushels for Smith and
o f cotton,
els f o r Jones; m o r e steel ingots, m o r e bales

or more o f any o f the other things that are necdede

T h e

i s that 1919
stark, e t o s tandine fact a t the present time

registers a very considerable shrinkage i n the volume o f
production i n this country, 3 2 .

the same time t h e most

credit and o f currency
rapid increase i n the expansion o f
Fedvural Reserve
of a n y year since t h e inauguration o f the
System.

T h a t means a n absence o f credit control;

it

additional credit
means t h a t credit i s being created where
sum-total o f
does n o t help t o create a n addition t o t h e
goods produced. I

a m thinking, thocerere;

i n terms o f

conventional bus :
economy a n d terms o f production a n d not i n
business terms, w h e n I
situation a n d when I

speak thus gravely o f the credit

speak temperately a s t o m y o w n expcc=


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Federal Reserve Bank of St. Louis

520

tation a s t o what the future i s going t o show.
get t h r o u g h w i t h t h e process

o f reducing credit

I f we
t o some

thing like normal volume, w i t h t h e rate o f production i n
this c o u n t r y , i n a

period o f t w e n t y t o t w e n t y f i v e years,

IT

think we will d o well. P e r s o n a l l y I expect that w e shall
repeat the process that took place just after the civil
war:

i n o t h e r words,

w e will absorb this n o w redundant

volume o f credit a n d currency through t h e process o f the
country gradually growing u p t o i t rather t h a n b y a n y
forccd contraction o r qliuidation. T

think that forced

contracttion o r liquidation might b e o n e o f the most disas~trous o f things.
not a

theory,

I t i s a condition w e are dealing with a m

a n d conditions

a r c somotimes stubborne

T h e

facts have got t o be temporized with, a n d temporized with
intelligently a n d wisely,

i f w e are not going t o invite a

worse condition t h a n that which w e ore trying t o get away
from.
I think w e are reaching a

point,under o u r somewhat com-

plex Federal Reserve organization, where,

i f w e d o not

succeed i n this task, there i s g o i n g t o be some assessment
of t h e responsibility. I
solution

of a

think w e a l w a y s g e t n e a r e r t h e

question w h e n w e g e t t o a

begin t o locate responsibility.

point w h e r e w e c a n

D u r i n g t h e past t w o years

and a half I

think i t i s very clear that t h e responsibility

had rested mainly w i t h the Treasury under i t s peculiar a n d
heavy burden o f war neccssitiésg e n d with the Federal Reserve Board that h a s undertaken t o develop policies d e -

signed primarily t o assist the Treasury i n its difficult
aSKe

The time i s not yet a t hend when w e c a n assess t h e

wisdom o f these Treasury policicse.

I t will b e a matter

of t e n o r t w c n t y years, u n d e r t h e p r e s e n t inflation,

the

resent d e m o r a l i z a t i o n a n d t h e p r e s e n t s l a c k e n i n g o f p r o -

duction i n this country,

a s a part o f the cost o f financing

the w a r , a n d t h r o u g h e x p a n s i o n o f credit, b e f o r e s u c h a s -

sessment c a n b e madce

I f that process w a s unavoidable,

then the cost was unavoidable, b u t this must b e reckoned

as a

o

f the cost, and as long as that endures, the

aftermath o f inflation i s one o f the incidents w e must
a part o f t h e c o s t o f ‘this program, f i n a n c i n g

it t o the cxtcnt that thcre has b e c n inflation.
Now, h o w e v o r ,

t h e situation

i s clarificd.

T h e Treas-

ury i s becoming less a n d less a factor i n Federal Reserve
pOlicies.

T h e Fedcral Reserve Board h a s shown every dis~

position. t
o go a s far a n d a s fast a s the most venturcsonc


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Federal Reserve Bank of St. Louis

Reserve Banks i n the markdhg u p o f the rates, where the
rates have influence,

t o wit, o n commercial borrowings.

I thoroughly approve t o the expression o f opinion b y
Governor M o r s s t h a t a

an emergency rates
excess

of 6

e

i n exccss o f 6

per c e n t i s

P r o m my point o f view a rate i n

per cent,

t h e establishment

o f sum a

rate,

is tantamount t o the confession that 38EBK the Fedcral
Reserve S y s t e m c a n n o t function;

confession o f failure.

i t i s tantamount

to a

B y this I mean t o indicate that

more a n d more t h e responsibility i s getting t o b e concentrated u p o n t h e F e d e r a l R e s c r v e Banks; a n d , w i t h i n t h e
Federal R e s c r v e B a n k s , u p o n y o u m c n w h o govern.

For t h e first timc, a s I see it, y o u arc-in-a situation
where y o u are going t o b e given a n opportunity t o demon=
strate whether, w i s e l y o r unwisely, y o u were invested w i t h
the t i t l e a n d t h e p o v e r a n d t h e responsibility:

Governors.

W

o f being

e are i n a situation n o w that requires gov-

erning, a n d governing a

Federal Reserve Bank~of t h e United

States i s not going t o b e measured b y the barometric o r


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Federal Reserve Bank of St. Louis

thermometric device o f marking u p a rate, closing your
desk, a n d going home;
ing

i t i s going t o b e actual govern-

ing, dealfwith conditions, a n d dealing with the human


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Federal Reserve Bank of St. Louis

as the most important factors i n your local
conditions.

S o that I , f o r one, @ s a member o f the Fede

eral Reserve Board, and I belicvo that this will be the
gcneral disposition o f the public, s h a l i look.:to what
the Covernors o f the twelve Federal Reserve Banks d o
s the main factor o f efficiency i n the policy o f ercdit
we

control which/can announce t o b e the Federal Reserve
policy f o r the future a n d e y w h i c h w e are prepared t o
Stand o r fall. I

personally h o p e t h a t a

careful s t u d y

will b e given t o the utility o f this new amendment.

But

fr

I hope, a n d I cherish t h e hope, t h a t very/districts w i l l
be pDbliged 4 0 resort t o the mechanical a n d bureaucratic
device o f that kind i n order t o control a situation that
ought t o b e controlled through firm, discriminating govern-

ing. C r i t i c i s m has already been leveled a t the Federal
Rescrve System a n d i t s announced policy o f deflation, t h a t
ap parently i t i s going t o b e a policy o f inddscriminate
deflation.

W e wantfdiscrimination,

b u t y o u cannot g e t dise-

Crimination simply b y a quantitatdte method o f control; that
is better than nothing, b u t better than that, f a r better
than that, i s a n intelligent and discriminating policy o f
control that does n o t withhold credit where there a r e good

reasons t o believe that that credit i s going to feed pro-

524
ductive industry, b u t docs withhold c r e d w h e r e there
is reason t o believe t h a t i t i s going t o b e used f o r purposes t h a t i t i s better t o d o without.
I admit that that i s a most difficult thing, b u t

in times o f expansion the things that are exccllent i n

panking are as difficult a s they are excellent.
just then,

T t is

i n m y judgment, t h a t a banker shows whether o r

not h e i s a Governor, whether h e c a n ropress where repress@
ion i s indicated, w h e t h e r

h e c a n assist w h e r e assistance

is indicated i n the gencral cconomice interest, a n d we
are a t a point where w e have g o t t o look a t things f r o m

the point o f view o f the general cconomic interest a n d
think primarily i n fundamental terms o f production a n d n o t
o f b u s i n e s s t r a f f i c , v a l u e a n d profit.

simply i n terms

Under o u r o l d system o f banking, t h e individual banker
had a very definite indication o f when h e was reaching t h e

limit o f his tet here
a cash reserve ,
‘serve agents e


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Federal Reserve Bank of St. Louis

T h e law obligated h i m to maintain

‘
a m additional reserve maintained w i t h re-

H o knew t h a t under t h e best o f conditions

the correspondents w i t h whom h e maintained a
reserve b a l a n c e s ,

h a d n o t a n y g r e a t leeway.

part o f his
H

e was

obliged constantly therefore t o kcep one eye upon his re-


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Federal Reserve Bank of St. Louis

25

serve condition.

T h a t requirement

American panking.

o f l a w was invented

in

I t was invented for the purpose o f

bringing t h e sense o f responsibility constantly i n t o play
o f t h e banks a n d a s a

in t h e m a n a g e m e n t

upon the extension o f eredit.

temeing influence

T h e Reserve System has

taken thet away and i t has put the banks i n a position, s o
as they arc mombers o f the F e d e r a l Reserve system,

and indirectly that moans practically all the banks o f the
country, wherc they are n o longcr obliged t o consider from
day t o day thcoir loaning ability with r e f e r e n c e t o their

BY

actual reservcs i n cash a n d balances maintained w i t h their
W

reserve a g e n t
SCYrVes, a

5

,

for t h e p u r p o s e

e now have a n olastic s y s t e m o f reW

s e t u p with t h e elastic p r o v i s i o n

o f t a k i n g c a r e o f s c a s o n a l r e q u i r cments

which h a d not been adequately t a k e n care o f under o u r o w n
organization, a n d for meeting emergencies, a n d with that
there h a s g r o w n u p , a s &
decline

vicw

i t ,

a very c o n s i d e r a b l e

i n the p o r cent o f individual responsibility

part o f each banker f o r his conditione

o n the

H e n o w looks t o

the R e s c r v c B a n k t o t a k e c a r e o f him, a n d f o r t h e m o s t
oart t h e R e s e r v e B a n k h a s b e c n d o i n g t h a t a n d d o i n g i t o n
SD

conditions t h a t a r c relatively casy.

a

e |

provided
In m y judgment, t h a t makes f o r good banking,
o f disthore i s firmness a n d really intelligent excreise
to

mind i t
cretion o n the part o f the Reserve Banks, ana/my
disastcr
makes f o r danger a n d invitcs absolutely certain

tho part o f the bank
unless thore i s a really firm touch o n
that has i t within i t s power,

b y 4 mere stroke o f the pen,

o be regarded
what e e l a w p e r m i t s t
substance unless
as Reserves, b u t which h a s n o basis i n
that r o s e r v e

transaction t h a t actually

i s u s e d t o finance a

.the goods proresults i n an addition t o the sum total o f
duced i n t h e country; 4

most u s e f u l p o w e r i f w i s e l y e x e r -

destructive p o w e r
cised a n d a n absolutely dangcrous a n d

if not intelligently exercised.
In this connection T

want t o make a

bricf allusion t o

colleagues’ several
an idea that I have discussed with m y
during t h e past several months e
only considerable
Our Reserve Banking System i s t h e
there i s n o aefinitely
banking system i n the world i n which
operations
fixed l i m i t o f a n y k i n d u p o n t h e
You a r e obliged, u n d e r t h e l a w ,


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Federal Reserve Bank of St. Louis

o f t h e Systeme

t o maintain reserves against

o f forty p o r cent a n d
your note a n d deposit liabilities
thirty five p e r cent respectivelye

B u t viewing t h e system


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Federal Reserve Bank of St. Louis

527"
as a whole, including the Federal Reserve Board, that
requirement c a n b o suspended.
is fixed o r inexorable.

T h e r e i s nothing there that

T h a t i s not s o under a n y other i n -

portant banking system i n the world.
The grcat central b a n k s o f wWestcrn Europe, the: Bank
of France a n d t h e Bank o f Germany, h a v e operated mainly

by the i s sue o f notes, but there were limits.

T h e statute

in France fixes definitely the total amount o f notes that
the Bank o f France may &auce T h e t i s changed from time t o
time, a n d during t h e w a r i t was changed w i t h great readiso that there h a s b e e n this grcat increase o f between
seven a n d cight hundred p e r cent i n their issucs. N e v e r t h e less t h e fixe

m i t ropresented t h e French conception o f t k

kind o f restraint that hae d t o b e put, e v e n upon a great
and conservative institution l i k e t h e Bank o f France i n
normal times.

I n Germany t h e y have a

reserve requirement,
any i s s u e

i n excess

eral Reserve System?

with a
o f that.

provision fixing t h e

penalty o f f i v e p e r c e n t u p o n
A n d what h a v e w e i n the Fed-

W e have a reserve requirement,

a s re

-gards notes, a l s o against deposits, t h a t c a n b e suspended
by vote o f the Fedcral Reserve Board.

W e have therefore

what? ‘ W h e n y o u analyze t h e thing fundamentally, t h e dis-

cretion o f the Federal Reserve Board ulti etely i s the
regulating principle o f o u r Federal Reserve Systen.

Tne Bank o f England has a n absolutely rigid restriction i n the matter o f notes.
issue a

T h e Bank o f England cannot

note cxcept through i t s issue department i n return

for a n equivalent amount o f gold.

I have watched with a good deal of interest the discussions i n England during t h e war t o sec whether o r not,
under t h e extreme pressure t h a t w a r f i n a n c i n g t
u
p upon thems
they would o r would n o t propose a

modification o f that,

which w a s a n organic a n d f u n d a m e n t a l p r i n c i p l e

of

English Banks',chartercd:-in 1844. T h e y never did it.
bolster

up

much a s they n e s d e a - t
their
o /credit, they never proposcd
ever touching t h e gold t h a t l a y behind t h e Bank o f England
notes f o r t h e purpose o f convertyng i t into general banking resources f o r the banking department.

I n brief, t h e y

never proposed increasing t h e fiduciary element i n their
bank n o t e circulation,

b u t l a t e r i t w a s s t a t e d b y Mr.

.
Hartley Waters,

i

f

w h o w r o t e d u r i n g t h e war, t h a t / a n y c h a n g e

was to b e made i n the Bark o f Eng land note, i t would b e t o
make i t a n absolutely gold bullion certificate.
notable, I

t is

think, t h a t t h e r e p o r t o f t h e B r i t i s h C o m m i t t e e

on Currenay Exchanges, a


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Federal Reserve Bank of St. Louis

I

%

committees probably representing the


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Federal Reserve Bank of St. Louis

best financial @ ility i n England, after reviewing other
banking systcoms, decided umanimously against a n y change i n

the character o f the Bank o f England note.

O n re-read ing

that report recently I was struck with this a s the main
reason-=mind y d u , t h e s e a r e f i n a n c i c r s

a n d bankers,

n o t leg

islators=-undcr t h e chairmanship o f the Governor o f the
Bank o f England, who, a s human nature ordinerily goes,

would like t o see the powers o f t h e bank enlarged b y being
given a lerger o r more complete control over note issues,
but they say "No,"we d o not want it," a n d why don't they
want it?

I n the language o f the rcport, because if,

says t h e report, o u r banks,

b y which they m e a n what w e

would c a l l member banks, k n o w that t h e y c a n get currency
and notes freely f r o m us, t h e y a r c sure t o pursue a
loan policy;

lax

i n other words, looking t o the psycholog}

of t h e situation, b e c a u s e e v e n t h e B a n k o f England,

with

all i t s traditions a n d bodstered u p b y the well-established
practices

o f t h e L o n d o n d i s c o u n t market, P e l t t h a t i t d i d

not want t o b e i n the position o f having t o o much control
and t o o m u c h power,
point.

T h e y wanted

b u t wanted f o r itself
t o b e able,

i n o t h e r words,

their large borrowing banks, "iihen y o u come here t o o free

quently o r f o r t o o l a r g e s u m s , y o u a r e d i r e c t l y r e s p o n Sible f o r e a t i n g i n t o o u r reserves;

w e a r e n o t i n a po-

,Sition t o m a n u f a c t u r e c u r r e n c y w i t h a

gold.

Y o u arc cating i n t o o u r reserves a n d o u r gold,"and

the bank,


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Federal Reserve Bank of St. Louis

partial c o v o r o f

i n the very offort

is bound t o excrcise a

t o p r o t e c t itselfs, t h e r e f o r e

more rigid a n d discriminatory con-

trol o f the credit t h a t i t extends t o its borrowing banks
than i t otherwise would.
I a m definitely o f this opinion a s regards myself;
I wish I

could bring others around t o it; I

a m extremely

skeptical o f whether w e are going t o be able t o control
situation.

T h a t i s m y m a i n reason, d u r i n g t h e p e r i o d w h e n

we w e r e e n g a g e d

flation,

i n the comfortable a n d easy process

o f ins

o f talking a n d acting against i t t o the extent that

I felt t h a t I

could w i t h propricty.

H i s t o r y tells u s over

and over again that easy a s i s the process o f inflation,
hellish a n d agonizing i s the process o f deflation. I
have never satisfied myself t h a t w e are going t o deflate.
I think w e w i l l d o m i g h t y w e l l i f w e c a n k e e p t h i s t h i n g

from getting progressively worse a n d worse.
I a m positive i n m y judgment i n this matter, t h a t
if t h e F e d e r a l R e s e r v e B o a r d w o u l d r a t i o n t h e F e d e r a l R e ~

would
Currency » that y o u
Banks i n the matter o f
scrious v i e w o f y o u r
far m o r e s o m b r e a n d
you do
member panks t h a n
t o your porrowing

have t o t a k e a
rolationship

knows,
your borrowing p a n k
where y o u know, a n d where
Bank c s
a credit i n a roserve
h
e
d
e
c
has
i
t
that when
i n t o notes
c a n pulverize e r c d i t
i
t
course
o
f
a matter


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Federal Reserve Bank of St. Louis

at will.
abenalmat.2 4

w e a r c going, g o o n e r

o r later,

what 1
ansive i n maintaining
defe
the
o
n
seriously
utterly u n t c n a b l e t h e o r y ,

ut

t o b e put

think i s ©

that
1 0 g L i k e t h e present,

inflation. I
nothing t o d o with
the reserve notes h a d

{
t o do with inflation.
it has got everything
restriction
is n o p o i n t a t w h i c h
tive t h a n r e s t r i c t i o n

think

think there

b e made
o f credit c o u l d
o f n o t e issucs,

p o t h for

Bank,
and the Federal Reserve
Board
Reserve
the Federal
as 4
survey o f the situation
t
h
e
o
n
o
n
l
y
to i s s u c

whole,

of
that the condition
satisfied
being
ang the authoritics
t o its total
required o n addition
actually
the country
circulating m e d imum.
As I

view t h e f u n c t i o n

Board,
o f the Federal Rescrve

t h e curi s that o f regulating
function
its most important
altoI t has given a n
we i t was s e v Upe
it
currency t o what
a ffer
t o the control o f
n
s
h
i
p
gether/re

has t o t h e c o n t r o l

o f credit.

Y o u Reserve Banks initiate

credit e x t e n s i o n s a n d a l l t h e F e d c r a l R e s e r v e B o a r d h a s
to d o w i t h t h e m a t t e r

i s t o rcvicw a n d approve rates.

B u t

the rate o n c e fixed, providing t h e paper that y o u are d i s counting,

o r against which y o u make advances,

i s o f the

kind described a s eligible i n the Act, t h e responsibility
rests with you.
notes.

Y o u have n o power i n the matter o f issuing

A l l that y o u c a n d o i s t o apply;

i t i s then f o r

the F e d e r a l R e s e r v e B o a r d t o d etermine w h c t h e r ,
OL t n e c o n d i t i o n

i s y o u r district,

o r i n the country a t

large, t h a t application should b e granted.
words,

i n view

I n other

i t is clcar, u n d e r t h e Reserve ACt, whether right

or wrong--and I

think very rightly-- t h a t t h e issuing o f

currency i s something i n the nature o f a public function;
that i t i s practically t h e erchiten o f money, e v e n though
£618

n o t legal tender,

a n d t h a t i t facilitates operations

which i t may b e advisable t o facilitate, b u t which i t may
also, u n d e r certain circumstances,

b e very advisable t o

restrain.
I have often thought o f this factor i n connection w i t h
the currency--I d o not know t o what extent Federal Reserve
notes


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Federal Reserve Bank of St. Louis

a t this t i m e a r e actually b e i n g u s e d a s reserve m o n e y


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Federal Reserve Bank of St. Louis

by n o n - m e m b e r b a n k s ,

b u t they a r e being

large extent a s t h e reports f o r 1918 a n d 1919 show--I
have n o d o u b t t h a t t h e s e l a r g c d i s c r c p a n c i c s s h o w n u p o n

the reports t h a t wore circulated this morning bétween the
Reserve Baihanccs maintained b y your larges borrowing banks
and bills payable a n d rediscounts t h e t t h e y have h a d with
you, represented f o r t h e most part t h e margin which was
covered b y the issuc o f Federal Reserve notes.

T h e y get

nothing for thosc bills payable, a n d i f i t does not exist
in t h e s h a p e o f r e s e r v e c r e d i t ,
,the s h a n e o f n o t e credit,

i t oxists, p r e s u m a b l y ,

i n

s o that these large banks p r e -

sumably a r e t h e main banks t h a t h a v e been pulling reserve
notes o u t o f the Federal Reserve Banks a n d injecting t h e m
into circulation, l a r g e l y ,
figures s h o w i n g a

i E tninte: w h e n c o u p l e d w i t h o t h e r

considerable v o l u m e o f b a n k loans m o d e

by members o f the Federal Reserve S y s t e m t o non-member
banks

i n supplying t h o s e b a n k s w i t h Federal Reserve n o t e s

which,

i n turn, e n t e r i n t o t h e i r h o l d i n g s

a s r e s e r v e money.

So t h a t the Rescrve notc, undcor o u r System, h a s g o t
avery peculiar significance.
notes
from

i n considerable v o l u m e

W h e n w e are issuing these
w e a r e r e a l l y c r e a t i n g lon) what,

t h e p o i n t o f v i e w o f t h e non-mcembcr banks,

i s

alent t o cash,

i n other wo:

l e g a l reserve-money. I

cannot h e l p b u t fecl, t h e r e f o r e ,

t h a t w e have a

very s e -

rious rospons ibility a s & systemn,,you i n applying f o r
notes a n d the Rescrve B o a r d i n granting y o u r application.
Let m e here call your attention again t o the report
of the British Committce, w h i c h will probably t a k e i t s
place i n history a s t h e most valuable a n d important financial document p u t o u t b y a n y British comnittse since t h e
celebrated bullion report o f 181°

T h i s report proposes

not o n l y t h a t the Bank o f England note shall n o t have i t s
as a

charactcr c h a n g e d

bullion certificate,

b u t strongly

urged a n d recommended, a n d t h e r c m mmendation w a s adopted,
that t h e so-called currency n o t e p u t a n t b y the British
CY2

Government f o r 1920 should b e absolutely restricted i n
maximum amounte
Mr. williams.‘

Mr. Miller.

Exchequere


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Federal Reserve Bank of St. Louis

i s there?

w h a t i s the restriction?

T h r e e hundred a n d twenty million pounds »

Mr. Williams.
Mr. Miller.

i s n o restriction now,

T h e r e ise

Mr. williams.
Mr. Miller.

There

H o w is r e s t r i c t e d ,

b y order?

Y e s , b y order o f the Chancellor o f the


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Federal Reserve Bank of St. Louis

Mr. Williams.
Mr. Miller. I

Yourefer
refer

t o the Bradburys.

t o t h e Bradburys,

a n d i t ought

to be said i n regard t o that, that the gold reserve be~
hind t h e s o - c a l l e d B r a d b u r y c u r r e n c y notes. h a s b e e n v e r y

materially increased during the past six o r seven’ weeks.
It h a s b e e n i n c r e a s e d s o m e t h i n g l i k e t e n p e r cent, w h e r e

Lt previously w a s cpproximatcly s e v e n p e r Cente
Mr. Williams.

I s i t not truce that there were n o limi-

tations u p o n t h e Bradbury notes until t h e action o f the C h m -

cellor o f the Exchequer a short time ago?
Mr. Miller.

T h a t i s truce

Mr. Williams.

W o u l d that b e a y more unchangeable

than a decision b y the Federal Reserve Board would b e that
there shall b e n o expansion beyond a
My. Millor.
point.

certain point?

I t is: exactly t h e same thing. “ T h a t i s m y

I t requires virtually parliamentary sanction i n

to do — ;

e e

Eng land Aihat t h e Federal Reserve Board was s e t u p t o d o i n
this country.
In: brief, t h a t i s what I - m e m w h e n I

say that there

is n o g o v e r n m e n t a l b o d y i n - t h e w o r l d , c e r t a i n l y n o n e t h a t

concerns itself w i t h banking a n d finance, .that begins t o
j

have anything l i k e the powor t h a t t h e Federal Reserve Board


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Federal Reserve Bank of St. Louis

has under t h e Fedcral Rescrve System.
that t h e l a w p r e s c r i b e s
the o p e r a t i o n s

i n the way o f

o f t h e Federal Rescrve

not immcdiatcly proceed t o s a y that
Board i n its discretion c a n suspend t h e exercise of.
it requires a

vote o f parliament, a

But

vote o f imdemnification

in Britain, t o do what w e can d o b y a vote o f the Federal
Reserve B o a r d .

I n brief, o u r s i s a

reserve s y s t e m b y

discretion instead o f b y a n y fixed principle.

T h e Bank

of Ebgland, t h r o u g h i t s governor--

Mr. Williams (interrupting).

D

o you think the

powers o f the Reserve Board should b e vestricted b y Congress o n this point?
Mr. Millers I

do note I

do not think t h e power o f

the Board should b e pestricted. I

think t h e Board should

exercise i t s power t o restrict, a n d that i s m y contention
at t h e p r e s e n t t i m e .

I n o t h e r words, E n g l a n d h a s s e t

this program t o itsclf o n this point for the year 1920,

"Henecforth we are going t o bank within one fixed limit,
to wit, t h e gold and Bank o f England notes, which are
tantamount t o gold, t h a t w e have, a n d a fixed volume

of currency notes."

I n other words, English people and

English i n d u s t r y


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Federal Reserve Bank of St. Louis

i n 1920 a n d henceforth u n t i l

i t i s sus-

pended, i f i t is suspended, have got t o recognize that
there i s a fixcdlimit i n the game." A
point i s not elastic.

limit a t that

T h e y have g o t t o get along a t

three hundred a n d twenty millions o f currency notes.

They

have g o t t o get along with a s many Bank o f England notes
as they have that a r e covered b y gold.
Acting Gover Case.

H o w close a r e they t o that limit?

you those figures i n mind?
Mr. Miller.

C

a

n y o u s a y off-hand, M r . Jacdbson?

I should s a y there a r e three hundred a n d five o r three
hundred a n d s i x m i l l i o n pounds, a p p r o x i m a t e l y t h r e e

hundred million pounds o f notes outstanding i n England a t
the present time.
Mr. J a m bson.

I t i s over three hundred million.

T h e

cover i s twenty eight and one half million pounds, less
than five million Bank o f England notes which are now impounded

b y the Treasury

as a

part o f t h e c o v e r a g a i n s t t h e

notes.
Acting Governor Case. I

thank y o u very much.

Mr. Miller. T h e y have kept below the limit, but
they have added t o the gold behind the notes.


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Federal Reserve Bank of St. Louis

Now, w h a t have w e got?

O u r notes

=

were
¥ e n therc
their maximum Deccnibcr 2 6 t h o r 27th, w h
billion,naught f i v e

s i g h t milli

13th o f J a n u a r y w e |} a

a

n

d u p t o the

return f l o w o f notes w h i c h

brought b a c k s o m c t h i n g o v e r t w o h u n d r e d million, a p p r o x i -

mately t w o huncred a n d fourteen o r tio bundred a n d fiftecn

million, t o be cxact.

f e a r ago the return movement con-

tinucd well into March.
Gnd e

T t was most marked

s

y d i d f r e y o u t towards t h e

i n J a n u a r y e n d c a r l y February.

Our l e s t s t a t e m e n t s h o w s t h a t w o h a d e

maximum i s s u s o u t -

standing o f threc billion, c i g h t million.

I n othcr words, thx

Contraction t h a t t o c k p i a c e G a r i i c r

i n the

had b o o n w i p e d o u t a n d w e a r e n o w o n t h e increase, w i t h

every indication,

i t i s m y personal bclicf,

i f nothing i s

donc, t h a t b y the o n d o f the year w e will have presumably
Hr o m t h i r t y s i x t o t h i r t y s e v e n h u n d r e d m i l l i o n F e d e r a l
Reserve n o t e s o u t s t a n d i n g ,

which I

think w i l l b o u t t e r l y i n -

consistent w i t h t h e t h e o r y t h a t t h e F c d e r a l R e s e r v e n o t e
has g o t k n o t h i n g
conditions

that

t o d o w i t h t h e i n f l a t i o n o f prices a n d

means o f detcrming,,but w h e n y o u have a

condition

such a s w e have h a d i n the Unitcd States i n t h e last year
anda half, whcre there h a s b e e n a so-called o r g y o f extravagance, a

spending mania,

class

b y people

o f a n utterly

t o thosc w h o h a d b e c n t h e recipients

of

big incomes i n the w s t a n d who a r e i n the habit o f carrying their bank accounts i n their pockets a n d holding
their claims against t h e credits o f the country i n the
shape o f notcs rather t h a n bank accounts, I

for o n e can-

not divést myself o f the impression t h a t t h e Federal


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Federal Reserve Bank of St. Louis

Reserve notelis a

very important p a r t i n that proceeding.

In brief, under o u r system a t the present time, t h e r e
is n o difficulty through inability t o get pocket currency
that a n y one every encounters

i n the process o f converting

anything that i s bankable security i n t o currency.
a -8

have g o t

t o sell,

I f I

n o o n e i s evcr embar-

rassed i n buying that bond through inability t o get currencys

I

f a bank has g o t it, i t c a n g o t o the Federal

Reserve B a n k a n d g e t ite
bond,

I f I want t o borrow o n m y

m y bank i s never under a n y difficulty

i n accommo

dating m e i f I want panroue ss because i t has n o t g o t t h e
2
currency i n its vaults, because a l l i t has g o t t o d o i s b o


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Federal Reserve Bank of St. Louis

take i t s note a n d m y hond t o a Federal Reserve B a n k a n d
get the currency.

W i t h twenty f i v e millions o f trust s e -

curitics a n d c n o r m o u s q u a n t i t i c s
latcral,

w e have a

o f other b a n k a

condition w h e r e a

currenecy,whethcr f o r a

men w h o

legitimate o r illegitimate purpose,

has n o diffimilty i n pulveriz g

s c o u r i t y i n t o the

form o f currenny.

Governor Harding.
whenever a m

w h e t has happened i n the past,

w a g i b l e

3

% c u r r e n c y f r o m his bank

for pocket purpose o r for pay-roll purposcs?
Mr. ililler.e i i h a t has happened i n the past, G o v e i n r
o
ig that y o u would have periods. o f
which would result i n time i n a n attraction o f a n increase
of gold t o the country t o supply t h e basis o f cnlarged r e »
Serves, providing t h e t r a d e situation i n our,country,

as

compared w i t h o t h c r countries, ‘iarranitcd i t , o r i n cases

of cmergency,

o r where there w a s a

the demand, g r e a t i n c o n v e n i e n c e ,

scasonal swelling o f

a n d i t wi: f o r t h a t purpose

that t h e Federal Reservc System was
take care o f these emcrgency conditions, t h a t is, periods

where there a

seasonal swelling i n r e q u i r e m e n t h
t
o
b

for credit a n d currency.

B u t m y gencral

question would b e that w e a r e treating ourselves
now as
though w e were constantly i n seasonal condition
and eoStantly

i n a c o n d i t i o n o f currency.

b

i

a

n o t that

our currency swells a t certain scasons o f
the Yoorg: 7
is swelling a t all soasons o f the year, t h o u g h
a t diffeore
ent ratcs,

t o b e sure.

i

@ hada

return f l o w i n the

early p a r t o f t h e y e a r a n d n o w w e h a v e a n outgo,

and we

are building consisténtly layer upon layer--I call
your
attention again t o this fact that t o my mind i s
absolutely

fundamental t o an understanding o f the wholo situation-that while production is dcercasing, a s indicated
b y every
production inéex that the Reserve Board has set up,
the
volume

o f Currency a n d credit t h a t w e a r e
m a n u f a c turing

and putting out and allowing others t o take from us, i s
increasing.

Y o u c annot u n d e r t h i s s i t u a t i o n d i v o r c e t h e

volume o f credit and currency from a very serious a n d

direct responsibility in the movement of prices.
Evidently
greater volume o f currency i s not necded i n order t o
bring about increased production, because the stark
fact
is w e have diminished production.

Governor Harding. W i l l you permit one more question,
Mr. M i l l e r ?


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Federal Reserve Bank of St. Louis

L}

542

Y e s , a s many a s y o u want, Governor.

Mr. Miller.

Governor Harding. A s s w a i n g that there was 4

factory

goods with a
six years ago, producing a certain amount o f
certain number o f m e n o n its pay-roll, t h a t same factory

of
today, w e will assume, i s producing the same amount
goods and has the same number o f men o n its payroll, would
today for
that factory require t h e same amount o f currency

the filling o f its payrolls that i t did before?
Mr. Miller. P r e s u m a b l y twice a s a a t i

Governor Harding.
Mr. Miller.
as muche
question.

a t least twice a s muche

twice
A t least twice a s much; presumably

t h a t i s the
B u t would i t b e more cvery month,
I

that I
t i s not t h e absolute volume
the

a m criti-

a steady increase.
cising now; i t is / fact that there 4 s


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Federal Reserve Bank of St. Louis

It i s f o r t h a t reason,

t o r e p e a t o n c e more, 1

do not de-

w e are going t o have
lude myself w h e t h e expectation t h a t

any great contraction. I

believe i t is going t o be a

very slow a n d Long-drawn-out process,

W h a t I

myself

is, i f w e g e t this thing
will b e abundantly content w i t h
under c o n t r o l

n o t show,
s o that o u r l o a n account d o e s

as

report w e have, 3
it does according t o the very last
seven o P eight hundi. ¢
very considerable increase o f some


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Federal Reserve Bank of St. Louis

543.

millions since t h e asrd. o f January o f this year i n the
country a t large, o u t s i d e

of a

single center,

York, where t h e situation h a s b e e n held firmly.

I

n brier,

more credit i s being sent in--my belicf i s i t is being sent
in--that t h e individual business m a n cannot s e e a n d cannot b e e x p e c t e d t o s e e t h e s i t u a t i o n e
tunity t o s e l l goods,

i t m a y b e shoes,

or a n y t h i n g clse; t h e r e i s a

H e sees a n o p p o r
i t ge

b e d r y goods,

d c a r t h o f labor, p r i c e s h a v e

been rising, a n d t h e outlook i s good.

H e goss i n t o bid

for a part o f this limited supply o f labor a n d materials.

He i s bidding against twenty o r a hundred o r a thousand
others,

a n d that bidding i s facilitated t h r o u g h t h e ease

with w h i c h c r e d i t h a s t h u s f a r b e e n o b t a i n a b l e f r o m t h e

banks, w h o i n turn obtain i t a t the Federal Reserve Banks.

It is this ompetitive bidding that has been driving
prices highcr a n d higher, a n d t h e higher w e g e t the more
serious w i l l b e the collapse w h i c h sooner o r later i s going
to come. T h e r e i s n o use adéceiving ourselves o n that point--:
it i s going t o come.

Now, i f I were a Reserve Bank Governor, I

think I

would b e greatly impressed not only with the seriousness
and solemnity o f m y responsibility, b u t with the extreme

difficulty o f it, when all o f m y .patrone k n e w that
there was really n o fixed fence within which I


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Federal Reserve Bank of St. Louis

was o p e r

ating, except t o have t h e reserve requirement, w h i c h i b i s

well known, a n d altogether too well known i n this country
at the present timc, c a n b e suspended b y the vote o f the
n

Federal R e s e r v e B o a r d . f

y

s ¢

h a t that h a d not

been donc, t h a t that power could b e exercised o n l y with the
concurrence

o f the President

Mr. Williams.
be practically a
that i *

o f t h e United States»

I t - i s w e l l t o mention that i t has t o

unanimous v o t e o f the Rescrve Board,

five vote.
Tn o r d e r t o s u s p e n d r e s e r v e r e q u i r e m e n t s «=~

£66
that.

k n o w , b u t l e t u s assume h e r e that i t would require
Y o u r member banks k n o w that, a n d they figure u p o n

conit. T h e y assume that sooner o r later, w h e n a tight
and o f
dition cxist, t h e t o f course t h e Board will d o it,
with a
course t h e B o a r d w i l l d o i t , w h e n i t i s c o n f r o n t e d
or a

real scorious e m e r g e n c y

t e m p o r a r y condition.

B u t it

w a s pointed
is just a s well t o follow t h e psychology t h a t
out i n d i s c u s s i n g t w o o r t h r e e d a y s a g o t h e amendment,
€

as
that is, t o keep your people i n a state o f uncertainty
know
to what i s going t o happen, i n s t e a d o f letting t h e m

definitely that that device i s going t o b e used. T h e r e
is m o r e m e r i t

i n the English principle

b y w h i c h t h e y sus-~

pend t h e requirement, n o t a s a matter o f law, b u t a s a
matter,

s o t o speak, beyond t h e law, w h e n t h e Bank o f

England

r e

L

s d i r e condition,

O r that a dire condi-

tion i s impending, w h i c h requires s o m e heroic a n d extra+
ordinary resource, s u c h a s a Suspension o f the reserve r e -

quirement against the Bank o f England notes, t h e ministers
Sitting a s a

council authorize... t h a t »

and t h e y take a

chance o f getting a vote o f imdenity from parliament,
There i s great virtuc, I
aS I

think,

i n that particular thing.

sec it, i n a country like ours, porticularly a t

this time, where w e have got a bad financial o r banking
Situation i n this, t h a t w e have this enormous inflation o f
credit--not e n o r m o u s

b y contrast w i t h conditions

i n Europe,

but enormous b y contrast with anything l i k e recent conditions,

o r with s u c h a

condition t h a t w e should h a v e r e -

normal i n the past--you have a t the same time
a remarkably strong industrial under-tone.
once &

T h a t i s at

good clement i n the situation a s a whole, b u t I

think a n e m b a r r a s s i n g e l e m e n t f r o m t h e p o i n t o f v i e w o f

bank control.


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Federal Reserve Bank of St. Louis

M e n fecl somchow o r other that i f they c a n

546
Only produce t h e g00ds i n this country
there i s going t o

be n o difficulty o n the. whole i n selling them.
There is
a good domestic market, a n d there i s
a strong European
market, w h e r e v e r t h e g o o d s c a n b e
financed.

a n y one with

anyvision k n o w s p e r f e c t l y w e l l t h a t
E u r o p e cannot: re-

cover without t h e assistance o f the
United States a n d the
product o f her industries t o a considerable a n
ount, a n d

knows also a

é

is going t o reéover, s h e i s going

to get the assistance o f the United States b y
one means
Or another.

T h e result, therefore,

condition o f the country,

s o far a s the. outlook f o r t h e

next y e a r o r t w o i s concerned,
is a p p e t i t e f o r Credit,

i s that t h e industrial

i s e x t r e m e l y Strong.

There

a n d a p p e t i t e f o r enterprise,

and

there i s appetite f o r financing under those conditions,
That makes i t more difficult f o r y o u t o restrain t h e
thing.
is
My great doubt/vhether, i n such times a n d i n a community
as
optomistic

a s t h e American business comiunity is, e v e n
under

the best o f conditions restraint b y the Federal Reserve
Bank i s not going t o b e a n extremely difficult thing.
We are colts a n d i t i s a difficult h i n g t o drive
a
without a curb. I

colt

might Suggest t h e advisability, f r o m your

point o f view, o f having something like a
curb then upon


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Federal Reserve Bank of St. Louis

547

yourselves t h a t your member banks h a v e g o t t o respect
and recognize a s a curb upon you, t o wit, t h e fact t h a t
if y o u a l l o w t h e m t o e s t a b l i s h rcescrve credit, t h e r e

may b e some Aifficulty i n your supplying c a s h except
by G@igging into your reserves.

T h e mere f a c t that s u m

@ known limit exists u p o n y o u obviously puts yor
position,

i n d e a l i n g w i t h y o u r m e m b e r bank, w h e r e y o u

have g o t t o exercise great vigilanco a n d discrimination

ind etermining whother o r not its credit application shall
be granted t h a n i t would where y o u know notes w i l l flow a s
freely a s w a t e r f r o m t h e R o c k i e s

i n the sunshine

o f summer,

provided notes are the form i n which your banking borrowers w a n t t o h o l d t h e i r c l a i m s a g a i n s t t h e banks, i n -

stead o f reserve balance.
We have started a n experiment under o u r Reserve Sys-

tem which I think will b e o f the greatest value and importance i n the future,
in t h e p l a c e o f a

t o wit, whether y o u c a n substiute

relatively f i x e d l i m i t t h e d i s c r e t i o n

of a body o f inen sitting far away from the seat o f operation a s t h e controlling principle.

F o r m y part I

would

like t o have s e e n the Federal Reserve System adopt something analagous t o the English principle a t the opening


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Federal Reserve Bank of St. Louis

000

of this year.

O u r note maximum was 3,058,000/at the

end o f 1913. S u p p o s e w e h a d said that w e would f i x a s
e will say,
our limit f o r 1920 »3,200,000,000 o f n o t e s , w
on the basis o f the prorate adduced f r o m the operations

of 1919, w e had said t o the individual banks, "This i s
your prorata f o r 1920.

I f y o u want e n y additional notes

you have g o t t o convince t h e Fedsoral Reserve B o a r d that
it i s i n t h e i n t c r c s t

o f t h e imcrican poople a s a

whole,

in the interest o f the country, a n d i n the interest o f

production o f goods, that you should b e allowed t o have
more notes.”
For m y part, I

should h a v e b e e n d i s p o s e d

t o sit very

T h e thing would have h a d t o b e proved

tight o n the lid.

to m e that i t was either a

seasonal requirement

i n the

particular district o r that emergency conditions warranted
you i n applying a larger volume o f hand-to-hand circulation i n 1920, w h e n t h e indexes o f production appear t o
indicate a
volume

decline

o r even a

o f production rather t h a n a

l e s s e n volume.

fixed

I f t h a t i s n o t inflation,

then tell m c what inflation i s ?


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Federal Reserve Bank of St. Louis

Mr. ijilliams. Y o u : w o u l d n o t make t h e amount fixed?
Mr. Miller. I

’
would make i t fixed f o r the banks»

549
Tar
I t i s fixed ‘ + Ahe banks anyhow.

Williams.

Mi Alexa: “No, 2b: 26. o t .
Williams.

T h e banks cannot d o anything except b y

authority o f the Federal Reserve Board.

T h e y cannot issue

the money except b y authority o f the Federal Reserve
Board.

liye Miller. N o , but a s a matter o f practice i t is a n
important thing.

W e have operated upon the principle o f

allowing the banks t o get notes frecly.

T I do not know

of any bank that has ever been unable t o get that, a s long
as the printing presses c o u l d k e e p up»
Mr. williams.

T h a t i s only because t h e Federal Re-

serve Board wrmits it. T h e y can close down o n them any
minutee

Mr. Miller. Precisely, but the Board has permitted
wisely,
am i n c l i n e d

is

e

u p t o datc, b u t t h e time h a s come, I
I t

t o think, w h e n t h a t s h o u l d n o t b e dane.

d that i t is

a

n

member b a n k t o c o m e i n t o a

d illogical t o allow a

Rescrve B a n k a n d e s t a b l i s h a

eredit a n d t h e n n o t b e a b l e

c e t notes

a t will.

M y

answer i s that i f y o u know,,and i f y o u bank knows, t h a t i t
may n o t b e a b l e t o g e t n o t e s


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Federal Reserve Bank of St. Louis

a t will, m o r e c i r c u m s p e c t i o n

will b e exercised i n determing whether o r not t h e banks
shall b e a l l o v e d t h e r e s e r v e c r e d i t .

I

n o t h e r words,

we have t h e anomalous condition i n the United States a t
the present time o f a man w h o wants t o use a note--it m a y
be Tom, D i c k a n d Harry,--without a n y knowledge o f
whether h e i s going t o use i t t o a certain production o r
to a cortain distribution--but h e i s t h e m a n who determines whother o r not t h e Federal Rescrve n o t e shall b e issued, w h i c h i s just a s free a s credit;

i f y o u c a n get

credit, y o u c a n get
In other words, t h e r e i s a psychology i n banking.
There i s n o important pankingZ/system i n the world t h a t has
ever presumed t o operate without having somewhere a
Limit u p o n credit,

n o t even, I

which i s the modcl after which,

repeat,

fixed

t h e B a n k o f England,

i n one degree o r another,

all the great central banks o f issue have b e o n patterned,
and most notable i n its most rccent report o f the Currency
Committee i t argues strongly against a n y modification o f
the e s s e n t i a l p r i n c i p l e c o n t r o l l i n g t h e i r issucs,

and on

the s p e c i f i c p o i n t t h a t i f t h e r i g i d s y s t e m o f c o n t r o l

over notes i s abandoned,

i t i s going t o b e just that m u c h

more Gifficult f o r t h e Bankg t o maintain control over


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Federal Reserve Bank of St. Louis

its own discount operations a n d its dealings with its
member banks.
Now here i n this country,

i n the n e w world, where

we h a v e r e l a t i v e l y f e w o r n o t r a d i t i o n s

of a

4

character w i t h r e s p e c t t o r e s e r v e b a n k i n g ,

useful

a l l o f our

xperionce i n operation has come during t h e period o f

war finance and extended activity. Moreover, i n our
country, where t h e temper o f the business community i s

usually buoyant--we a r e a country o f bulls, f o r the most
w e oxpoet things t o b e better;

part;

w e take a chance,

and eredit for the most part i s one o f the regular means
of feeding jmerican

¥

,I

om erevely

whether w e c a n e v o r s u c c e s s f u l l y m a i n t a i n a

control

of

eredit that i s not buttressed b y 2 restriction o f note
issuce
If I

were a

Roserve B a n k G o v e r n o r I

assisted i n exercising a
with m y memocr b a n k s

firm attitude o f discrimination

b y something

the r e s e r v e a g e n t s d e p a r t m e n t . I

that I

of 4

a s t o whether

Pare

t L

felt there w a s

o r not further notes should

be issucd; a n d i t i s noteworthy, o n c e more I


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Federal Reserve Bank of St. Louis

w i m

WOlLLce NOoO W a n t t O L e e r

could g c t notes a t will, w h e r e I

a grave q u e s t i o n

should w a n t t o b e

want t o repeat ,

552

that i n these matters free a s the Rescrve Board has been
in dealing w i t h Reserve Banks, t h e l a w nevertheless h a s
been very careful t o limit your powers t o t h e powers o f
application a n d t o give t h e Board t h e powers o f granting,

but they. have fallen:into the habit of treating that as
though i t were a purely perf_unctory and meehanical function, s o that practically each Reserve Bank has been a n
issuing b a n k , n o t a s a

practice. I

matter

o f law, b u t a s a

matter o f

am-inclined t o think that w e shall never g e t

a real, f i r m control o f the credit situation a s long a s

that practice continues.
Governor McDougal.
make e n y r e s p o n s e

D o any o f the Governors want t o

t o Governor Miller's r e m a r k s ?

Hamlin, w o u l d y o u l i k e t o h a v e o p p o r t u n i t y
thing?

Governcar

t o s a y somc-

I f so, w e w o u l d b e v e r y g l a d t o h e a r f r o m you.
1 shell b e v e r y bricf, M r . C h o i r m a n .

want t o say,

i n the first place, t h a t I

think this Cone

ference o f the Governors h a s b e e n a n d will b e productive
of t h e v e r y g r e a t e s t good.
well p o i n t e d o u t , t h e r e i s a

A

S GOvernor Harding h a s s o
d i r e c t r e s p o n s i b i l i t y yppon y o u

men t o control t h e present situation.

I f there i s a

ure, t h e r e s p o n s i b i l i t y m u s t m o r e o r l e s s r e s t o n youe


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Federal Reserve Bank of St. Louis

achieve success,

t h s r e a i t cortainly will

be given t o you.
I look a t the credit situation generally,
S C E S e enlretae y a y Maen e t n e s
Rr EaSaOt LyENAnNt SA O fL V
aPLOUS L T O r c e s , Some

P

e

e e

e o J o e l e e teers

m o v LNS

U p ana

moving down, a n d w h e n y o u e x a m i n e t h e r e s u l t a n t

i t is a
“

sone

3

t o know

the real situation
n Y Oy U h Paavv ee gBioo t
V o s o t V e A“b9 x
u t
To
O résolve
a nt h
e e Vvaric
arious
a4
c
forces, s o m e o f which a r e moving i n one direction
a n d s some

|E

in

waiteeatin a)

anownor,

J . ) e

A n a ‘

-

U L

g

D A t s y Get

y R e;

1

a

:

t

a

w e

t s PS C a n s

s e c

w h e n

w e

“dw”

examine t h e s u r f a c e indilertionsof loadercadit conditions.

Now, I firmly belicve that w e have got t o have contraction along many lines, and I

think i t is

that w e shell have expansion o n many othcr lines, b u t t h e

problem i s t o hold a reso lution o f forecs,

t o hold the

credit situation i n check, r h a p s t o hold down the existing inflation.

t h e n w e have another might force, a s

pointed out b y Dr. Miller, t h e marvelous growth o f this
country t h a t will come u p t o moet u s a t some period where w e
shall h a v e
Aroduction b r o u g h t i n t o a

better r o l a t i v e r e l a t i o n t o t h e

amount o f outstanding credit.
Situation a s i f w e were
With a very sensitive mouth,
gent horse, a


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Federal Reserve Bank of St. Louis

a n intclli-

horse t h a t w e c a n t a l k t o a n d g u i d e b y

word o f mouth.

w e keep.a tight rein,

feel his mouth,

w e might s t o p h i m b y pulling i n the

put I

of

share t h e feeling o f Governor Morss that i f w e
many w o u l d l i k e t o s e e u s d o , t h a t i s ,

put u p the rate o n commercial paper f r o m six t o s i x a n d
economist t o l d m e the other

one half o r s even, o r a s @

day, t o cight p e r cent, w e certainly would OOnLFOL,, b u t J
am afraid that w e would a l l b e spilled o u t o f the wagon
and there would b e great disaster.
Now, t h a t i s t h e situation,

t o m y mind,

i n which w e

have g o t t o u s e p e r s o n a l e q u a t i o n a n d p e r s o n a l influence,

and Governor H a r ding has, t o m y mind, l a i d down admirably
the methods w h i c h w e should u s e i n bringing t h a t about.
I see evidence i n s tudy t h e weekly statements o f the
a
Board that present rates, p l u s influence, a r e exercising
measure

o f control,

and I

a

o m e w h a t optomistic

as I

spend three hours e v e r y Sunday morn~

watch each week. I

o every b a n k a n d computing t h e
ing finding t h e c o n d i t i o m f
eord,
changes f r o m e a c h w e e k a n d c o m p a r i n g t h e m w i t h J a n u a r y
which i s , I

believe,

went i n t o effect,

t h e first d a y t h e s i x p e r cent rate

and I

believe t h e r e a r e f o r c e s

a t work

}
which y o u gentlemen s e e a r e tending t o control t h e situa~


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Federal Reserve Bank of St. Louis

tion, a n d I think y o u have t h e balance i n your persua-~
sive power,

and I

believe t h a t y o u c a n h o l d m a t t e r s

i n

checke
I heard what Dr. Miller s a i d about t h e Bank o f England a n d t h e c o u r a g e t h a t t h o y s h o w e d

i n kecping t h e i r

down t o their original status, b u t w e must
remember, i f m y recollection i s not a t fault, thet Pare
liament d i d authorize under cortain conditions t h a t a

bank

note could b e issued without regard t o one hundred p e r cent
gold.

T h a t was never acted on. w h y ? B e c a u s e o u r En-

glish cousins, with great shrewdness, used another de~vice i n the issuance o f currency notes, a n d they certainly
aid inflate t o the Queen's taste b y the issuance o f those
notes,

a n d i f i t had n o t becn f o r those notes w e would

i breaking
unquestionably h a d t o use other a r t i f i c e s : n

England
away ond changing the whole status o f the Bank of
NOLES «

So far a s i t relates t o Fedvural Reserve notes, I

S8up-

pose I am as full o f fallacics a s a n egg i s o f meate I
cannot h e l p t h i n k i n g t h a t i f Congress,

o r i f the Board

were t o say hereafter " W e n o w f i x t h e maximun o f Federal

Reserve notes that can be issued", i t would be like g/doc-


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Federal Reserve Bank of St. Louis

a patient “Re
S t o p shivering w i t h the ague;
fromymow -on you are entitled t o only o n e shiver a day."
I think y o u have g o t t o g o back a n d g e t a t the credit,

and i f you cut that down, inevitably the notes will fall
down.
I do not see h o w a n y o n e could u s e 4 Federal Res
note f o r a n illegitimate purpose, t h a t t h e illégitimacy
could not b e effected equally well i n some other-way.

;

aman cannot get 8

draw checks. I

n

I f

remem-

:F
ber when I could n o t g e t money, b u t i f I had a deposit i n
the b a n k s o m e h o w o r o t h e r p e o p l e w o u l d t a k e iny checks.
I cannot s e c h o w a n y i n t c l l i g o n t b a n k w o u l d w a n t t o e x p a n d

by taking o u t Federal Reserve notes.
excess r e s e r v e

o n deposit,

I

f they have g o t a n

t h e y c a n b a n k o n that, k e e p i n g
hundred.

the u s u a l r a t i o n o f i i r t e e e

I f they take

ontFederal Reserve notes, t h e y cannot b a n k a t all,
get simply cash.
Speaking f o r N e w England, I

cannot c o n c e i v e a n y t h i n g

more disastrous t h a n t o arbitrarily limit t h e amount o f
Federal R e s e r v e n o t e s

t o b e issued,

W i t h o u r vast man-

ufactures a n d the increasing amounts f o r p a y rolls, I
think i f t h a t w e r e d o n e t h e r e w o u l d b e a


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Federal Reserve Bank of St. Louis

movement

i n this

557
om

country t o s t a r t u p a n o t h e r . l d r i c h - V r e e l a n d A c t , b e -

cause there would b e a n actual shortage o f hand-to-hand
circu lation.
But those a r e o n l y m y views, a n d w e ore a l l here o n l y
thinking

a : 1 , a n d I T shall b e w e r y g l a d i n d e c d i f 2

that m o r e c o r r e é t / v i e w s w i l l d o m i n a t e t h i s Board,

are more correct. I

a m a n optomist, because I

power that you have got, a n d T thinl

s

e

find

i f they

know t h e

e the good

use that you are going t o make out o f that
pecially u n d e r t h e n e w amendment.

B u t as s a y , myidea

of the credit situation i s i t is a resultant o f forces.

To g O up, Some thihgs have got t o go down, a n d while they
come down, other things will have t o g o upe I t i s the

grand result, the resultant o f all the forces, and I believe t h a t you gentlemen, f r e s h with t h e inspiration o f
our d i s c u s s i o n s t o d a y ,

c a n g o back,

and I

believe t h a t

you c a n take this situation i n hana a n d that y o u can control it, knowing a l l the time that this b i g country
marvelously developing, n o t this y e a r a s compared w i t h

last, but when you take i t over three o r four years, i t
will b e a

marvebus i n c r e a s e ;

w e w i l l h a v e a n o t h e r resolu-~

tion o f forces w h e r e p r o d u c t i o n h a s a


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Federal Reserve Bank of St. Louis

more p r o p e r r a t i o t o

credit, a n d where w e c a n s a y that t h i s inflat’
pansion o r whatever y o u want t o call i t has practically
disappeared,

o r a t a n y rate i s disappeuring. I

word "expansion" rather than inflation.

use t h e

I T have been asked

a good many times t o define the word "inflation".
wére pressed t o the wall, I

1 a ee 8

should define i t a s £ heard

a clergyman o n c e define t h e f i v e points

o f religion.

d e

said "You getr ecligion when you don't want it; when you
get i t you d o not know it; i f you know it, y o u have not
got i t ; w h e n y o u g e t i t , y o u c a n n o t l o s e i t , a n d i f y o u
lose i t , m y brethren,

y o u never h a d it,"

Governor McDougal.

M r . Gomptroller,

t h e Governors

would b e very glad indeed t o hear anything that y o u desire
to say t o them.
Mr. Williams.

Gentlemen, I

have l i s t e n e d w i t h a

great

deal o f interest t o the excellent addresses w h i c h have
been made, a n d I agree w i t h imich that has b e e n said, b u t
not w i t h a l l o f t h e v i e w s t h a t h a v e b e e n e x p r e s s e d

so

clearly a n d s o ably b y those w h o have preceded me.
inclined t o think that w e have n o t ple
enough s t r e s s u p o n t h e importéence
matter


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Federal Reserve Bank of St. Louis

o f extension

o f credit.

of

< I a m inclined

4

t o think that

matter t h a n m y esteemed
I would g o a little further i n the-

friend Governor Harding.

H e feels that i t is a subject

and yet leave t o
that w e should touch rather gingerly
t o a greater extent
the initiative o f the banks, perhaps
t o d o it.
than I think would b e prudent always
should have
If the Federal Reserve B a n k o f Chicago
receipts f o r grain f r o m
applications based u p o n warehouse
the Tenth National B a n k o f Chicago,

o n paper obviously

Federal Reserve Bank
eligible for rediscount, b u t i f the
belteve t h a t there w a s a
of Chicago should have reason t o
people were endeavore
corner i n process, a n d that certain

wheat supply
ing to gather together ali of the available
or the corn supply i n the elevators,

s o a s t o control it,

Federal Reserve Bank
I think i t would b e the duty o f the
avoid taking part i n 4
of Chicago t o discriminate a n d
movement o f that sort.

waich credit is
Now, I think that the purpose f o r
o f all o f the Federal R e being asked f r o m time t o time
a n d just a s aeleterious
serve Banks i s just a s destructive

the great public a s a
to the masses o f the people an@
grain corner.

m e t o g o into t h e
I t i s unnecessary f o r

various f o r m s

m o n e y m e y b e improvio f abuses f o r w h i c h


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Federal Reserve Bank of St. Louis

dently or-unwisely used. I

thint

tion o f this - i n France a t the present tine.
prevailing i n France,

a s w e know, a

an o r g y o f e x p e n s e a n d spending.

riot o f

W e are

is a greater domand f o r jewelry a n d other luxuries
Paris t h d n a t a n y o t h e r t i m e i n t h e past, t h a t t h e r e h a s
been a n enormous i m p o r t a t i o n

o f luxuries

o f a l l sorts,

mother o f pearl a n d jewels, g e m s a n d diamonds, a n d ele-

phants' tusks, a r d all sorts o f things that they could d o
without j u s t a s well a s not, a n d while t h e production o f
jewelry i n France itself, a s i d e ‘ o m t h e jewelry which
they a r e importing,

h a s g o n e b e y o n d 2 1 1 bounds,

O

e Gia

office where jewelry i s registered a n d stamped, t h a t there
were last. year seven million pleces
against three million t h e y e a r before t h e war.
It simply gives a n illustration o f t h e tremendous
extent o f the production a n d use o f jewelry a n d other
luxuries. i i h i l e t h e French heve b e c n spending millions
and a l m o s t billions

has become

o n luxuries a n d n o n - e s s e n t i a l s ,

h e r credit?

what

H e r credit, w n i c h was maintaincd

during t h e w a r , t h e p a r i t y b e t w e e n t h e n o r m a l r a t e o f t h e

france a n d t h e market rate, a s expressed b y exchange, d i d


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Federal Reserve Bank of St. Louis

nov vory greatly,

w e see that since t h e beginning o f

reconstruction t h e French

« s a k V O R “has: Geel ined 0

about o n e t h i r d o f i t s f o r m e r p u r c h a s i n g power.

I n

other words, t h a t t h e credit o f the French nation i s lower

today than at' any time i n history.
We k n o w t h a t t h e security. w h i c h h a s b e t n r e g a r d e d

in

the financial history o f the past a s being t h e most stable

of all, has probably been the French bond, a n d we know
that there h a s b e e n a complete collapse i n the price o f
T h e British consals a n d t h e French govern-

those bonds.

ment bonds were regarded

1

c criterion o f stability,

the things t h a t moved least, a n d with the indulgence
in luxurics a n d production o f non-essentials a n d the avoidance o f the production o f essentials, t h e y have come d o w n
es that were never approximated a t a n y time i n the
past h i s t o r y o f e i t h e r country.

T h a t i s o n e illustration

of w h a t t h e l a c k o f t h e p r o d u c t i o n

o f e s s e n t i a l s a n d = bie

ence i n luxuries i s doing t o France today,
as t o England.


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Federal Reserve Bank of St. Louis

myself v e r y s t r o n g l y t h a t t h e r e i s a

duty u p o n

Lo v i e w v e r y c i r c u m s p e c t l y a l l applica-

that a r e coming i n t o them from the member banks

562

leans. I

agree with Dr. Miller-and m y colleagues o n the

Board that t h e Federal Reserve System was desig
marily f o r t h e purpose o f tiding o v e r a n d preventing
crises a n d panics, s u c h a s those that
the past,

a n d n o t that w e should p r

amount o f Pederal Reserve notes f o r the usual a n d customary
conduct o f the country's yusiness.
Zam inclinec t o think that w i t h t o o many banks
there h a s b e e n developed a
tain f o r £ y e t r a n s m i t t a l

f e e l i n g t h a t ther should o b -

t o their customers t h e credit

of

the Pederal Reserve Banks, u p o n which they should b e expected t o conduct their normal business.
I a m not prepared t o say that w e should o n l y u s e t h e
Federal Reserve Systom i n moments o r times o f crisis.
course n o t e B u t , u n q u e s t i o n a b l y ,
e

o f

t h a t was t h e primary pur=

o f the establishment o f the Federal Reserve System,
s

o

prevent t h e occurrence o f ‘such experiences

p

a s tre had i n 1907

and 1906. a n d 1 8 9 5 a n d I187S5,and s o on.

take t h e liberty o f cxpressing t h e curnest h o p e that t h e
Reserve Banks w i l l l e n d a discriminating
poses f o r w h i c h t h e m e m b e r b a n k s m a y a p p l y
think t h a t t h e c r e d i t s h o u l d b e extended. m o r e l i b e r a l l y


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Federal Reserve Bank of St. Louis

a.

to

583

to the member banks whitch are passing those loans o n and
which a r e u s i n g t h e i r f u n d s a n d t h e i r c r e d i t

t o produce

things that we must have, food and clothing, and not automobiles a n d jewelry.
I have some figures w h i c h have j u s t b e e n handed t o me.
We are n o w abstracting t h e last call covering t h e changes
in t h e p a s t t w o m o n t h s e

T h e y a r e n o t complete,

but I

hap-

p en to have just finished the figures for the Reserve
cities o f the country, comparing their total deposits, their
total resources, a n d their loans, a n d discounts a t the beginning o f the year, December Slst, w i t h their condition

on March 1st, the beginning o f last March, or, say, February 29th. T h e s e totals a r e interesting, perhaps.

T h e y sha

that the totald eposits, w h i c h were $10,197,000,000

in

the Reserve cities oan December 3lst, h a v e declined t o

#%9,206,000,000, T h e r e was a shrinkage o f the deposits i n
t months o f 990,000,000.
the Federal Rescrve cities i n t h e wo
The loans a n a discounts

i n these s a m e Reserve cities, a n d

central Reserve citics,

o n December Slst, 1919, w e r e

#6,711,000,000, a n d o n March lst, o r February 29th, they
had declined t o @6,660,000,000, a
50,000,000


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Federal Reserve Bank of St. Louis

shrinkage o f only

i n loans, b u t a shrinkage i n deposits o f ,

564

999 000,000.

Now, t h e q u e s t i o n arises, w h a t h a s b e c o m e o f t h e d i f Frercnce?

H o w i s i t @ce@ tunted f o r ?

Mr. Miller. N o t e s - - F e d e r a l Reserve notes.
Federal R e s e r v e n o t e s ?

Mr. Mohlenpah.

T h e more important question is, where

the F e d e r a l R e s e r v e n o t e s a r e ?

Mr. williams.

T h e r e h a s n o t b e e n a n increase o f a

billion dollars i n Federal Reserve notes.
Mr. Miller.

N o , b u t there h a s b e e n a n increase. I

do not s a y that that accounts f o r t h e whole.
I d o n o t t h i n k t h e increase
was m o r e t h a n a
Mr. M i l l e r .

i n notes

hundred m i l l i o n a t most, w a s i t , D o c t o r ?
b o u t

t w o hundred, I

think. I

did n o t

get t h e d a t e s t h a t y o u gave.

Mr. williams. J a n u a r y lst t o March Iste G o v e r n m e n t
securities h a v e b e e n liquidated t o the extent o f approximate~

ly »144,000,000.

T

o meet their withdrawals o f deposits,

they rcduccd their holdings o f other bonds a n d s o forth

to ywe22,000,000.

T h e i r cash i n vault has shrunk ap-

proximately 455,000,000 w i t h t h e withdrawal o f deposits,
but t h e main i t e m t o account f o r this shrinkage i s thet


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Federal Reserve Bank of St. Louis

Shrinkage

o f ~784,000,000 s h o w n i n the amount d u e f r o m

all banks, including exchanges,--due f r o m all banks.
other words, t h e r e h a s b e e n a shif: :

I n

to a fro o f bale

ances, w h i c h a c c o u n t s f o r t h e p r i n c i p a l amount.

T h e

amount d u e f r o m all banks h a s shrunk ,3784,000,000 a n d has
d

b
r
o
s
b
a
a.
t h e e principal
amount
o f the
decline
i n deposits.

Now,
course, I

b y localitics,
a m referring

i t m a y i n t e r e s t y o u t o know--of

t o all member banks,but o n l y t o

the National banks--that the shrinkage i n deposits o f New
York City were 638,000,000;
discounts

t h e shrinkage i n loans a n d

i n New York was (133,000,000.

I T hope i n a

very f e w days t o have a more comprehensive statement
sent ‘me, which I
Reserve B a n k s ,

will b e glad t o forward a s usual t o the

but I

thought posai b l y t h e s e p r e l i m i n a r y

figures might b e interesting t o you before w e wrt.
Governor Fanchcr.

M r . Comptroller, h a v e y o u the fig-

ures detailca a s t o our Reserve cities, Cleveland, Pittsburg a n d Cincinnati?
Mr. williams.»

Y e s , w h i c h w o u l d y o u l i k e t o have,

Cleveland?
Governor Fancher.

[ I would like t o have t h e deposs

its, Cleveland first, then Pittsburg, a n d then incinnati,


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Federal Reserve Bank of St. Louis

to see what changes h a v e b e o n mades

I n Cincinnati, instesd o f showing

Mr. Williams.

a reduction i n deposits, t h e r e w a s a n increase o f
6,800,000.
Governor Fanchere Y e s .
resources o f the Cincinnati b a n k
while y o u r loans actually i n creased about %5,400,000 a t Cincinnati.
a slight s h r i n k a g e

i n deposits,

I n Cleveland
w h i c h declined

from 3166,000,000 t o 165,000, 000.
Governor Fancher.

H o w much did t h e loans increase?

T h e y increcsed 4

Mr. Williams.

Governor Fancher.

Mr. williams.

W h a t

y000, 000.

are t h e figures f o r Pitts-

T h e deposits

i n Pittsburg declined

from 3349,000,000 t o 327,000,000, a shrinkage of pee 000, ~
practically sta000, while your loans and discounts were
ble, a

reduction

o f less t h a n a

million.

Philadelphia s h o w e d m o r e m a r k e d changes.

its i n Philadelphia declined f r o m 593,000,000
526,000,000, a

to

shrinkage o f 572,000,000, w i t h a re~
wr

aQuctito i n loans o f only 4,000,000. T


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Federal Reserve Bank of St. Louis

T h e depos=

do not think,

.2

5

6

7

gentlemen, that w e could have had anything that would
illustrate m o r e forcibly t h e tremendous importance o f the
Federal Reserve System than has taken place i n the last
Six months.

W e would have h a d a colossal panic i f w e

had not h a d t h e system i n operation.
I happen t o k n o w o f o n e bank,

tively small banks+erather, a

o n e o f t h e compara+

comparatively large bank,

but not i n a very large place--whose resources a n d depos~

its were about $25,000j000 o n the Ist of January, representing a

very heavy increase, m a n y millions

i n a few

months, largely b y deposits b y correspéndent b a n k s , ,
country b a n k deposits,

w h i c h w e r e almost a s suddenly with-

drawn, a n d which have gone d o w n $10,000,000 within t h e

last few weeks.

I f that bank had not had the Federal Re-

serve System t o call upon, I

do not know what would have

happened t o it. I t had good paper, but it would not have
been available because i t s correspondent banks were being
called u p o n heavily a t the same time.
With t h e tremendous shrinkage t h a t N e w York has Suse
tained,

o f nearly seven hundred millions

i n deposits,

or

twice o n e h u n d r e d p e r c e n t o f t h e i r r e s e r v e requirements,

in the .short period o f sixty days,
currence


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Federal Reserve Bank of St. Louis

w e might have n a d a ree

o f 1907 i f i t h a d n o t b e e n f o r t h e Federal Reserve

system.

Governor McDougal. M r . Mohlenpah, w e will b e very
glad t o h e a r a n y remarks t h a t y o u m a y c a r e t o address

to

the Gonference.

Mr. Mohlenpah.

M r . Chairman a n d gentlemen, I

you for this courtesy. I

thank

want j u s t briefly t o state that

I appreciate the privilege o f mecting with the Governors
£ the banks. I would n o t eubeline u p o n your patience o r

intelligence t o t r y to state anything. I

still
am/going t o

school, t r y i n g t o assimilate f r o m y o u and from my. collea-

gues. I

have listened with a great deal o f interest t o the

addresses this morning.
However, I

want t o s a y this, concurring w i t h Gov-

ernor Hamlin, t h a t I

a n optomistic,

a n d while I

a m not

unmindful o f the necessity for what w e call deflation,
I am still mindful o f the fact that w e are still a creditor nation, t h a t o u r «
oo

of time will continue

r t s w e o a n d : f o r a long period
> - i n excess o f our imports. I
of our gold covering,

gold that w e have i n this country a t this time. I

o f the
think

a good general will recognize t h e advantages a s well a s the
disadv


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Federal Reserve Bank of St. Louis

A g ) b u t I have come s o recently f r o m the bank

desk that I

have b e e n thinking more o f your problems

than I have o f m y supervisory relationship here.

If I were going t o make any suggestion,

i t would b e

this: t h a t every c i t y bank that carries t h e accounts o f
member banks a n d heeianembes banks h a v e a t its elbow a
list o f the banks -and t h e amount t h a t t h e y a r e borrowing
of the correspondent c i t y banks; l e t that b e a t their
elbow constantly, a n d that a s w e analyze t h a t w e will
have respect f o r t h e great producing section o f o u r
country.

E v e r y industry i s related t o the activity

of the farmer.

H e must carry u p o n his back every other

interest o f our country. P r o d u c t i o n must stzrt theres
He i s the o n l y producer.

H e sows t h e seed a n d h e in-

creases s i x t y fold, a n d n o other industry does that.

From

what t h e farmer produces t h e world must b e f e d a n d eloth~ede

I wish w e had time t o discuss just where these Federal Reserve notes are, i n the hands o f t h e people, i n the
of the
Reserve/Banks, b u t I a m not sure t h a t w e are i n a n inflated condition w i t h respect t o price levels, a n d t h e in=creased p r o d u c t i o n

o f o u r country a n d t h e demands t h a t

are made u p o n u s a n d t o b e made u p o n us, b u t y o u men, t h e


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Federal Reserve Bank of St. Louis

outstanding officers, a r e going t o d o j u s t a s
done

i n o u r banks,

and s o m b r e n e s s
e

and I

w e have

a m sure t h a t t h e seriousness

o f the situation m u s t appeal

are not
goin soO t o d e f l a t e t o hurt.
w

t o youe

B u t

V i e should h a v e f u l l

country are
appreciation o f what the resources o f this
t o serve
and the ability o f our people t o recuperate a n d
the world.

But you can well congratulate yourself that you heave
the
no reciprocal relationship with your deposivor like
commercial b a n k has.
because

h e has a

Y o u d o not have t o maintain a

balance.

Y O u a r e exercising y o u r author-

1
ity and your leadership i n another way.
optomistically,

line

look forward

a s a pessimist,
a s a real optomist, n o t

because I believe that the American people, time being
again, as. 2
the essential, w i l l solve t h e problems, a n d
have asked y o u before, I

ask for y o u counsel a n d help i n

that I may
these m y first days i n the system, i n order
section o f the
be o f somc assistance, particularly t o thar
country where I

a m better acquainted.

Governor McDougal.

G o v e r n o r Harding,

i s i t your de =

subjects, o r
sire that w e discuss i n detail angyoS these
do I


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Federal Reserve Bank of St. Louis

understand

t h a t yJo u a r e t o a c c e p t t h i s r e s u m e

a s

571
our r e p o r t ?

think your report goes suffi-

Governor Harding. I
ciently i n t o detail.

n u m b e r o f very im-

Governor McDougal. :
portant matters here. |
Governor Harding. I

do not think that anything would

be gained b y a further discussion, unless there b e some
particular thing that y o u want t o bring out.

Governor McDougal.

T h e only things that w e could

bring out are o f course covered i n this resume, b u t 1 though’
perhaps y o u might want t o ask some Questions.

I

s there

any o n e present t h a t has anything further t h e y would like

to say o r any subject that they would like t o introduce?
Acting Governor Case. I
members

take i t the remarks o f the

o f the Board will sppear

i n the minutes

o f t h e Con-

ference, and in addition to that I should like
the D i r e c t o r s

o f the Bankshave copies

and I was going t o propose a

o f t h o s e remarks,

short cut, thatis, t h a t

copies of these talks this morning be sent to the direct=
ors o f the bankse I

think they would b e interested i n

knowing what t h e various members o f the Board a r e think=

jing about. I

would like t o have the members o f my board

know t h e c h u r c h t h a t M r . H a m l i n a t t e n d s f o r t h r e e h o u r s


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Federal Reserve Bank of St. Louis

on

572
sunday morning. I

think 1 4 would b e very helpful i f

copies could b e sent promptly a n d not wait until they
come along with the proceedings.
Governor McDougal.

‘ Y o u mean,to s e n d t h e m t o the

Governors t o pass o n t o their boards?
Acting G o v e r n o r Case.

Yes,

o r sent direct t o

rectors, e i t h e r o n e s
Governor jcDougal.

I s that agreeable

t o you,

ernor Hardings a n d t h e others?
Mr. Miller. I

think w e should consider that,

think i t would b e advisable t o d o so.

Governor McDougal.
is n o other business, I

I f that i s understood and there
will declare this meeting a d -

journed, w i t h t h e understanding,
shall

b e concurred

M r . C a s e , t h a t y o u r request

i n a n d followed.

(Whereupon, a t 1:25 o'clock P M, the Conference o f

Governors adjourned) subject to the call of the Federal
Reserve Board.)


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