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GOVERNMENT OWNERSHIP OF THE
TWELVE FEDERAL RESERVE BANKS

HEARINGS
BEFORE THE

COMMITTEE ON BANKING AND CURRENCY
HOUSE OF REPRESENTATIVES
SEVENTY-FIFTH CONGRESS
THIRD SESSION
ON

H. R. 7230
A BILL PROVIDING FOR GOVERNMENT OWNERSHIP OF
THE TWELVE FEDERAL RESERVE BANKS
AND FOR OTHER PURPOSES

MARCH 2, 3, 4, 14, 15, 16, 17, 21, 22, 23, 24, 28, 31
APRIL 5, 6, 7, 12, 13, 19, 1938

C9972




UNITED STATES
G O V E R N M E N T P R I N T I N G OFFIClfi
W A S H I N G T O N : 1938

COMMITTEE ON BANKING AND CURRENCY
HENRY B. STEAGALL, Alabama, Chairman
JESSE P. WOLCOTT, Michigan
T. ALAN GOLDSBOROUGH, Maryland
HAMILTON FISH, New York
MICHAEL K. REILLY, Wisconsin
FRANK W. HANCOCK, JR., North Carolina CHARLES L. GIFFORD, Massachusetts
ROBERT LUCE, Massachusetts
CLYDE WILLIAMS, Missouri
DUDLEY A. WHITE, Ohio
BRENT SPENCE, Kentucky
FRED L. CRAWFORD, Michigan
JAMES I. FARLEY, Indiana
RALPH A. GAMBLE, New York
JAMES A. MEEKS, Illinois
HERMAN P. KOPPLEMANN, Connecticut
THOMAS F. FORD, California
PAUL BROWN, Georgia
D. WORTH CLARK, Idaho
WRIGHT PATMAN, Texas
RAYMOND S. McKEOUGH, Illinois •
MARCELLUS H. EVANS, New York
ANDREW J. TRANSUE, Michigan
JAMES P. McGRANERY, Pennsylvania
WILLIAM B. BARRY, New York
J. T. CRAWFORD, Clerk
II




CONTENTS
Statement of—
Page
Hon. Wright Patman, a Representative in Congress from the State of
Texas
1, 49, 167
Hon. Robert L. Owen, a former United States Senator from the State
of Oklahoma
65, 91, 113, 195, 217, 238
Hon. Charles G. Binder up, a Representative in Congress from the
State of Nebraska
139, 147
Prof. Chester A. Phillips, dean, State University of Iowa
259
Prof. Frederick A. Bradford, Lehigh University, Bethlehem, Pa
282
Prof. Walter E. Spahr, representing the Economists' National Committee on Monetary Policy
285
Hon. Finly H. Gray, a Representative in Congress from the State of
Indiana
369
Prof. Ray B. Leffler, Dartmouth College
372
Prof. Clyde Olin Fisher, W'esleyan University
392
Dr. Joseph E. Goodbar, president, Society for Stability in Money and
Banking, Inc., 36 West Forty-fourth Street, New York, N. Y
411
Hon. Marriner S. Eccles, Chairman, Board of Governors, Federal
Reserve System
443, 466
Hon. Ronald Ransom, Vice Chairman, Board of Governors, Federal
Reserve System
479, 485
Hon. Alfred F. Beiter, a Representative in Congress from the State of
New York
508
Hon. Ed. V. Izac, a Representative in Congress from the State of
California
508




m

GOVEKNMENT OWNEESHIP OF THE 12 FEDEKAL KESEEVE
BAMS
WEDNESDAY, MARCH 2, 1938
HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C,
The committee met to begin hearings on H. E. 7230 at 1.0:48 a. m.,
Hon. Henry B. Steagall (chairman) presiding.
Other mmembers of the committee present: Mr. Goldsborough, Mr.
Reilley, Mr. Hancock, Mr. Williams, Mr. Spence, Mr. Meeks, Mr.
Ford, Mr. Brown, Mr. Patman, Mr. McKeough, Mr. Transue, Mr.
Wolcott, Mr. Gifford, Mr. Luce, Mr. Crawford, and Mr. Gamble.
The CHAIRMAN. The committee will come to order, please.
Pursuant to agreement made on Monday to take up H. R. 7230 this
morning, Mr. Patman will begin the discussion; and, Mr. Patman,
I am sure that the committee is very glad to hear you.
STATEMENT OF HON. WEIGHT PATMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. PATMAN. Thank you very much.
Mr. Chairman and gentlemen of the committee, at this point I
desire to insert in the record a copy of the bill.
(The bill is as follows:)
[H. R. 7230, 75th Cong., 1st sess.]
A BILL Providing for Government ownership of the twelve Federal Reserve banks, and
for other purposes.

Whereas a large number of Members of the House of Representatives believe
that the twelve Federal Reserve banks should be owned and operated by the
United States; and
Whereas an organization known as the Unofficial Steering Committee for the
enactment of a law providing for Government ownership of said banks, and for
other purposes, has been formed, composed of the following Members from the
following States:
Alabama—Patrick; Arizona—Murdock; Arkansas—Cravens, Miller McClellan, Kitchens; California—McGroarty, Voohis, Kramer, Ford, Colden, Tolan,
Scott, Sheppard, Izac ; Colorado—Cummings, Martin ; Connecticut—Kopplemann; Delaware—Allen; Florida—Caldwell, Green, Hendricks, Peterson;
Georgia—Peterson.
Idaho—White; Illinois—Long, Sabath, Boyer, Kelly, Rigney, McKeough,
Fries, Keller; Indiana—Schulte, Ludlow, Gray, Griswold, Crowe, Larrabee;
Iowa—Eicher, Wearin, Harrington, Jacobsen ; Kansas—Patterson, Houston;
Louisiana—Brooks, Griffith, Fernandez, Mills; Massachusetts—Connery, Healey,
Casey; Michigan—O'Brien, Hook, Sadowski, Luecke, Dingell, Transue, Lesinski; Minnesota—Ryan; Mississippi—Ford, Colmer, Rankin, Collins ; Missouri—




2

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Nelson, Shannon, Wood, Zimmerman; Montana—O'Connell, O'Connor; Nebraska—Luckey, Binderup; Nevada—Scrugham; New Jersey—Kenney, O'Neill,
Wene; New York—Barry, Beiter, Gavagan, Sirovich; North Carolina—
Weaver; Ohio—Aleshire, Dixon, Lamneek, Ashbrook, Kirwin, Kniffin, Harlan,
Me Sweeney, Harter, Crosser, Bigelow, Fletcher, Sweeney, Fleger, Hunter,
Secrest; Oklahoma—Nichols, Rogers, Disney, Boren, Johnson, Cartwright, Massingale, Hill, Ferguson; Oregon—Pierce, Honeyman; Pennsylvania—Crosby,
Bradley, Stack, Allen, Daly, DeMuth, Gildea, Quinn, Dunn, Flannery, Moser,
Dorsey, Eckert, Drew, Haines, Gray, Eberharter; Rhode Island—Forand,
O'Connell.
South Carolina—Gasque; South Dakota—Hildebrandt; Tennessee—Chandler,
Atkinson; Texas—Sanders, Jones, Thomas, Mansfield, McFarlane, Maverick,
Patman; Utah—Murdock, Robinson; Virginia—Hamilton; Washington—Smith,
Leavy, Wallgren, Hill, Coffee, Magnuson; West Virginia—Randolph, Ramsay;
Wisconsin—O'Malley, Cannon ; Wyoming—Greever.
and
Whereas said bill was prepared by the members of this group and said
members are its coframers, coauthors, and cosponsors; and
Whereas said group instructed one of its members to introduce the bill:
Therefore
Be it enacted by the Senate and House of Representatives of the United
\ States of America in Congress assembled, That it is hereby declared to be the
policy of CongressDto provide for Government ownership of the twelve Federal
Reserve banks; Co prevent injurious expansion and contraction of credit and
) currency; to stabilize and maintain a dollar of uniform purchasing power for
!the purpose of assuring the kind of dollar which a generation hence will have
the same purchasing and debt-paying power; to permit all banks, the deposits
of which are insured by the Federal Deposit Insurance Corporation, to receive
all rights and privileges from the Federal Reserve System; and to encourage
the sound local bank, recognizing the contribution that the local bank makes
to the social and financial betterment of the local community^
SEC. 2. (a) The Secretary of the Treasury is authorized and directed to
acquire and hold, on behalf of the United States, all shares of capital stock
of the Federal Reserve banks held by member banks of the Federal Reserve
System. Upon surrender by any such member bank of any such stock to the
Secretary, he shall establish a credit for such bank in the Federal Reserve
bank in an amount equal to its cash-paid subscription, with interest at the
rate of one-half of 1 per centum per month from the date of the last dividend
until the enactment of this act. If any member bank fails to surrender its
stock prior to the effective date of this act, it shall not be entitled to exercise
any privileges of membership in the Federal Reserve System, after a tender
to such bank by the Secretary of the Treasury of an amount equal to the
cash-paid subscription for such stock and interest as above provided; but, upon
surrender of such stock and acceptance of the tender of refund in respect
thereof, such bank shall be restored to the privileges of such membership.
(b) The assets, property, and records of the Federal Reserve banks shall be
the property of the United States, but the transfer of shares of capital stock
of the Federal Reserve banks to the Secretary shall not deprive any member
bank of its rights and privileges under the Federal Reserve Act, as amended.
(c) After all necessary expenses have been paid or provided for, the net earnings of the Federal Reserve banks shall be covered into the Treasury as
miscellaneous receipts.
SEC. 3. (a) The provisions of the Federal Reserve Act, as amended, relating to the subscription for stock of the Federal Reserve banks, shall not apply
in respect of admission to and continuance of membership in the Federal
Reserve System.
(b) Any State bank, the deposits of which are insured by the Federal Deposit
Insurance Corporation, shall, under such reasonable rules and regulations as
the Board of Governors of the Federal Reserve System shall prescribe, be
entitled to all the rights and privileges under the Federal Reserve Act, as
amended, if such bank carries its reserves with a Federal Feserve bank. Any
such bank shall be permitted to withdraw at will from such affiliation upon
written notice to the Board of Governors of the Federal Reserve System.
SEC. 4. Notwithstanding any other provision of law, the Board of Governors
of the Federal Reserve System, upon the affirmative vote of not less than ten
of its members, in order to prevent injurious credit expansion or contraction and
to carry out its duty under subsection (a), may by regulation change the




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

3

requirement as to reserves to be maintained against demand or time deposits,
or both, by member or affiliated banks.
SEC. 5. The Board of Governors of the Federal Reserve System shall consist
of fifteen members, including the Secretary of the Treasury, the Comptroller of
the Currency, and the Chairman of the Board of Directors of the Federal
Deposit Insurance Corporation, who shall have voting privileges and all other
privileges of any member of said board, and twelve members appointed by the
President of the United States, by and with the advice and consent of the
Senate. Not more than one appointive member shall be selected from any one
Federal Reserve district. The five additional appointive members provided for
by this section shall be appointed with terms as follows: One to expire January
31, 1941; one to expire January 31, 1943; one to expire January 31, 1945; one
to expire January 31, 1947; and one to expire January 31, 1949. The term of
office of the member who was appointed for a term expiring January 31, 1938, is
hereby extended until January 31, 1939. The term of office of each successor to
any appointive member in office on the date of enactment of this act, or appointed as the first incumbent of a membership created by this act, shall be
twelve years from the expiration of the terms of his predecessor. Whenever
under existing law the concurrence of four or more of the members of the
Board of Governors of the Federal Reserve System is required, such requirement of law shall be held to be complied with by the concurrence of eight
members.
SEC 6. Classes A, B, and C directors of each bank shall be appointed by the
President, by and with the advice and consent of the Senate. No director of
any class shall be an officer, director, employee, or stockholder of any bank.
Each director of any Federal Reserve bank shall be a resident of the Federal
Reserve district in which such bank is located. Each director shall be appointed
for a term of nine years after the first appointment. The appointments shall
be so arranged that the regular term of one director at each bank shall expire
each year. It shall be unlawful for any director of a Federal Reserve bank or
an official of the Board of Governors of the Federal Reserve banks to be
employed by any bank within three years from the time of service as a director
or official.
SEC. 7. The Federal Advisory Council, created by section 12 of the Federal
Reserve Act, as amended, is hereby abolished.
SEC. 8. The Board of Governors of the Federal Reserve Board shall hereafter
constitute the Federal Open Market Committee.
SEO. 9. All positions, except those of directors and officers, in the Federal
. Reserve banks are hereby included in the classified civil service. The. incumbents of such positions shall acquire the same status under the classified civil
service as though certified after examination by the Civil Service Commission
if, at the expiration of the probationary period of six months, their services are
certified to the Commission as being satisfactory. No officer, director, or employee of any Federal Reserve bank or Federal'Reserve Board shall receive an
annual salary in excess of $25,000.
SEC. 10. Examinations of member and affiliated banks of the Federal Reserve
System by any Federal agency shall be made without charge or assessment for
costs thereof against such banks.
SEC. 11. The Board of Governors of the Federal Reserve System is authorized
to prescribe such rules and regulations as may be necessary to carry out the
policies and provisions of this act.
SEC. 12. This act shall take effect on January 1, 1938.
SEC. 13. All laws or parts of laws in conflict herewith are hereby repealed.
SEC. 14. There is hereby authorized to be appropriated such sums are may
be necessary to carry out the provisions of this act.
Mr. PATMAN. This bill, Mr. Chairman, is sponsored by 160 Demo-

cratic Members of the House. Other Members of the House have
stated that they will vote for the bill. We believe that we have many
more than a majority who will gladly vote for this bill if it comes to
the floor of the House.
This bill was carefully prepared by these Members. We had many
meetings, not one or two, not just a few, but a large number of the
Members would meet to discuss the provisions of this bill. That
went on for months. Finally the bill was agreed upon, and the names
of the authors of the bill are stated in the bill.




4

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

The bill contains the following provisions:
1. Secretary of the Treasury shall purchase and hold for the
United States all stock in the Federal Reserve banks.
2. Member banks shall continue to have same rights and privileges.
3. All net earnings after expenses to go to the Treasury.
4. All State banks, the deposits of which are insured by the Federal
Deposit Insurance Corporation, shall be entitled to all privileges
under the Federal Reserve Act, if reserves are carried with a Federal
Reserve Bank, and such banks permitted to withdraw at will.
5. The Board of Governors is increased from 7 to 12 so as to have
1 from each district and to also include the Secretary of the Treasury,
Comptroller of the Currency, and the Chairman of the Federal
Deposit Insurance Corporation.
6. The Board permitted to change reserve requirements of banks
to prevent undue expansion or contraction.
7. The 9 directors of each of the 12 banks to be appointed by the
President and confirmed by the Senate.
8. All positions except directors and officers to be placed in civil
service.
9. Examinations of banks to be made without charge.
10. No official of a Federal Reserve bank shall receive an annual
salary in excess of $25,000.
October 20, 1937, the President of the United States made an
address at the official opening of the Federal Reserve Building on
Constitution Avenue. He stated :
To this public body (Board of Governors of the Federal Reserve banks) Congress has entrusted broad powers which enable it to affect the volume and cost
of money, thus exerting a powerful influence upon the expansion and contraction in the flow of money through the channels of agriculture, trade, and
industry.

Since the Board of Governors have so much power, they should be.
charged with the responsibility of abusing power or failing jto use it.
I do not claim the former except the increase of reserve requirements,
100 percent in 1936 and 1937, but I do criticize them for the latter—not
using the powers.
GOVERNMENT BOND MARKET PROTECTED

If the market price of Government bonds is affected in any way,
the Board of Governors become very active. They seem to be trying
to promote the general welfare of the Nation by protecting the price
of Government securities. When the stock market caused investors to
lose 5 billion dollars in 1 day, nothing was done; when retail sales
took an awful slump, nothing was done. When bank clearings and
carloadings took a nose dive at the same time, nothing was done. I
insist if these powers are used to protect the general welfare as they
have been used to protect the price of Government securities our
country will be much better off.
MISTAKE OF BOARD

When the veterans were paid in June 1936 the country was given
a great push back on the road to recovery and everything was going
fine until billions of dollars of money were destroyed by the Federal
Reserve Board doubling the reserve requirements of banks. This




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

5

caused the country to take another slide downward, and it has not
regained. Such action caused money to become dearer and all fixed
charges, including debts, taxes, and interest became more burdensome
on the people. Mr. Eccles, in fact, admitted to our committee, Banking and Currency, in February 1937 that the Board of Governors
adopted the policy of making money dearer in order to help investors secure a better return on their investments, believing that
capital would be attracted and velocity of money increased.
HALF OF NATIONAL DEBT HELD BY BANKS

The banks of the Nation hold about $18,000,000,000 of Government
securities, almost one-half of the national debt. I understand the
Comptroller of the Currency has ruled that all national banks may
carry these Government securities at par and accrued interest
although they are worth less than par. The Federal Deposit Insurance Corporation should make the same ruling. When the Government ow^ns the Federal Reserve banks, these institutions should purchase from those who desire to sell all Government securities at 100
cents on the dollar. This will protect the security holders and
•will permit the Board of Governors to give some consideration to
commodity prices, w^hich greatly aifect retail sales, bank clearings,
and carloadings.
In further explanation of the bill, Mr. Chairman, I will state the
objectives of the bill.
1. That the issuance of the Government credit and the Government
currency is the function of the United States Government; that the
Constitution requires that the Congress coin money and regulate its
value.
2. That" the money-issuing privilege should not be farmed out to
private banks of the country or to any other class or group as it is
today.
Mr. GOLDSBOROUGH. Is that right in the bill ?
Mr. PATMAN. Yes,

sir.

Mr. GOLDSBOROUGH. I did not notice that.
Mr. PATMAN. It is one of the objectives of the bill. I am not reading the language of the bill. I am reading the objectives of the bill.
LOCAL BANKS ENCOURAGED

3. Local banks, locally owned and owner-operated, should be encouraged instead of chain or branch banks. Our President, Franklin
D. Koosevelt, made the following statement about the local bank:
We must by law maintain the principle that banks are a definite benefit to
the individual community. That is why a concentration of all banking resources and all banking control in one spot or in a few hands is contrary to
sound public policy. We want strong and stable banks, and, at the same time,
each community must be enabled to keep control of its money within its own
borders.

Local people should be encouraged to own their local bank. If it
is now a branch of an absentee-owned bank, the Eeconstruction
Finance Corporation should be encouraged to furnish a part of the
money to assist the local citizens in acquiring the institution for the
purpose of owning and operating it. Absentee ownership should be




6

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

discouraged and local ownership should be encouraged by all governmental agencies.
I understand that under existing law, the R. F. C. has the power
to furnish all or any part of the capital stock of a local bank.
That being true, it should not be a great deal of trouble, if Congress should adopt the policy of encouraging local people to own
their local banks, for the R. F. C. to furnish the needed capital
for that purpose.
4. The local bank performs useful, helpful, and constructive
service to the country. Our country needs small banks to deal with
little business, small corporations, and individuals, the same as it
needs large banks to deal with big business and big corporations.
5. The stock of the 12 Federal Reserve banks is now owned by
6,376 private banks. It is a corporation owned by private corporations. Not a penny of stock is owned by the Government or by an
individual.
They are Federal banks in name only. The Government credit
is used by these banks and such Government credit is denied to the
other 8,687 banks which are smaller banks and do not belong to the
System.
6. The $132,000,000 invested by the private banks in the stock of
the 12 Federal Reserve banks is just as insignificant compared to the
$200,000,000,000 and $30,000,000,000 worth of business done each year
by these banks as $132 would be. The capital is too insignificant for
the banks to claim ownership or control, yet by reason of this ownership of such a small amount of stock they have succeeded in controlling the major policies of the Federal Reserve System.
7. I think that the Federal Reserve bank should be taken over
by the Government and operated in the interest of all the people.
It would be just as reasonable to permit the two or three large radio
chains to have control of the Federal Communications Commission
as it is for the bankers to control the issuance of Government credit
and currency. If that precedent is carried to its logical end, the
Interstate Commerce Commission should be controlled by the l ailroad owners, who could fix freight rates for themselves; and the
Federal Trade Commission should be controlled by the big business
corporations it is supposed to restrain when they engage in unfair
practices.
8. No corporation such as a Federal Reserve bank, which is owned
by private corporations, should have the right to issue money upon
the Nation's credit. The issuance of money is not so much a banking function as is the handling of the money after it is issued.
9. The small banks of the country that are not members of the
Federal Reserve System should not be forced into this System, but
terms so attractive should be offered to them that they will voluntarily become affiliated with a Federal Reserve bank, with the
privilege of withdrawal at will.
10. Only one Federal agency should be permitted to examine
banks, and without cost to the banks.
11. The Federal Reserve System should net the Government over
$100,000,000 a year, properly operated for all the banks and carried
out in accordance with the purposes of the 1913 act. These profits
will increase as the Federal Reserve banks purchase Government
bonds and as the interest on Government bonds owned by Federal
Reserve banks goes into the Treasury. I am not so much interested




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

7

in these banks making profits as I am in the Government owning
them and their rendering a real service to all the banks and the
people of the country.
12. All employees, except officers and directors, should be under
the civil service. Present employees, except officers and directors,
should be blanketed into the civil service.
13. The Government has title to about $13,000,000,000 in gold.
The title is clouded by the Federal Reserve banks holding gold certificates, aggregating more than $9,000,000,000 against this gold.
Government ownership of these banks will remove that cloud from
the Government's title.
14. Gradually and eventually the Federal Reserve banks may acquire all outstanding tax-exempt, interest-bearing Government securities and save the people approximately $1,000,000,000 a year in
interest.
15. The stock arguments against this bill, all of which are unfounded, are these:
(1) That it threatens the dual banking system. This is untrue,
as the dual banking system will be preserved instead of destroyed.
(2) That it is intended to enforce a unified banking system under
the control of a Federal agency. This is not contemplated, as our
proposal, if enacted, will not require any bank that is not a national
bank to remain in the System and may withdraw at will.
(3) That it would serve as a possible entering wedge in the field
of Government ownership of the entire banking system. This is not
contemplated, as it is our view that all banks should be permitted to
receive the benefits of this great system instead of a few banks and
Government ownership of the entire banking system is not sought in
this legislation or any other legislation pending in Congress.
Now, I have a statement here of the assets and liabilities of these
Federal Reserve banks, which, of course, include the 25 branches.
The liabilities aggregate $12,524,693,000. Of that, $4,283,537,000
represents Federal Reserve notes in actual circulation.
Next are the deposits by member banks of $6,606,430,000. There
is deposited by the Treasury $243,662,000, and $98,620,000 by foreign
banks. Other deposits amount to $3,245,000, or total deposits of $378,701,000. The capital paid in amounts to $132,000,000; the surplus
under section 7, $130,836,000; and the surplus under section 13b,
$27,190,000.
The reserve for contingencies amounts to $1,713,000, and all other
liabilities $5,000,000.
Those are the liabilities. The assets will aggregate, of course, $12,524,693,000, including certain certificates on hand and due from the
United States Treasury of $4,618,838; and I want to invite the attention of the committee to the way the Federal Reserve gold certificates
are carried in the daily statement of the United States Treasury. I
have a statement here that was issued February 26, 1938. It shows
that the Treasury has in gold on that date $12,774,329,595.76. Now.
under liabilities, the first item under "Gold certificates," is "Outstanding (outside of Treasury), $2,897,035,629." The next item is
"Gold certificate fund—Board of Governors, Federal Reserve System,
$6,356,643,051.08."
Now, those two items are confusing. I investigated, and I learned
that some of the Federal Reserve banks were not willing to accept




g

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

the Treasury's credit, or the Federal Reserve credit of gold certificates on their books; they demanded the actual physical, tangible
gold certificates delivered to them. In other words, they want something to show that they have title to part of that gold, and they were
claiming that gold. So, where the certificates are actually issued,
where they were actually printed by the Bureau of Engraving and
Printing and delivered to the Federal Reserve banks, they are carried on the statement as "Outstanding (outside of Treasury),
$2,897,035,629."
In addition to that, we have in gold in the Treasury, a gold reserve
of $156,039,430.93, as a backing for the United States notes, which
you are all familiar with. Then there is $1,800,000,000 in the exchange stabilization fund. Then, in the general fund, inactive, $1,200,560,560.93; and then we have some other small items, all aggregating $12,774,329,595.76.
I have referred to the gold certificates, and I want to say that the
amount that I read is not exactly like the amount in the daily statement, because I am here reading from a statement that was gotten up
for the end of 1936. The other statement is up to date.
This statement, as I said, discloses gold certificates of $8,851,880,000—those are the certificates on hand and due from the United
States Treasury; other cash, $256,534,000; then the bills discounted,
of course, only a small amount; bills bought in open market, a small
amount; industrial advances, a small amount; United States Government securities aggregating $2,430,227,000; and in all, of course,
$12,524,693,000.
Now, this bill will not require an appropriation of any kind, since
there is sufficient money in one fund, $145,000,000, to pay for the stock
of the Federal Reserve banks, that is, $132,000,000.
In connection with this bill, in suggesting the policy in the first
part of the section, there was a typographical error and we failed to
state all the purposes, and I will state now that it is my hope that
the committee will consider inserting as a part of the policy of this
bill, in event it is favorably reported, that the Federal Reserve Board,
and the Treasury, and the executive agencies of this Government,
shall be charged with the duty of adjusting the purchasing power of
the dollar so as to attain within 12 months the 1926 price level of
wholesale commodities, including farm products, believing that that
is in the interest of the country today.
Now, I want to read some excerpts from what great men have said
about our monetary system, not long ones, but short ones.
Mr. Edison said:
We must either decrease our wants or increase our means.

And in enlarging on that, he stated, in effect, that the money must
keep up with production, that one is just as necessary as the other.
Mr. Henry Ford has said that "the only way the Government
can help us is to give us a money system that will easily convey
wealth from producer to consumer," that it is the duty of the
Government to furnish sufficient vehicles in the form of money to
convey wealth from the producers to the consumers.
In the autobiography of Benjamin Franklin, there is a very interesting statement that Benjamin Franklin made in 1729 about
money, and it is so interesting that I hope the committee will permit




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

9

me to impose upon them to the extent that I may read this. I am
quoting from Franklin:
About this time there was a cry among the people for more paper money,
only fifteen thousand pounds being extant in the province, and that soon to
be sunk. The wealthy inhabitants opposed any addition, being against all
paper currency, from an apprehension that it would depreciate, as it had
done in New England, to the prejudice of all creditors. We had discussed
this point in our Junto where I was on the side of an addition, being persuaded
that the first small sum struck in 1723 had done much good by increasing the
trade, employment, and number of inhabitants in the province, since I now
saw all the old houses inhabited, and many new one building; whereas 1
remembered well, that when I first walked about the streets of Philadelphia,
eating my roll, I saw most of the houses in Walnut Street, between Second and
Front Streets, with bills on their doors, "To be let"; and many likewise in
Chestnut Street and other streets, which made me then think the inhabitants
of the city were deserting it one after another.
Our debates possessed me so fully of the subject that I wrote and printed
an anonymous pamphlet on it, entitled "The Nature and Necessity of a Paper
Currency." It was well received by the common people in general; but the
rich men disliked it, for it increased and strengthened the clamor for more
money, and they happening to have no writers among them that were able to
answer it, their opposition slackened, and the point was carried by a majority
in the House. My friends there who conceived I had been of some service,
thought fit to reward me by employing me in printing the money; a very
profitable job and a great help to me. This was another advantage gained
by my being able to write.
The utility of this currency became by time and experience so evident as
never afterwards to be much disputed; so that it grew soon to fifty-five
thousand pounds, and in 1739 to eighty thousand pounds, since which it arose
during the war to upwards of three hundred and fifty thousand pounds, trade,
building, and inhabitants all the while increasing, though I now think there
are limits beyond which the quantity may be hurtful.

Tine President of the United States at that time. Thomas Jefferson,
said:
I believe that banking institutions are more dangerous to our liberties than
standing armies. Already they have raised up a money aristocracy that has
the Government at defiance. The issuing power should be taken from the
banks, and restored to the Government and to the people to whom it properly
belongs.

Evidently Jefferson was referring to those abusing their trust.
President Andrew Jackson said:
If Congress has the right under the Constitution to issue paper money it
was given them to be used by themselves, not to be delegated to individuals or
corporations.

President Lincoln said:
No duty is more imperative on the Government than the duty it owes the
people of furnishing them with a sound and uniform currency and of regulating the circulation of the medium of exchange so that labor will be protected
from a vicious currency and commerce will be facilitated by cheap and safe
exchanges.

The Gold Act of January 30,1934, provided, in section 2:
Upon the approval of this act the right, title, and interest to every claim
of the Federal Reserve Board and of every Federal Reserve bank and of every
Federal Reserve agent in and to any and all gold coin and gold bullion shall
pass to and be hereby vested in the United States.

That is the Gold Act of 1935. Under this act the Secretary of the
Treasury may issue regulations under which gold may he acquired
and held, first for industrial, professional, and artistic use, and,
second, by the Federal Eeserve banks for the purpose of settling




JO

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

international balances, and, third, for such other purposes as in his
judgment are not inconsistent with the purposes of this act.
Section 6 provides that—
Gold certificates owned by the Federal Reserve banks shall be redeemed at
such times and in such amounts as, in the judgment of the Secretary of the
Treasury, are necessary to maintain the equal purchasing power of every kind
of currency of the United States.

The Government has certainly never intended it to be used as a
vehicle to help the privately owned Federal Eeserve banks to take
all gold away from the people in order that they may appropriate
it to their own use and benefit. As you gentlemen know, the people
were compelled to turn in their gold to the Federal Reserve banks,
and certainly they should not be permitted, the Federal Reserve
banks, to take advantage of that and to acquire this gold.
On November 21, 1864, Abraham Lincoln wrote:
I see a crisis coming that unnerves me and causes me to tremble for the
safety of my country. As a result of war corporations have been enthroned
and an era of corruption in high places will follow, and the money power of
the country will endeavor to prolong its reign until all wealth is concentrated
in a few hands and the Republic is destroyed.

I mentioned that because in a few minutes I hope to be permitted
to show the members of the committee some charts that have been
carefully prepared by people who are interested in this question, on
information furnished by myself and others.
Now I read again from what Lincoln said:
The available supply of gold and silver being wholly inadequate to permit the
issuance of coins of intrinsic value or paper currency convertible into coin in
the volume required to serve the needs of the people, some other basis for the
issue of currency must be developed and some means other than that of convertibility into coin must be developed to prevent undue fluctuations in the value of
paper currency or any other substitute for money of intrinsic value that may
come into use.

We have almost 13 billion dollars in gold. The Government owns
that gold. If we were to use that gold, and we can only use it effectively if we own the 12 Federal Reserve banks, that gold is sufficient, on a 40-percent gold base, to permit the issuance of money or
credit aggregating 33 billions of dollars.
Now, if we were to do that quickly or suddenly, it would destroy
our monetary system. It is not contemplated that it be done in that
way, but it can be done gradually, and eventually the Government
debt can be paid in that way, and then the American people will be
saved the expense of almost a billion dollars a year in interest on
Government securities.
Mr. Lincoln further said:
Government possessing the power to create and issue currency and credit as
money and enjoying the right to withdraw both currency and credit from circulation by taxation and otherwise, need not and should not borrow capital at
interest as the means of financing governmental work and public enterprise.
The Government should create, issue, and circulate all the currency and credit
needed to satisfy the spending power of government and the buying power of
consumers. The privilege of creating and issuing money is not only the supreme
prerogative of government, but it is the Government's greatest creative opportunity.

That is what Mr. Lincoln said.
I have had many discussions with Mr. Moulton, at the Brookings
Institution, and one time, after I had talked to him, I went back to




GOVERNMENT OWNERSHIP OP FEDERAL RESERVE BANKS

\\

the office and sent him a speech that I had made on a question that is
very similar to this one, and he answered it and presented the stock
argument that is always made against the Government having anything to do with the issuance and distribution of credit. He said—
and this is from Mr. H. G. Moulton, president of the Brookings
Institution:
The one great shortcoming in having money issued by the Government instead
of by banks is the probability that political rather than economic considerations
would govern the making of loans. When bankers make loans they have to pay
attention to the prospect of getting the money back. They may make many
mistakes, but on the whole the necessity of a careful scrutiny of the risks involved is wholesome. When the Government makes loans, on the other hand,
there is not the same direct responsibility on the part of the lending agency to
make sure that the loans are sound; and even if there were, political pressures
are likely to exert a profound influence upon lending policy. This is the sort of
question which cannot be answered on the basis of logic.

I do not believe that Mr. Moulton's criticism is borne out by the
facts in recent years. That letter was written April 30, 1934. The
F. D. I. C. has been rather successful in its operations. Of course, it
is not exactly a banking institution. The R. F. C, I think, has been
very successful. It is true that Congress charged the R. F. C. with
the duty and responsibility of administering public funds for relief,
and that had to be charged off; but its loans made to banks, railroads,
insurance companies, generally have been sound loans, and the R. F. C.
has made money for the Government instead of causing the Government to lose money.
ADVISORY COUNCIL SHOULD BE ABOLISHED

In addition to that, I have this answer to that criticism, and I bring
it up because we had just as well face the fact that that is a criticism
that we must meet and that we must answer. Under our present
system with the Federal Reserve, which has charge of our monetary
system, it is just like the Interstate Commerce Commission, as I sug-*
gested a while ago in one of these statements, being controlled by the
railroad owners and these railroad owners fixing rates that will cause
them to make a good profit and to pay big dividends, or just like the
Federal Communications Commission being owned by the radio companies, and the Federal Trade Commission being conducted by the
large business enterprises whose unfair practices the Federal Trade
Commission is supposed to prohibit. Like it is now, it is true that
much of the power has been taken away from the Federal Reserve
Board—that is, the Board of Governors of the Federal Reserve
Board—but not sufficient power has been taken away from them.
As it is today we have that Board of seven members. I believe that
there are two vacancies on the Board—I am sure there are—which
have not been filled. Those people are charged with the duty of
looking after the Government's interest, that is true, but they also
have by their side at different times an advisory committee. Who
composes that advisory committee ? Twelve of the largest industrial,
financial, and utility leaders in our Nation. Why are they sitting
there? You say that they have no power, that they have no right
to carry out their orders. That is very true, but at the same time they
are a legally constituted advisory committee to that Board of Governors of the Federal Reserve banks, and they do have power and influence—they are bound to have.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

What are they interested in ? They are interested in high or dear
money. Why ? Because of dividends from their stocks in railroads
and utility companies, and their United States bonds will be worth
more if money is more valuable. Furthermore, the power of their
banks is much greater if money is dear. Therefore they want dear
money, they want high money, and as they accomplish their desires
commodity prices and other things go in the opposite direction, as
you know.
So this Federal Reserve Board should be composed of men not one
of whom is a banker, not one of whom is interested in banking, not
one of whom is expecting to go into the banking business as soon as his
term of office expires.
DIRECTORS OF FEDERAL RESERVE BANKS SHOULD NOT BE BANKERS

In addition to that, concerning these directors, 9 of them, directing
each of the 12 Federal Keserve banks, as it is today, 6 of those 9 are
appointed by the private banks and 3 appointed by the Federal Reserve Board. Not a one of those directors should be a banker. It
is not in the interest of this country for those who are selfishly interested and who will do as all of us would naturally do, for we would
befriend an interest that we are interested in, because we see it from
that viewpoint—not a one of those nine members should be a banker.
Bankers should be taken off of the Board entirely and prohibited from
being on it, just the same as we prohibit owners of railroads from
being on the Interstate Commerce Commission.
So that is one reform, or change, that we should make—to take the
bankers off of these local boards.
In addition to that, I will now state something about the earnings
and expenses of these banks.
Mr. GIFFORD. Do you want to yield to a question ?
Mr. PATMAN. I should be glad to yield for a brief question on the
point I happen to be discussing at any time, but I would not like to
be carried off of the subject entirely.
Mr. GJFFORD. We cannot always ask the question on the particular
point that you are at the moment touching on.
Mr. PATMAN. I shall be glad to yield; yes, sir.
Mr. GIFFORD. YOU say that you would not have any bankers on
this board ?
Mr. GOLDSBOROUGH. I understood him to refer to the local board.
Was that a slip of the tongue ?
Mr. GIFFORD. He said that on the Federal Eeserve Board there
should not be a banker.
Mr. GOLDSBOROUGH. But he used the word "local boards."
Mr. PATMAN. I mean the local directors of certainly the 12 Federal
Keserve banks. They have 9 directors at each of the 12 Federal Reserve banks, and, as to these 9 directors, I say that not one of them
should be a banker.
Mr. GIFFORD. Suppose that one was appointed who had formerly
been a banker, but who had divested himself of all of his interest in
banks.
Mr. PATMAN. That, of course, would be up to the Chief Executive. There is no reason why a person like that should be denied a
place if he is otherwise qualified.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

\$

Mr. GIFFORD. Would you think that he had been inoculated with a
taint because of that fact?
Mr. PATMAN. I think that some of our fairest and best citizens are
bankers, and I think that they are honest and conscientious. I think
that the percentage of bad ones is just about as low in that profession as in any other.
Mr. GIFFORD. But, having divested himself temporarily of his holdings, you think that he might go back to his own profession?
Mr. PATMAN. Yes: that is true. I remember one Secretary of the
Treasury who did not "divest" himself, as the gentleman will recall.
Mr. GIFFORD. When you put a man on the Securities and Exchange
Commission, do you want a man on there who knows nothing about
such matters, or do you want a man who does know ?
Mr. PATMAN. That question came up one time, and I was discussing
it with a man who I consider to be very high in this administration,
and I told him that it occurred to me that the critics were getting
some place because so many college professors were being appointed,
and he said, "Well, they are wrong; in this utility work that they
are doing over at the Securities and Exchange Commission, whom
will we get to do this work ? If we get someone who is connected with
the utilities, we cannot always trust him, and if we get some fellow
who does not know anything about it, he will be deceived, and about
the only people we know of to get are people who have the information
and the knowledge, who are not ignorant, who are not connected with
the utilities, and the only class or group that we could think of would
be the college professors," and I have noticed that when the gentleman's own party selected a leader to write new principle for the Eepublican Party, you selected a college professor to do that work.
Mr. GIFFORD. YOU recall Joseph Kennedy's selection on the Securities and Exchange Commission?
Mr. PATMAN. Yes, sir; I recall that.
Mr. GIFFORD. Would you consider that to be a fortunate selection?
Mr. PATMAN. That is, I think, clear off the subject, and I would
be glad to discuss that, with the gentleman some time, not on; this
bill, but right now 1 would like to stick to this bill. I think Mr;
Kennedy is all right.
Mr. GIFFORD. But what I am getting at is that what you are trying
to do, as I understand it, is to take away from the private banks the
Federal Reserve Board because of their so-called interest, and to
return it to the people?
Mr. PATMAN. That is right.
Mr. GIFFORD. Who are the people ?
Mr. PATMAN. The people of this country, about 126 million of
them, and they are represented by a Government here in Washington, and they have representatives here.
Mr. GIFFORD. 126 million people cannot go on the Board. How
are the people's wishes going to be carried out? By whom?
Mr. PATMAN. By their representatives, as it is being done now.
They must trust somebody.
Mr. GIFFORD. Their trustees will appoint a board?
Mr. PATMAN. They must trust someone; yes.
Mr. GIFFORD. SO that when it is all done, there will be seven men
who will have charge of and carry on the mechanics provided for in
this bill?
69972—38

2




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. PATMAN. Yes,
Mr. GIFFORD. And

sir.

you think that they should be selected in such

a manner?
Mr. PATMAN. NO, we increase it to 15 in our proposal, 1 from
each Federal Reserve district, and the Secretary of the Treasury,
the Comptroller of the Currency, and the Chairman of the Federal
Deposit Insurance Corporation.
Mr. GIFFORD. And you think that they could find 15 men who did
not know anything about banking who could do this job?
Mr. PATMAN. Yes, sir; I think that it could be done.
Mr. LUCE. Purely in order that I may understand your argument,
would you point out to me where within the four corners of the bill
there are changes in the powers and duties of the Board ?
Mr, PATMAN. Yes, I should be glad to point that out. I attempted
to point it out a few minutes ago when I said I wanted the committee
to insert a mandate that the 1926 price level should be followed.
Mr. LUCE. I have read the bill, but I wish the gentleman will tell
me where that is.
Mr. PATMAN. In the first section, I think, the gentleman will find
something like that.
Mr. LUCE. Will you point it out to me ?
Mr. PATMAN. Will the gentleman let me proceed in regular order?
Mr. LUCE. But I told the chairman that I would be unable to be
here tomorrow.
Mr. PATMAN. Will the gentleman read the first section of the bill ?
Mr. LUCE. I have read it.
Mr. PATMAN. I notice that the last part of it says "and to encourage
the sound local bank, recognizing the contribution that the local
bank makes to the social and financial betterment of the local community," and, up above that "To stabilize and maintain a dollar of
uniform purchasing power."
Mr. LUCE. I S there any change in the legal powers ?
Mr. PATMAN. NO; I do not recall any changes now, except the
changes that I suggested a while ago.
Mr. FORD. I would like to ask one question.
You pointed out that the Federal Reserve Board at the present
time, or the System, owns 8 billion dollars worth of gold certificates.
Mr. PATMAN. More than that, really. That is, they claim it.
Mr. FORD. Whatever it is, do I understand, then—and I have read
the bill—that the purchase of the gold in the Federal Reserve by
the Government would give the Government an ownership of that
8 billion dollars, including all other assets?
Mr. PATMAN. Absolutely, but, of course, we would owe the member
banks.
Mr. FORD. And it would also entail the taking over of their liabilities ?
Mr. PATMAN. That is right. The Federal Reserve liabilities.
Now, in regard to the earnings and expenses of Federal Reserve
banks, last year, 1937—and I am reading from the Federal Reserve
Bulletin for February 1938, at page 125—the earnings amounted, in
all, for the 12' Federal Reserve banks and branches, to $41,233,135.
Of these earnings, less than $2,000,000, or just about $2,000,000, they
earned in this manner: Industrial advances, $1,000,000; discounting
bills, $212,000; purchasing bills, $24,000; commitments to make indus-




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

15

trial advancements, $189,000, and on United States Government securities they received, of their $41,000,000 of earnings, $39,025,000.
I claim that that is not fair. It is not right. There are 12 institutions purchasing Government obligations with nothing more than
Government credit. You cannot claim that it is anything more. If
you claim it is reserves of member banks, you destroy the reserves
or make them do double duty. These purchases are made on the
credit of the United States, and then the Nation continues to pay
them interest upon those obligations.
Now, I want to read to you an editorial
Mr. GIFFORD. And on the open-market operations.
Mr. PATMAN.4 Yes, sir. I want to read a short excerpts from an
editorial of April 8, 1937, in the American Banker.
If anyone—

The heading is, "Paying for Federal Keserve Bank Free Service,"
and it reads:
If anyone had told the congressional committees which struggled with the
design of the Federal Reserve System at Washington nearly 25 years ago that
a time would come when the monetary program of the Reserve banks would
be dominated by the necessity of meeting the expenses of the free-par clearing
services which they have fostered, they would probably have been laughed out
of hearing.
If anyone had predicted then that the Federal Reserve banks would now have
invested $2,400,000,000 in United States Government securities, they would have
been called crazy.

It was never contemplated, and they have had to resort to this in
order to pay their running expenses. Their expenses are very heavy.
They have officials receiving $50,000 a year on down. They fix their
own salaries, and they must in some way have earnings to pay those
salaries. They do not want to come to Congress; Congress would
not approve anything like that. Their duties are principally clerical
or ministerial now. What do they do ? What does a president of the
Federal Keserve bank in New York have to do ? They are not doing
any banking business. They are just holders of United States Government bonds; that is all that they are doing, and they are dominated by the Board here; at least they are supervised by the Board.
I have the report for 1934, and the salaries have not been changed.
In New York at that time the Chairman and the Federal Eeserve
agent each received $50,000 a year. Under the present set-up, I
understand that the Governor is president of the Board, and he
receives $50,000 a year, and there are all kinds of $35,000, $25,000,
and $30,000 salaries in the United States paid to these officials. So
in some way they must raise that money.
If the 12 Federal Eeserve banks were owned by the United States
Government, then these people, as employees of the United States
Government, would seek an appropriation just like all other Department heads seek an appropriation, and we would have some right
to see how the Government's money is being used. They are using
the Government's money all right, and they are spending it as they
please, but they are not accountable to Congress or to anyone else.
They have in addition to high salaries a very liberal and generous
retirement system for all of their employees, more liberal and generous than any other retirement system that I know of if it is connected with any governmental department or is provided for in the




IQ

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Social Security Law, and that money is paid by the people of the
United States.
Now, why should they be privileged to do that? There is no
reason why they should.
Mr. MCKEOUGH. May I interrupt?
Mr. PATMAN. Yes, sir.
Mr. MCKEOTJGH. Have

you accumulated the earnings of the Federal Reserve banks since their inception?
Mr. PATMAN. It is about a billion dollars, and, of that amount,
one-hundred-and-forty-and-some-odd million dollars has been paid
into the Treasury as a franchise tax.
I am glad that you mentioned that, because
Mr. MCKEOUGH. That is on the basis of the existing $130,000,000
outstanding stock?
Mr. PATMAN. It fluctuates according to the banks in the system.
It varies from $130,000,000 to $145,000,000, but, of course, that stock
would not support the Federal Eeserve System. That stock is
nothing more than an opportunity to the banks to invest a certain
amount of their money in Federal Reserve stock and receive 6 percent on it. Of course, they can only receive about 2.3 percent on
Government securities now, long-term, but they receive 6 percent on
that stock and it gives them a right to say that they, the private
banks of this country, own the Federal Reserve System. They can
say that now, but they should not be allowed to say it, and if Mr.
Eccles, of the Federal Reserve Board, should attempt to do anything
contrary to their policy, of course these 12 advisors sitting there,
that legally constituted advisory group, can always bring that out
and say, "Now, we own this Federal Reserve System. The Government does not own it. You are operating it for us," and they have
a string or lien upon the entire system in that way.
Mr. MCKEOUGH. YOU recall that they asked us "to pay some 3 million dollars to take care of that undistributed
Mr. PATMAN. Yes.
Mr. MCKEOUGH. Bank

note, with phraseology on it that is not
apropos now.
Mr. PATMAN. Yes; I have heard of one having the gall of a government mule, and that is what I would say they had—they had all
of the gall of a government mule to send to Congress and ask Congress to pay for the money being destroyed, and they finally wiggled
out of it; they did not insist on it when it was exposed.
Mr. REILLY. A question for information.
Would it be possible for Congress to amend the present Federal
Reserve Act so as to limit salaries of the Federal Reserve bank
officials?
Mr. PATMAN. Yes, sir; I think so.
Mr. GOLDSBOROUGH. I presume that in the course of your discussion some of your witnesses will undertake to advise the committee
as to how the powers of Congress over the Federal Reserve System
will be enhanced should the stock be owned by the Federal Government.
Mr. PATMAN. Well, of course, Congress has the power now to pass
any legislation affecting the Federal Reserve System that Congress desires to pass, but at the same time, whatever legislation we
pass, we would have these bankers owning the System, and we have




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

]_7

this advisory group, from the biggest banks in the country, advising
the board how to carry out their policies, and I think that is one
of the reasons why we have not gotten any place with it.
The CHAIRMAN. Let me ask you there what Mr. Goldsborough
asked and what I have always desired information about, and that
is what effect the ownership of stock in the 12 Federal Reserve
banks would have upon the exercising of proper governmental control over the operations and property of those banks.
Mr. PATMAN. We have a right to control them now by law, by
mandate—no question about it—but why have the bankers owning
the System, if it is a governmental function, for, if it is a governmental function, the Government should operate these banks and
control them, and why permit 6,000 private bankers to say:
We own that System; we are telling you, the members of the Board, that it
is our System that you are dealing with; we bought it and \mid for it. The
Government does not own a dollar's worth of stock, and no individual does.

So they have a string or lien on it by reason of that fact.
The CHAIRMAN. In theory, is not the ownership of the stock of
the 12 Federal Reserve banks in exactly the same category as the
ownership of the stock in any individual national bank chartered
by the Federal Government?
Mr. PATMAN. Well, you can say that, but that is a privilege, the
banks owning all of the stock, and they own all of it.
The CHAIRMAN. And isn't this true, too, because it seems to me
that there is a practical situation that is involved here, that if we
pass a law under which the Federal Government should become the
owner of the stock of the 12 Federal Reserve banks—and as to the
details of that, there has been no discussion, but assuming that the
details can be worked out, without any change in the control of the
System, would we not be just exactly where we are now?
Mr. PATMAN. N O ; we would not. I do not agree with you, Mr.
Chairman. I respectfully disagree, and the reason is this
The CHAIRMAN. If I may say so, I have this view, that the welfare
of the country economically is dependent at least to a great extent
upon the policies under which the Federal Reserve System is operated in the United States. I am fully sold on the view that wise
monetary control is the heart of the successful conduct of trade and
commerce and of the economic life of this country. I think that I
have a very definite state of mind at that point, but I have never yet
seen where the mere ownership of the stock of the 12 Federal Reserve
banks would of itself effect a substantial change in the service of
the System to the trade and commerce of the country.
Mr. PATMAN. The gentleman's phrase "of itself," I think substantially changes his argument. I think that if you carry your argument to its logical end, you would find yourself contending that private interests should own preferred stock in the battleships. Why
should not private interests own preferred stock in battleships, if
that is true ?
The CHAIRMAN. Since we have a slight difference of view on that
matter, let me ask you, on the other hand, why should not the Government own the stock of the various national banks in the United
States that have been chartered by the Government, because, after all,
their operations come closer to trade and commerce than do the operations of the Federal Reserve System itself ?




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. PATMAN. Oh, no; the gentleman is entirely mistaken, according to my view. The Federal Reserve bank is more in line, in what
it does, with a function of the Treasury, and the governmental institution should be the one to issue the Government's credit and moneys,
and I think the gentleman could just as logically contend that the
banks should own the Treasury of the United States. So, you see,
our Federal Reserve boards are more parallel and comparable with
the Treasury than they are with the private banks. The banks lend
money, they are banks of discount, they receive deposits and make
loans, but the Federal Reserve banks are not intended to deal with
individuals at all—were never intended to deal with private corporations except banks. They have an entirety different function to
perform.
The CHAIRMAN. I still have some grounds for my previous conviction that there should be a diffusion of power and authority in
the Nation, that that is a desirable condition, rather than to have
the drift into which we have fallen toward federalization and centralization.
Mr. PATMAN. Granted.
The CHAIRMAN. I think that that applies peculiarly to banks, and,
so far as I am concerned, I should have been happv always if we
had not come upon the necessity for establishing the Federal Reserve
System originally, but I do think that conditions had come to the
point that that was a very necessary and wise step, but, for my part,
I do not wish to go one step further in federalization than we find
necessity for, and if we can control the Federal Reserve System and
its operation so as to make it serve individual banks, State and
National, very well. The State banks, as a matter of fact, have in
one respect an advantage over the national banks, because the national banks under the Federal Reserve Act, were required, under
their charters, of necessity to become a member of the Federal Reserve System, but the State banks have the advantage in that they
may join or not join, as their managers may think best. Of course,
you; and I are in accord in our views on that point; you and I are
agreed that these independent community banks in the country are
desirable and wholesome and should be maintained, supported, and
preserved in all their full vigor and usefulness, as far as it is possible to do it.
Mr. PATMAN. In answer to that
The CHAIRMAN. I am taking more of your time than I should.
Mr. PATMAN. In answer to that, while we diffuse this power that
you were talking about, let us not give it to those who are selfishly
interested, regardless of the business, occupation, or profession that
happens to be invoked. Would the gentleman contend for a moment
that railroad owners should have anything to do with fixing freight
rates? I know that he would not do that. Yet he is taking the side
of the banks—and I say that respectfully—he is taking the side that
they should have considerable power in dealing with money, the same
power that they have now.
The CHAIRMAN. I have not said that.
Mr. PATMAN. I thought you said that it was all right to diffuse
this power.
The CHAIRMAN. I do not for a moment hold the view that private
bankers should be permitted to control the monetary policy of this




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

\Q

Nation. I am in accord with your view, which I think is the view
of everyone here, that the control of money is a governmental
function.
Mr. PATMAN. Let me use these charts right here
Mr. CRAWFORD. May I ask a question?
Mr. GIFFORD. Don't get to the charts just yet.
I regard this bill as perhaps preliminary legislation. If it were
passed, and the Federal Reserve System were then under Federal
ownership, then you could mandate the Board of Governors in connection with the 100-percent reserves.
Mr. PATMAN. Not mandate them.
Mr. GIFFORD. And then go on and mandate them to mop up the
debt so that we would not pay interest. Is this preliminary legislation ?
Mr. PATMAN. Well, as I view it, the social-security fund will eventually absorb the national debt. It is absorbed, quite a bit of it, each
year now. It is going to take 45 or 55 years. If we should take over
the 12 Federal Reserve banks, we could let these banks buy all of
the Government bonds that were offered for sale at par and accrued
interest, and save the Government that interest, and then protect
the banks, as I suggested, by permitting them to carry these bonds or
securities at par or accrued interest on their books, and that would
permit the Federal Reserve Board to take their eyes off of the Government security market only, and to look at the commodity prices,
and to look at the carloadings and the bank clearings.
Mr. GIFFORD. IS this preliminary?
Mr. PATMAN. Preliminary? No; this is one of the objectives.
Mr. GIFFORD. YOU favor the 100-percent reserve ?
Mr. PATMAN. NO; I am not advocating the 100-percent reserve,
and I would not like to discuss it now.
Mr. GIFFORD. Those who do favor it favor your bill, do they not ?
Mr. PATMAN. Probably they would, but that is not a reason why
even the gentleman should not favor it if he is opposed to the 100percent reserves.
Mr. GIFFORD. And others, haying certain schemes of their own,
are backing up the gentleman's bill, are they not ?
Mr. PATMAN. Our distinguished chairman, a gentleman whom we
all love, introduced an 8-billion-dollar bill yesterday, and, having
that in mind, while I used to be called an inflationist, I suspect that
I will soon be accused of being a reactionary.
Mr. GIFFORD. If this bill were passed, it would make it easier for
all of these other Members who have bills to get theirs acted upon,
would it not ?
Mr. PATMAN. They have no connection at all with this.
Mr. GIFFORD. They all support your bill, thinking that.
Mr. PATMAN. YOU cannot say that all of them support it. I have
not made any canvass on that, but that is nothing against the bill if
they do support it.
Mr. GIFFORD. The committee must recognize the fact that some of
these people are in favor of your bill because its passage will make it
easier for other things to follow.
Mr. PATMAN. Let us stay on this one thing, and if other people
want to do different things, we will have to take them up when they
are presented.




20

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

The CHAIRMAN. Mr. Crawford has a question.
Mr. CRAWFORD. Mr. Patman, going back to this ownership of stocks,
have you in your research found why the stock went to the member
banks originally instead of being held by the Government?
Mr. PATMAN. The original law permitted the Government to purchase a part of the stock, and if I am not mistaken, it permitted individuals to purchase it, but for some reason, and I am not familiar
with the reason, the banks only purchased the stock, and, of course,
if they had only purchased $1 worth, that would be sufficient, because
they are doing business on the Government's credit, using as their
backlog their only reserves and expecting them to do double duty.
Mr. CRAWFORD. Have you found anything in your research which
would give you a lead as to where you might ascertain exactly why
private banks and not the Government bought the stock of the
Reserve banks ?
Mr. PATMAN. Oh, yes. It can be found in the Congressional Eecord
easily; no question about that, and I also know, in connection with the
location of these banks, that the Secretary of the Treasury at that
time, Mr. McAdoo, and maybe two other people, were privileged to
select the sites, and I know that, for instance, in the case of New
Orleans, several other cities wanted to be the Federal Reserve bank
center, and Minneapolis and Cleveland the same way. They could
not give it to all, and they gave it to some, and said to others, "We
will give you branches later on," and I think that that contributed to
the establishment of the 25 branches of the Federal Reserve System.
Pittsburgh, Pa., got one that way.
In 1921 we had in this Nation more than 30,000 banks. Of course,
many of those banks were small, but they are the ones that serve the
communities and the people. At one time 90 percent of all of the
earnings of the banks came from commercial loans. That was true of
the big banks as well. But now a very small percentage of their earnings come from the commercial loans. Therefore, in encouraging the
small bank we are encouraging the real banking business to help the
people of this Nation.
Mr. TRANSUE. I have a question right there. You say that approximately 90 percent of the earnings of the banks were from commercial
loans ?
Mr. PATMAN. That is right.
Mr. TRANSUE,. Have the banks stopped lending in a commercial
way ? Is that the reason, or what is the reason ?
Mr. PATMAN. They have a good reason for it, and if I were a
banker I would consider it. I would be charged with the duty not to
look after the Government, but to look after my stockholders and my
depositors, and as it is now the banks hold more than 18 billion dollars
worth of Government securities. That gives them a considerable
return, and this committee, including myself and every Member of
the House should assume some responsibility for this, that we have
placed the banks in a position where they are not so eager for loans.
In 1935, when the Banking Act was passed, there was a provision in
it that hereafter it shall be unlawful—imagine making it a crime—
for a bank to pay interest on demand deposits. That has saved the
banks $250,000,000 a year. In addition to that, there was a provision
that the interest rates on time deposits would be fixed by either the
Comptroller of the Currency or the Federal Reserve Board—I forget
which—in connection with the national banks, and by the Federal




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

21

Deposit Insurance Corporation in connection with those insured by
the F. D. I. C. which are not in the Federal Eeserve System. That
resulted in interest on time deposits being slashed, until they are
saving about $250,000,000 on that, I think, but they are saving enough
money on those two provisions to pay all of their help, including
clerical expense—their office help, their officials, their directors—all
of their expenses can be paid by those savings, and then, in addition
to that, they are drawing interest on the Government bonds, and any
time they want money, they can take them to the Federal Reserve
bank and get their money just like that, instantly, and pay iy2 percent interest, and if the bond draws 3 percent, they collect 3 percent
from the Government.
So there is not as much inducement for the banks to go out and get
commercial loans as they did before, and we have contributed to that
situation.
Mr. MCKEOUGH. Isn't that an instance of Government interference
with private business?
Mr. PATMAN. Yes; I think it is, but the people who are always
screaming about these things did not scream about that, and it was
perfectly all right, because there was no objection from any of these
people. I did not even hear from my good friend from Massachusetts.
Mr. GIFFORD. You have mentioned your good friend, so I will ask
this:
If you buy the stock of the Federal Reserve banks, with about
12,000 people in them, they will all be poltical employees, will they
not?
Mr. PATMAN. NO. We will put them all under the civil service
except the officers and the directors. In fact, it will not be political
so far as appointments are concerned at all.
Mr. GIFFORD. Can the civil service determine the ability of a person
in the banking business ?
Mr. PATMAN. I am not talking about the officers and directors, but
about those under them, and I would be willing to stagger it so that
no one President could appoint a majority of them.
The CHAIRMAN. May I parenthesize right there?
Mr. PATMAN. Yes, sir.
The CHAIRMAN. Some

years ago a committee of Congress visited
the land banks, and there was considerable discussion about the policies of Federal Reserve management, and I facetiously made the suggestion that it would not be long when it would be insisted that bank
officials and employees out in the country should all be under the
civil-service standards set by the Federal Government. It was intended to be facetious, and was so regarded, but it was not many
years until the fact developed that in high circles it was seriously
considered that all officers of banks in the country ought to be subjected to civil-service tests, and if you followed it to that point you
could not begin a community bank in Texas or Alabama under the
old system, under which our people once prospered.
Mr. PATMAN. I think that is beside the point.
The CHAIRMAN. I said I wanted to parenthesize.
Mr. PATMAN. There are certain things that the Government should
control. The Constitution says that it; is the duty of Congress to
coin money and regulate the value of it. Let us do so.




22

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

The CHAIRMAN. But you were talking about applying civil-service
rules to the officials of the banks.
Mr. PATMAN. Oh, no. I hope that the gentleman does not leave
the impression that I am advocating that the officials of the National
or State banks be under civil service. I am talking about the 12
Federal Reserve banks.
There are certain things that the Government should do. One of
them is about its national defense. We know that the Government
should control, operate, and own battleships. We know that Government, States, or political subdivisions thereof, should own our highways and bridges. We know that some political subdivision, State,
county, or school district, should control our schools. There are certain functions that the Government should perform. I am not in
favor of Government ownership of private business. I am opposed
to it. I am in favor of private profit, to encourage people to go into
business, and I am in favor of the Government staying out of business so that local individuals or others may engage in it, but when
it is in the Government's interest and in the interest of the people to
do something that the Constitution provides the Government shall
do, that is a different matter.
I well remember, Mr. Chairman, when you were the author of a
bill that considerably interfered with private business from the bankers' standpoint, when you presented a bill to insure the deposits in
banks. People screamed out all over this nation that you were interfering with their business, that it would be a failure, and so forth.
That bill had the opposition of and criticisms from those who are
opposed to the Government owning the Federal Reserve today.
The CHAIRMAN. Of course, the purpose of that bill was to protect
the deposits of the public, so that we could have a continuance of the
dual system of independent community banking in the United States
operated in the old way by the citizens of the communities who were
the officers of those banks.
Mr. PATMAN. But it was called Government interference, just like
t tie regulation of the interest rate on deposits.
The CHAIRMAN. The gentleman will permit me to say that I am also
in some slight sense at least responsible for the Banking Act of
1935, in which we placed control of the Federal Reserve System in the
hands of officials responsible to the Government as distinguished from
private bankers, and in which we liberalized that law in numerous
ways and conferred full power upon the Federal Reserve Board to
liberalize the policies of the Federal Reserve System and to exercise
its control so as to meet the necessities of trade and commerce.
Mr. PATMAN. I concede that a step was made in that direction; but
Mr. Chairman, you know as well as I do that the Federal Reserve
Board—and I like Mr. Eccles and all of the members of the Board
whom I have had the pleasure of meeting and associating with; there
is not a personal difference between us, but I have failed to notice any
activity on their part except when the* Government bond market was
involved. They are charged with the duty of protecting commodity
prices just as much as they are charged with protecting the price of
Government bonds.
The CHAIRMAN. Since I have said so much in connection with the
gentleman's discussion let me say that I do not endorse all of the acts
and policies of the Federal Reserve Board, as they well understand




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

23

from expressions that I have respectfully made to them, and I have
never approved of their policy in raising the reserve requirements, the
effect of which I think has been ably stated by the gentleman.
Mr. PATMAN. Let me finish
The CHAIRMAN. I do not approve that now; and if I were permitted to say what their policy should be, I think that they might
exercise their powers more helpfully than they have.
Mr. PATMAN. Well, I think that it is our duty as representatives of
the people to let these people know those things, but I do not know of
any other forum where we can make our wishes known. I doubt that
we would be very welcome if we were toi go before the Board and
express our viewTs; so here is the place for us to express them.
When the Government bond market takes the least slide, they get
right into action to protect them; they have done that every time.
But when commodity prices and retail sales and everything else just
take a tail spin they have paid no attention to it. The stock market
one time last year, according to the newspapers, went down $5,000,000,000 in the value of all securities in 1 day. Of course, I realize
that some people claim that it does not affect the country. I claim
that it does. I have heard prominent men in the House say that the
stock market never did give anyone a job, so why pay any attention
to it. But I believe that when that market goes down $5,000,000,000
in 1 day, American citizens are worth $5,000,000,000 less than they
were before, and it will affect their purchasing power and certainly
affect us, whether we own stocks or not.
RESERVE REQUIREMENTS RAISED A MISTAKE

Now, these reserve requirements were, I believe, 7, 10, and 13 percent, 7 percent in the reserve country banks, so that they only had to
have $7,000 in reserves in order to be able to cover deposits amounting to $100,000. In the central banks, with $10,000 in reserves, they
could lend $100,000, which is accepted as deposits, and in the control
cities, Chicago and New York, with $13,000 in reserves they could
make loans amounting to $100,000, which are accepted as deposits,
but when the Federal Reserve Board doubled these requirements,
they said to the country banks, "You have to have twice as much
behind your deposits as you had before," and I claim that that was
highly deflationary. This was done in 1936 shortly after the veterans' money was distributed and caused a depression. The soldier
money was causing prosperity.
In addition to that, the gold was sterilized, and deflationary talks
were made, which caused us to go into this depression, just like Major
Angas has said that words can bring us out of it.
Mr. FORD. I just want to clear for the record one statement. You
say that the prohibiting of all interest on demand deposits, and the
cutting of the rate on all time deposits, saved the bankers $430,000,000.
Mr. PATMAN. At least that. I think nearer $500,000,000.
Mr. FORD. Was that the purpose for which Congress authorized
that, or was it not this purpose—and let us get the. record clear—was
it not represented to Congress that it was the bidding for deposits on
the part of banks and paying more for those deposits than they could
afford to pay that brought about the failure of hundreds and thousands of banks in the United States that caused us to take that action ?




24

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. PATMAN. I suspect that entered into it, but we could have
placed a limit on it.
Mr. FORD. But that was the objective at the time.
Mr. PATMAN. I am not going to admit that I was only offering to
help the banks by voting them $500,000,000 in profits.
The CHAIRMAN. Of course, I do not want to keep on intruding,
but, as a matter of fact, everybody understands that the reason for
enlarging the power of the Federal Reserve Board and of the Federal
Deposit Insurance Corporation so as to control the interest on time
deposits was to prevent bidding by banks in a weakened condition
against sound banks in order to secure those time deposits, and, as a
matter of fact, I have always deplored the situation that permitted a
bank to go out into a community and borrow from individual citizens
money in the guise of deposits when the same banker could not have
gone to a man across the table and obtained that loan in the regular
way.
Now, the House is in session, and we will resume the hearing tomorrow morning.
(Thereupon, at 12:15 p. m., an adjournment was taken until
Thursday morning, March 3,1938, at 10: 30 o'clock.)
OWNERSHIP AND CONTROL OF WEALTH
INTRODUCTION

The national wealth of the United States of America is estimated at approximately 320 billion dollars, and the population of this country at 128 million as
at the end of 1935. This vast amount of wealth and the large number of
people whose economic existence is affected by its ownership and control have
made this subject one of increasing importance to every individual.
The importance of this subject is further emphasized by the increase that has
taken place in our population, national wealth, and per capita wealth since 1900,
shown as follows:
Population
(thousands)

Year

1900
1904
1912
1922
1929
1935

.
_.,

. _

.

.

76,129
82,601
95,097
109,872
121,526
127, 521

National
wealth
(billions)
$88.5
107.1
186.3
320,0
385.0
320.0

Per capita
wealth
$1,163
1,297
1,959
2,912
3,168
2,509

This study has been made to ascertain if there is a concentration of the
ownership of wealth in a few groups, how the control of this wealth is exercised and to determine any trends relating to the concentration and control of
wealth. This study, due to the magnitude of the subject can deal only with the
major phases of ownership and control of wealth.
Almost 40 percent of our national wealth is owned by nonfinancial corporations, the remainder is represented by the wealth owned by financial corporations and by agricultural lard and improvements, residential real estate, personal property, including automobiles, and the large volume of Government
property. To ascertain if there exists a concentration of wealth we have, in
this study, dealt with the wealth in the hands of corporations, and the resources
of financial corporations and institutions. While that part of the wealth represented by agricultural land and equipment, residential real estate, etc., is not
directly covered in this study, much of this wealth is indirectly influenced by
the major corporaU; units dealt with in this study.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

25

REFERENCE MATERIAL

In connection with the study, the following material has been reviewed and is
listed here for reference in the event any additional information may be desired:
1. The Modern Corporation and Private Property, Berle and Means.
2. The Internal Debts of the United States, Evans Clark.
3. Concentration in American Industry, Harry W. Laidler.
4. Statistical Abstract of the United States, 1935.
5. Lords of Creation, Frederick Lewis Allen.
6. Moody's Manual of Banks, Insurance, Real Estate Investment Trusts, 1930,
1936.
7. Moody's Manual of Steam Railroads, 1930, 1936.
8. Moody's Manual of Public Utilities, 1930, 1936.
9. Poor's Industrial Manual, 1930, 1936.
10. Poor's Register of Directors, 1937.
11. National Income of the United States, 1929, 1935.
12. National Wealth and Income, Federal Trade Commission, 1926.
13. The New Freedom, Woodrow Wilson.
14. Weeds of Wall Street, Wickwire.
15. Other People's Money, Brandeis.
Several of the above books have bibliographies listing addititonal reference
material on this subject.
DIVISIONS OF STUDY

After a review of the material and data available relating to the concentration and control of wealth, it was decided to treat the study in three major
divisions as follows:
A. The concentration of corporate wealth in major corporations.
B. The concentration of banking resources in the largest commercial banks.
C. The interlocking control of the major corporations, financial institutions,
and largest commercial banks.
These are discussed in the order listed. A summary is included for each
division, the final summary covering the entire study. The previous general and
introductory material is included in this first division.
Certain graphic charts which have been prepared illustrate the conclusions
reached. These are included for the most part in the final summary.
NATIONAL AND CORPORATE WEALTH

In a study dealing with the concentration of wealth, it is first necessary to
have some estimate as to our national wealth for use as a yardstick, and since
we propose to study corporate wealth, estimates must be secured as to this
division of our national wealth. For the purposes of our study, we have dealt
with the corporate wealth of the nonfinancial corporations. Needless to say,
estimates of wealth may be controversial. These have been prepared primarily for comparative purposes in order to estimate general relationships.
These estimates are shown on the graphic charts attached as exhibits, as
follows:
Exhibit No. 1—Estimate of national wealth (1913-36).
Exhibit No. 2.—Estimate of corporate wealth, nonfinancial corporations
(1918-36).
Exhibit No. 3.—Estimate of national income (1913-36).
As indicated by the above exhibits, the recent estimates as to national and
corporate wealth were obtained by taking the trend indicated by the national
income and applying it to the last available estimates.
From these exhibits the following amounts are used in this study as of the
approximate date of December 31, 1935:
National wealth
$320, 000, 000, 000
Corporate wealth (nonfinancial)
120,000,000,000
CONCENTRATION OF CORPORATE WEALTH

For the year 1934, 528,882 corporations filed income-tax returns. Of this
number, approximately 300,000 are nonfinancial corporations. This first division of the study deals with the concentration and control of the assets of the
major nonfinancial corporations. As estimated, the total wealth of nonfinancial
corporations is approximately 120 billion dollars.




26

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

A review of the available data indicated that sufficient information relating
to the concentration of nonfinancial corporate wealth could be obtained by the
study of less than 200 nonfinancial corporations out of a total of approximately
300,000.
In "The Modern Corporation and Private Property" (Berle and Means) it is
estimated that 200 of the largest nonbanking corporations, as of January 1,
1930, had assets of $81,077,000,000, and that approximately one-half of the
assets of the nonfinancial corporations of the country had been concentrated
under the control of these 200 corporations out of a total number in excess of
300,000.
In dealing with the subject of concentration of assets it must be pointed out
that the influence of these huge corporations extends beyond the assets under
their control, since the smaller corporations which sell to or buy from the
larger corporations are likely to be influenced by them to a great extent. Therefore, it would be fair to assume that if the 200 large corporations control onehalf of the assets of nonfinancial corporations much more than one-half is
indirectly controlled by these same corporations. This concentration is more
significant when it is recalled that approximately 2,000 individuals who are the
active officers and directors of these 200 corporations, out of a total population
of 127,500,000, are in a position to control and direct more than one-half of
industry.
As an illustration to show the extent to which concentration has progressed,
the following estimates are significant. These indicate the total assets of the
200 largest corporations at various dates:
Year
1909
1919
1929

Total assets
(billions)
$26.0
43.7
81.1

Percent
increase

68
85

In the book previously mentioned, from which the above information was
taken, it is indicated that from the period 1900 to 1928 the annual rate of growth
of the 200 largest corporations was 50 percent faster than all corporations,
or two and one-half times as fast as smaller corporations. During the period
of 192&-28 it appears that the larger corporations were growing three times as
fast as smaller corporations.
The data on the above 200 nonfinancial was tabulated as of January 1, 1930.
No tabulated information of this nature has been available as of a recent date.
In order to show the degree of concentration of assets as of a recent date and
to furnish specific data relating to the major corporations a tabulation has been
prepared of the 175 major nonfinancial corporations showing their assets as of
January 1, 1930, and December 31, 1935. In order to obtain comparable data,
the number of corporations was reduced from 200 to 175, since several corporations included in the 1930 tabulation were reorganized or merged.
In the information shown on the following pages and in the final tabulation
in the third part of this study there are, in a few instances, slight variations in
the amounts reported for 1930 when compared with the figures used by Berle and
Means. In each case the amount was checked against the manuals and where
the variation was slight the amount reported by the manual was used. If a
wide variation was indicated, the figure used by Berle and Means was taken,
since in some cases certain subsidiaries may have been consolidated for the
purpose of the study, which are not ordinarily included in published statements.
The amounts for 1935 have been obtained from the manuals and placed on a
comparable basis for the purposes of this study. The main purpose of these
tabulations has been to ascertain if there is a concentration of wealth.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

27

The 175 largest nonbanking corporations in the United States
Gross assets
on or about on or about
Dec. 31,1929 Dee. 31, 1935
,
Milliont
$163. 4
124.2
236.7
158.6
167.1

Subtotal..

Atlantic Refining Co
Continental Oil Co
Gulf Oil Corporation
Ohio Oil Co
Phillips Petroleum Co_
Pure Oil Co_
Richfield Oil Co. of California
Shell Union Oil Corporation
Standard Oil Co. of California
Standard Oil Co. of Indiana..
Standard Oil Co. of New Jersey
Socony Vacuum Oil Co
Texas Corporation
.1
Tide Water Association Oil Co
Union Oil Associates

687.4

167.2
198.0
430.9
110.6
145.3
215.4
131.9
486.4
604.7
1 825.0
1,767. 3
2 914.1
-609.8
251.4
i 240. 0

163.0
91.7
430.2
139.7
174.4
157.2
52.6
358.0
579.5
693.5
1,894. 9
789.7
473.7
182.8
151.6

277.2
126.7
541.9
143.8
109.4
306.6

217.5
50.3
666.7
177.3
127.0
336.5

8,603. 6

AMUSEMENTS

Millions
$168.3
129.2
118.9
102.5
168.5

850.0

Eastman Kodak Co
Loew's, Inc
Paramount Public Corporation..
Radio Corporation of America..'.
Warner Brothers Pictures, I n c .

7,907.8

94.0

34.8
151.3
92.9
142.2

CHEMICALS
Petroleum
._
_
_.
_..
_

_

__

Other chemicals, soap, etc.
Allied Chemical & Dye Corporation
Corn Products Refining Co
Du Pont de Nemours & Co
Koppers Co
_
Procter & Gamble Co
Union Carbide & Carbon Corporation

_
_-.

Subtotal
COAL

Consolidation Coal
Glen Alden Coal Co
Philadelphia & Reading Coal & Iron Corporation
Pittsburgh Coal Co_

1 300.0

129.0
171.5

Subtotal

421.2
FOOD PRODUCTS, DRUGS, TOBACCO, ETC.

Dairy products
Rorden Co
National Dairy Products Corporation

120.1
192.0

226.0

184.9

452.3
351.2
98.0

317.1
321.3
79.1

157.1

117.6

265.4
150.3
110.0
163.1

271.6
170.5
58.9
153.9

Fruit

United Fruit Co
Armour & Co
Swift & Co
Wilson & Co

174.0
179.9

_
_

Meat
_
_

American Sugar Refining Co
American Tobacco Co
Liggett & Meyers Tobacco Co
Lorillard (P.) C o . . .
Reynolds Tobacco C o . .
National Biscuit Co

_
Sugar
Tobacco
_

Others
133.2

124.5

2,460. 5

Subtotal

2,111.5

GLASS

Pittsburgh Plate Glass Co
» Estimated.
• Combined assets of predecessors.




101.

109.6

28

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

The 115 largest nonbanking corporations in the United States—Continued
Gross asset
on or about on or about
Dec. 31,1929 Dec. 31,1935

Millions

$111.3

Millions
$83.1

116.1

67.5

132.7
109.5
197.0
142.7
187.5
251.8
165.4

184.2
118.5
90.5
97.0
168.6
234.0
192.2

1,086. 6

1,085.0

209.7
761.0
i 1,400.0
134.2

193.5
681.5
1,414.0
30.2

491.6
253.9

398.1
194.4

84.7
384.0
94.1

79.6
365.2
96.3

191.3
119.5
106.2
199.4
98.8
115.9

209.0
95.1
54.2
159.1
69.6
95.1

4,644. 3

4,134.9

234.7

222.9

241.0
680.6
337.8
108.4
124.7

173.7
581.5
323.5
104.0
185.1

104.3
801.6
98.0
124.3
103.2
222.0
120.8
331.7
2, 286.1
127.9
235.7

42.7
673.0
102.2
109.1
118.3
184.9
180.5
297.4
1,822.4
113.0
207.4

6, 282.8

LEATHER

International Shoe Co

5,441.6

117.7
767.1
90.3

101.3
828.2
78.2

975.1

1,007.7

LUMBER

Long-Bell Lumber Corporation
MERCANTILE

G:eat Atlantic & Pacific Tea Co
Kres-e Co
Macy, R. H. & Co.—
Marxhall Field & Co.
Montgomery Ward & Co
__
Sears, Roebuck & Co
.
Woolworth & Co
_.,
Subtotal

-

METAL PRODUCTS

Automobiles

Chrysler Corporation
Ford Motor Co
General Motors Corporation
Studebaker Corporation

_

Electrical equipment

General Electric Co
Westinghouse Electric & Manufacturing Co
Machinery
Deere & Co
_
International Harvester Co
United Shoe Machinery Corporation
Others

American Can Co
__
American Car & Foundry Co
American Locomotive Co
American Radiator & Standard Sanitary Corporation
Baldwin Locomotive Works
Crane Co
Subtotal
METALS

Aluminum

Aluminum Co. of America

Copper and lead

American Smelting & Refining Co
Anaconda Copper Mining Co
Kennecott Copper Corporation...
National Lead Co
__.
Phelps Dodge Corporation

_

Iron and steel

American Rolling Mill Co
_
Bethlehem Steel Corporation
Cliffs Corporation
Crucible Steel Co. of America
Inland Steel Co
Jones & Laughlin Steel Corporation
National Steel Corporation
Republic Iron & Steel Co.
United States Steel Corporation
Wheeling Steel Corporation
Youngstown Sheet & Tube Co
Subtotal

_

_
_
_

__.
___

_

PAPER

Crown Zellerbach Corporation
International Paper & Power Co.3_
Minnesota & Ontario Paper Co
Subtotal.
i Estimated.
* Includes utility properties.




_
I___I_~~__~~~I~~

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

29

The 175 largest nonbanlcing corporations in the United States—Continued
Gross assets Gross assets
on or about on or about
Dec. 31,1929 Dec, 31,1935
i.
PUBLIC UTILITIES

Communications
Millions

American Telephone & Telegraph
International Telephone & Telegraph Corporation

$4, 228.4
535.2
359.2

Millions

$4,901.5
513.7
382.7

Western Union Telegraph Co
Electricity and gas

American Water Works & Electric Co
_.
Associated Gas & Electric Co
New England Gas & Electric Association
Cities Service Co
Consolidated Edison Co. of New York
_.,
Consolidated Gas, Electric Light & Power Co. of Baltimore
Detroit Edison Co
Duke Power Co.
__.
Edison Electric Illuminating Co. of Boston..
Electric Bond & Share Co
American Gas & Electric Co
American Power & Light C o . . .
Electric Power & Light Corporation
National Power & Light Co
Commonwealth Edison Co_
_
Peoples Gas, Light & Coke Co
Public Service Co. of Northern Illinois..
_
Koppers Co. group:
Brooklyn Union Gas Co
Eastern Gas & Fuel Association
Lone Star Gas Corporation
North American Co
_
,
North American Light & Power Co.__
_
Pacific Gas & Electric Co
Pacific Lighting Corporation
Southern California Edison Co., Ltd
Stone & Webster, Inc
United Corporation group:
Columbia Gas & Electric Corporation,
Commonwealth & Southern Corporation
Niagara Hudson Power Corporation
Public Service Corporation. N. J._,
_.
United Gas Improvement Co
United Light & Power Co.
Utilities Power & Light Corp..
Subtotal

408.3
900.4
108.7
989.6
1,171.5
135.9
296.1
212.1
156.3
1,002.6
431.0
754.1
4 489. 7
* 575. 3
i 440.0
192.1
190.0

434.6
1,016. 7
108.5
1, 250.3
1, 376.9
160.1
327.1
213.5
181.8
551.9
467.6
795.9
683.8
586.5
448.3
211.3
226.0

123.7
167.1
127.7
908.7
320.1
454.0
240. 5
340.6
474.3

121.8
227.9
158.5
891.3
328.7
725.8
261.0
393.8
397.5

671.2
1,133. 7
756.9
634.6
802.0
557.3
401.8

703.9
1,173.8
648.0
694.0
802.0
597.3
404.7

22, C40. 7

23, 368. 7

601.3
149.4
291.1
109.8
1,135.4
390. 4
1,040.8
172.4
175.1
101.5
149.9
787.0
741.6
512.0
96.8
110. 7
223.6
227.5
130.6
851.1
813.9
712.0
172,7
32(1 2
2, 250.0
600.7
278.8
2, 600.0
251.2
542.3
350.3

620.6
137.9
286.9
105.1
1, 272. 2
368.2
1,199. 6
85.1
171.7
83.8
145.7
741.0
672.2
529.5
88.9
113.4
215.3
243.1
133.4
856.6
834.9
667.8
156.1
261.3
2, 249. 4
587.9
320.0
2, 724.3
243.1
529.7
344.3

RAILROADS

Allegheny Corporation:
Erie Railroad Co
_
Kansas City Southern Ry. Co
New York, Chicago & St. L. R. R. Co....
Wheeling & Lake Erie Ry. Co
Atchison, Topeka & Santa Fe Ry
Atlantic Coast Line R. R. Co
Baltimore & Ohio R. R. Co
Chicago & Alton R. R. Co
Western Maryland Ry. Co
Chicago & Eastern Illinois Ry. Co
Chicago, Great Western R. R. Co
Chicago, Milwaukee, St. Paul & Pacific R. R. Co
Chicago, & North Western Ry. Co
Chicago, Rock Island & Pacific Ry. Co
Chicago Union Station Co
Delaware & Hudson Co
Delaware, Lackawanna & Western R. R. Co
Denver & Rio Grande Western R. R. Co
Florida West Coast Ry. Co
Great Northern Ry. Co
Northern Pacific Ry. Co
Chicago, Burlington & Quincy R. R. Co.
Spokane, Portland & Seattle Ry
Missouri-Kansas-Texas R. R. Co
New York Central R. R. Co
New York, New Haven & Hartford R. R. Co
Boston & Maine R. R. Co
Pennsylvania R. R. Co
Lehigh Valley R. R. Co
Norfolk & Western Ry. Co
Wabash Ry. Co
i Estimated.
* 1930.
69972—38
3




..

30

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

The 115 largest nonbanking corporations in the United States—Continued
Gr<oss assets Gross assets
on or about on or about
Dec. 31,1929 Dec. 31,1935
RAILROADS—continued

29.4

163.6
161.6
243.2
307.8

124.0
139. 2
192.3
159.3
614.8

113.9

71.0

121.1
288.5
118.9
139.7
458.6
105.7
95.1

127.5
335.8
123.9
135.5
557.0
98.287.4

1,327.6

1,465.3

281.5

Subtotal

21,939.8

876.2

_
•

Millions
$462.1
139.4
291.9
1,211.7
624.2
1,172. 6
716.6
165.4
166.9

128.4

_

Millions
$473.8
146.7
295.8
1,175. 9
680.2
1,108.0
722.3
160.5
171.8
21,926.1

St. Louis-San Francisco Ry. Co
St. Louis Southwestern Ry. Co
Seaboard Air Line Ry. Co
Southern Pacific Co
_
Southern Ry. Co
Union Pacific R. R. Co
Illinois Central R. R. Co_
Virginian R. R. Co
Western Pacific R. R. Corporation

276.2

72,620. 8

70, 822. 5

REAL ESTATE

U. S. Realty & Improvement Co
RUBBER

B. F. Goodrich Co
Firestone Tire & Rubber Co
Goodyear Tire & Rubber Co
United States Rubber Co

.-.__.
_

TEXTILES

American Woolen Co
TRACTION

Boston Elevated Ry. Co
Brooklyn & Manhattan Transit Co
Chicago Railways Co
Hudson Manhattan R. R. Co
_
Interborough Rapid Transit Co
Philadelphia Rapid Transit Co
Third Ave. Railway Co..
Subtotal

_
_.
._

-

-.

TRANSPORTATION

Pullman, Inc
Total

-

The relationships of the total assets of the previously listed companies to the
national and corporate wealth is indicated by the following tabulation:
Relationship of assets of 115 major nonbanking corporations to corporate and
national wealth
Jan. 1, 1930

Assets of 175 major nonfinaneial corporations.
Wealth of nonfinancial corporations
Percent 175 corporations
National wealth
Percent 175 corporations

Millions
$72,620.8
$135,000
53.8
$385,000
18.9

Dec. 31,1936
Millions
$70,822.5
$120,000
58.7
$320,000.
22.1

From the above it is apparent that there is a decided concentration of assets
in the hands of 175 major nonfinancial corporations, and there is no indication
that the trend toward further concentration will not continue.
The relationship of the companies listed to our everyday living is sometimes
difficult to comprehend. Figures alone do not tell the complete story.
PEOPLE COMPELLED TO PATRONIZE LARGE CONCERNS

These great companies represented in( the previous list form the very framework of American industry. The individual must come in contact with them
constantly. He may own an interest in one or more of them. He may be
employed by one of them. At least, he is continually accepting their services.
If he travels any distance, he is almost certain to ride on one of the great rail-




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

31

road systems whose engines have been constructed by the American Locomotive
Co. or the Baldwin Locomotive Works. The car in which he rides was probably
made by the American Car & Foundry Co. or one of its subsidiaries, unless he
is enjoying the services of the Pullman Co. The rails were supplied by one of
the major steel companies. If he travels by automobile, probably the car was
manufactured by General Motors, Chrysler, or Ford, and his tires supplied by
Firestone, Goodrich, Goodyear, or United States Rubber Co. Even if the individual stays in his own home in comparative isolation and privacy, his electricity and gas are probably furnish by one of the major public utility systems,
the aluminum in his kitchen utensils by the Aluminum Co. of America, his
electric refrigerator by General Motors, General Electric, or Westinghouse, and
the chances are the Crane Co. has supplied his plumbing fixtures, and the
American Radiator & Standard Sanitary Corporation his heating equipment. He
usually buys some of his groceries from the Great Atlantic & Pacific Tea Co.,
a company that in 1930 expected to sell one-eighth of all the groceries in this
country. The cans which contain his food may have been made by the American Can Co. or Continental Can Co. His sugar was refined by one of the major
companies, such as American Sugar Refining Co.; his meat was probably prepared by Swift, Armour, or Wilson; and his crackers put up by the National
Biscuit Co. The newspaper he reads may be printed on International Paper
Co. paper, and the radio he uses will almost of necessity be made under the
license of the Radio Corporation of America. If he goes to a movie he probably
will see a Paramount, Fox, or Warner Bros, picture taken on Eastman Kodak
film, in a theater controlled by one of these producing groups. If he smokes
cigarettes he will usually find himself smoking one of the many brands put out.
by one of the big four tobacco companies.
In studying the growth of the corporate system and the concentration of
wealth in corporations there are other phases that may be considered.
SILENT PROCESS

The concentration of wealth in a few corporations is a silent process. Generally, little public attention is focused in the gradual acquisition of one corporation by another, and the objectives that individuals may have in building and
expanding these major corporations are not realized until the results have been
accomplished. It is the essence of evolutions of the more silent sort that they
are not recognized until they are far advanced. This was the case with the
so-called industrial revolution and is the case with the corporate revolution
through which we are at present passing.
Frequently in these major corporations ownership is so widely scattered that
working control can be maintained with but a minority interest. Separation of
ownership and control becomes almost complete, and not even a substantial
minority interest exists, as in the American Telephone & Telegraph Co. In the
case of both minority control and management control the separation of ownership from control has taken place, and a large body of security holders has
been created who exercise virtually no control over the wealth which they or
their predecessors in interest have contributed to the enterpris.
The corporate system further commands attention because its development
is progressive as its features become more marked and as new areas come,
one by one, under its sway. Economic power in terms of control over physical
assets is apparently responding to a centripetal force tending more and more
to concentrate in the hands of a few corporate managements. As the same time,
beneficial ownership is centrifugal, tending to divide and subdivide, to separate
into smaller units. In other words, ownership continually becomes more dispersed—the control and power formerly joined to it, increasingly concentrated.
SUMMARY

Summarizing this section dealing with concentration of assets in nonbanking
corporations, the following conclusions may be drawn:
1. There exists a decided concentration of nonfinancial corporate wealth in
the major corporations.
2. The assets of the 175 companies out of a total of 300,000 represent approximately one-fifth of the national wealth and one-half of nonfinancial corporate
wealth.
3. The control exercised by the 175 corporations extends beyond the assets
owned due to the number of smaller corporations and others who buy from
and sell to them.




32

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

4. The trend continues toward further concentration in this field.
5. The control of this wealth is in the hands of less than 2,000 active
directors and officers.
6. The assets of the 175 major corporations extend into every State in the
Union and directly affect the economic welfare of every section of this country.
7. The attached exhibits and charts present graphically the important points
covered in this part of the study.
EXHIBIT NO. 1.—ESTIMATE OF NATIONAL WEALTH

400

1913-14

1921-22

1929

1936

11913-33, "The Internal Debt of the United States." (Clark.) 1934.—Estimate suggested
by United States Census Bureau. 1935.—No information available—1934 estimate
assumed. 1936.—No information available—1934 estimate increased by 19 percent
following trend of national income]




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

33

EXHIBIT NO. 2.—ESTIMATE OF CORPORATE WEALTH

[Nonfinancial corporations]
150

1918
1921
1924
1929
[To 1929.—From "The modern corporation and private property."
Same ratio of change as national wealth]




1936
1934
From 1929 to 1936.—

34

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

EXHIBIT NO. 3.—ESTIMATE OF NATIONAL INCOME

1913-14
1921-22
1929 1932-331 1936
[1913-33.—From "The Internal Debts of the United States" (Clark), 1934-36.—Estimate
from United States Census Bureau]




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

35

PART I , NO. 1—RULATTONSHIP OF NONFINANOIAL AND ALL OTHER CORPORATIONS TO
TOTAL CORPORATIONS

175 Non-Financial Corporations

300,000 Non-Financial
Corporations

[Estimated for 1934. Based on Federal income-tax returns—year 1934]

PART I, No. 2.—RELATIONSHIP OF ASSETS OF 175 MAJOR NONFINANCIAL CORPORATIONS TO TOTAL WEALTH OF NONFINANCIAL CORPORATIONS

Approximately 300,000 Other
Non-Financial Corporations

[Estimates for year 1935. Sources: The Modern Corporation and Private Property;
Moody's and Poor's Manuals for 1936]




36

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

PART I, No.

3.—RELATIONSHIP OF ASSETS OF 175 MAJOR NONBANKING CORPORATIONS TO NATIONAL WEALTH

[Estimated for year 1935. Sources: Internal Debts of the United States; Bureau of the
Census estimates; Moody's and Poor's Manuals for the year 1936]
CONCENTRATION OF BANKING RESOURCES IN LEADING COMMERCIAL BANKS

As of June 30, 1936, there were 15,988 State and National banks with total
resources in the amount of $67,525,335,000. Through the control exercised by
these banks over the credit facilities of the country their importance in our
economic life cannot be overemphasized.
In the first division of this study the concentration of assets in the hands of
175 major nonfinancial corporations was shown. Here it was indicated that a
very decided concentration of wealth exists since 175 corporations out of a total
of about 300,000 control more than one-half of nonfinancial corporate wealth.
The purpose of this division of the study is to ascertain the extent to which
the 67 billions of banking resources of this country are concentrated in the
hands of leading banks.
Moody's Manual for Banks for 1937 reports the resources of each of the
larger banks. From a review of this tabulation it is apparent that there is a
decided concentration of banking resources in the larger commercial banks.
From this list the 24 largest banks were selected, each reporting resources in
excess of $350,000,000. In the study of corporations the tabulation was prepared
showing assets as of January 1, 1930, and December 31, 1936. A similar tabulation was prepared for the banks, as shown below, showing the resources of
each bank and totals as of December 31, 1929, and December 31, 1936, and the
number of officers and directors as of December 31, 1936.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

37

List of banks in the United States with resources in excess of $350,000,000 in
the order of their size at Dec. 31, 1936
Officers

Chase National Bank (N. Y.)
_.
Guaranty Trust Co. (N. Y.)
National City Bank (N. Y . ) - Bank of America National Trust & Savings Association.
Continental Illinois National Bank & Trust Co
Bankers Trust Co. (N. Y.)
First National Bank of Chicago
Central Hanover Bank & Trust Co. (N. Y.)
First National Bank of Boston,
Manufacturers Trust Co. (N. Y.)
Irving Trust Co. (N. Y.)
Chemical Bank & Trust Co. (N. Y.)
Security First National Bank (Los Angeles)
First National Bank of the City of New York
Bank of the Manhattan Co
J. P . Morgan & Co.-Drexel & Co._
Philadelphia National Bank
New York Trust Co
National Bank of Detroit
Union Trust Co. of Pittsburgh
Mellon National Bank (Pittsburgh)
Cleveland Trust Co
Corn Exchange Bank Trust Co. (N. Y.)
Northern Trust Co. (Chicago)
Total
_
Comparable'figures 21 banks 4
Total resources, all banks
Percent of total resources in 21 large banks _

Directors

Resources
Dec. 31,1936
(thousands)

$1,714,829
2, 017,119
2, 206,241
1,055,113
1,176,603
817, 977
365, 559
769,259
703,347
508, 226
865,980
423,172
610,683
568,425
506,939
(2)
358, 423
401,665
(3)
217,786
192, 501
316, 508
298,483
69,395

63
42
36
20
29
34
45
34
28
29
27
32
54
9
30
1 19
13
15
15
10
7
38
16
33
678

Resources
Dec. 31, 1929
(thousands)

484

$2, 562,182
2, 086, 979
1,904,800
1,430,337
1, 232,513
1, 079,173
991, 280
979,309
756, 202
748, 564
728,677
686, 676
649,173
648,019
570,538
550,338
497,392
444,556
442,803
386,913
380,895
380,070
360,262
355, 701

16,164, 233
16.094,838
72, 038, 566
22.34

20,853, 352
19, 504, 510
67,525,335
28.88

1

Partners.
No report made public.
Organized Mar. 24, 1933.
• Eliminating J. P. Morgan & Co., National Bank of Detroit, and Northern Trust Co., Chicago.

2
3

The relationship of these banks to all banks and banking resources as of June
SO, 1936, is shown as follows:
Relation of 24 largest commercial banks to all commercial banks
Class of banks

Total
Number
resources
of banks (thousands)

Percent
of total

1. Resources exceeding 350 million.
2. All other banks
...

24 $20, 853, 352
15,964 46, 672,983

69.12

3.

15, 988

67, 525, 335

100.00

Total

From the above summary it is shown that over 30 percent of all commercial
banking resources is in the hands of 24 banks out of a total of 15,988, or
less than sixteen-hundredth of 1 percent of all banks. Reference to the
previous tabulation indicates there was a trend toward increased concentration
of banking resources for the period 1930-36.
As in the case of corporations, the banking control exercised by these banks
extends beyond the resources in their own hands since many of the smaller
banks have banking relationships with the larger banks and are subject to their
control in many ways.
These 24 banks are controlled by 484 directors, but from a practical standpoint, as in the case with boards of directors of other corporations, many
directors are not generally active in the affairs of the banks.
The above number is also reduced due to duplications resulting from interlocking directorates. Therefore it may be assumed that the actual control of
these banking resources is concentrated in the hands of a relatively few men.
The relationships among the 24 leading banks were studied and it was found
that further concentration exists in this group, as evidenced by interlocking
directorates. The attached chart indicates the relationships existing among




38

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

these banks through the individuals listed who are directors of more than
one of the major banks. From this chart it will be noted that further concentration of control exists through the groupings shown.
In order to show the trend of banks and banking resources from 1919 through
1936, the statistical table on the next page was prepared. This table shows
that from the peak year of 1921 the number of banks decreased one-half while
banking resources increased from $49,721,000 to $67,525,000, and that the
resources of the average bank increased from $1,612,000 to $4,223,000. This
is shown graphically in the attached chart.
From the preceding data it is apparent that (1) there is a concentration
of banking resources in the 24 leading commercial banks, (2) that there is a
further community of interest as indicated by the interlocking directorates in
the leading banks, (3) that there is a well-established trend toward fewer and
larger banks, and (4) that the trend is more rapid and consistent with banks
than with nonfinancial corporations.
The possible effect on our economic system of this concentration of the control
of credit has, from time to time, engaged the study of many men prominent
in the affairs of our Nation, and the following excerpts are taken from various
writings and reports.
Number of banks and total resources by years from 1919 to 1986
Total number of banks
Year
State
1919
1920
1921
1922
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936

_
_

-

_

21,028
21,923
22,705
22,302
22,084
21,350
21,122
20,289
19, 597
18,965
18,357
17,298
15,865
13,882
11, 513
10,903
10, 742
10, 614

National
7,785
8,030
8,143
8,197
8,229
8,115
8,016
8,000
7,828
7,734
7,575
7,316
6,935
6,373
5,887
5,422
5,431
5,374

Total
28,813
29,953
30,848
30,499
30,313
29,465
29,138
28,289
27,425
26,699
25,932
24,614
22,800
20,255
17, 400
16,325
16,173
15.988

Total banking resources (mil- Average
lions)
resources
per bank
(thouState National Total
sands)
25,966
29,191
29,443
28,809
32,081
33,641
36,679
39,106
40,047
41,866
43,645
44,690
42,686
38,468
31,727
32,621
34, 372
33,822

20,800
22,197
20,308
19,815
21,613
22,063
23, 832
24,894
25,699
27, 574
29,022
27,348
28,126
24,662
22,302
23,902
26, 061
29, 703

46,766
51,388
49, 721
48,624
53,694
55,704
60, 511
64,000
65,746
69,440
72,667
72,038
70,812
63,130
54,029
56, 523
60, 433
67, 525

1,623
1,716
1,612
1,594
1,771
1,891
2,077
2,262
2,397
2,601
2,802
2,927
3,106
3,117
3,105
3,462
3,737
4,223

In 1909 Woodrow Wilson in his New Freedom maintained that as a result
of the concentration of the credit system in the hands of the few we had
become "the most highly controlled and dominated government in the civilized
world." This subject was commented on from time to time by men prominent
in public affairs and as a result of these comments, and the general situation
existing, Congress appointed the Jujo Investigating Committee in 1912 with
Samuel Untermeyer as counsel. After extended investigation this committee
issued its report analyzing the financial control of the Nation as the committee
then saw it. It directed attention to the First National Bank of New York,
National City Bank of New York, Lee Higginson & Co., of Boston, KidderPeabody & Co., and Kuhn, Loeb & Co. as the most active agents in bringing
about concentration of credit control.
According to this committee, the internationally known banking firm of
J. P. Morgan & Co. was head and shoulders above the other giants of finance.
Following the investigation, the committee issued charts showing that the firm
members of Morgan & Co. and its allied banks held at the time of the hearings:
1. One hundred and eighteen directorships in 34 banks and trust companies,
having total resources of $2,679,000,000 and total deposits of $1,983,000,000.
2. Thirty directorships in 10 insurance companies having total assets of
$2,293,000,000.
3. One hundred and five directorships in 32 transportation systems having
a capitalization of $11,784,000,000; total mileage of 150,200.
4. Sixty-three directorships in 23 producing and trading corporations having
a total capitalization of $3,339,000,000.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

39

5. Twenty-five directorships in 12 public utility corporations having a total
capitalization of $2,150,000,000.
The committee's report and recommendations created a stir, but of the specific
recommendations enacted, the restraint of interlocking directorates was the
most important. As a result, on January 1, 1914, Morgan & Co. announced
their retirement from a number of directorates. As a result of this investigation the previous work of the National Monetary Commission formed a basis
for the Federal Reserve Act, passed in 1914. Some of the proponents of the
Federal Reserve Systems at that time wanted one central bank. Because,
however, of the fear of centralization, 12 Federal reserve banks were thought
to be best and these were created. Each of these banks has most of the attributes of a central bank. Such a decentralized system, it was thought,
would tend to divest the money trust in Wall Street of much of its power.
Experience has shown however, that the Federal Reserve System has not
arrested the movement toward concentration of credit control.1
This view was also expressed in 1930 by Congressman McFadden, chairman of
the Committee on Banking and Currency, who said: "We find that the concentration of Nation-wide banking assets under the control of these big banks
(possibly in New York and Chicago) or their affiliates has become so important as to overshadow the entire Federal Reserve System of operations.
One naturally begins to wonder whether or not some of these larger banks
or groups may not entirely dominate the election of officers and directors of
many of the Federal Reserve banks and so be a factor in the determination
of changes in the Federal Reserve policies which are made from time to time
by the Federal Reserve Board."
From the date of the Pujo investigation until 1930 concentration continued.
So at the beginning of 1930, 250 banks held resources of $33,400,000,000 out of
total bank resources in this Nation of $72,000,000,000. Thus, 1 percent of the
banks of the country directly controlled more than 46 percent of the total
national resources. (Testimony of John W. Pole, Comptroller of the Currency.)
At the beginning of 1930, 24 New York banks, or less than one-tenth of 1
percent of the total, had combined resources of about $10,800,000,000, or 15
percent of the total resources of the banks of the Nation, while their capitalization of nearly $700,000,000 is almost comparable in total to that of 20,000 country banks situated in towns of 10,000 population or less. (Graif B. Hazlewoodt
president, American Banking Association.)
Concentration recently had been greatly advanced through the rapid consolidation of the key banks in the country, through the development of chain and
branch banking, investment trusts, industrial activities of private banks and
other means. The unit bank is fast fading from the scene and America bids
fair sooner or later to follow the example of Canada, England, and other countries in the concentration of all banking power in the comparatively few gigantic central banking institutions. (Joseph Lawrence, Banking Concentration in
the United States, 1931).
SUMMARY

This section of the study may be summarized as follows:
(1) TwTenty-four leading banks control approximately one-third of all banking
resources.
1

Concentration of control in American industry.




40

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

PART II, No. 1.—RELATIONSHIP OF 24 LEADING BANKS TO TOTAL NUMBER OF BANKS

[As at December 31, 1936. Moody's Manual of Banks, Etc., 1937]

PART II, No. 2.—RESOURCES OF 24 LARGEST COMMERCIAL BANKS TO ALL
COMMERCIAL BANKS

[As at December 31, 1936. Moody's Manual of Banks, Etc., 1937]




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

41

CONCENTRATION OF BANKING CONTROL AS SHOWN BY INTERLOCKING DIRECTORATES

[Interlocking directorates.—1. Thomas W. Lamont, 2. George Whitney, 3. S.
Parker Gilbert, 4. Arthur M. Anderson, 5. Harry P. Davison, 6. Cornelius
Vanderbilt, 7. Robert W. Goelet, 8. A. P. Giannini, 9. A. J. County, 10. Arthur
V. Davis, 11. Charles Frick, 12. Roy A. Hunt, 13. Benjamin F. Jones, III, 14.
James H. Lockhart, 15. John M. Lockhart, 16. Richard K. Mellon, 17. William
L. Mellon, 18. Paul Mellon, 19. David A. Reed, 20. William C. Robinson, 21.
George E. Shaw.]

[As at December 31, 1936. Moody's Manual of Banks, 1937 ; Poor's Register of Directors,
1937]




42

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

(2) The control of the 24 banks is in the hand of 484 directors, many of
whom are not normally active in the affairs of the banks.
(3) There is a community of interest between certain groups of the leading
banks as evidenced by interlocking directorates.
(4) In the period from 1930 to 1936 there was an increased concentration
of banking resources in the major banks.
(5) During the period from 1921 to 1936 the total number of commercial
banks decreased from 30,848 to 15,988, while resources increased from $49,721,000
to $67,525,000. The resources of the average bank increased from $1,612,000 to
$4,223,000 during this period.
(6) The attached charts present graphically the major points of this section
of the study.
THE CONCENTRATION OF CONTROL OF WEALTH IN LEADING BANKS

This last division of the study has been for the purpose of ascertaining if
there is an interlocking of control between the largest banks and the major
corporations, savings banks, insurance companies, and others, indicating a
further concentration of the control of a large and important part of our
national wealth.
Since banks exercise so much control over the credit facilities of the country,
the importance of any existing interlocking control and community of interest
between banks and large corporations, financial institutions, and others is
readily apparent.
In this study, the two following divisions of the subject have been covered:
A. Concentration of corporate wealth in major corporations.
B. Concentration of banking resources in largest commercial banks.
In the first division it was shown that there now exists a very definite concentration of the nonfinancial corporate wealth in the hands of the largest corporations, 175 of them controlling directly more tlian half of the nonfinancial
corporate wealth of the Nation, and about one-fifth of the national wealth,
and it was indicated that the control exercised by these corporations extends
beyond the assets owned by them. In the second division of this study, it
was shown that 24 banks of a total of 15,988 control more than 30 percent of the
banking resources of the country, indicating a very definite concentration of
banking resources. In the case of banks it was also indicated that the control
exercised by these banks extends beyond their own resources. In both cases
it was apparent that the trend toward larger units and further concenetration
of wealth and banking resources has continued up to a recent date, and that
there is no indication that this trend will not continue, and with it) there is
reason to believe that there will be a wider separation of ownership and control.
Insurance companies and savings banks were not studied in any detail since
it was apparent from a preliminary review that there is a very definite concentration of resources in the large insurance companies and savings banks.
The control of corporate wealth may be exercised through—(1) majority ownership, (2) dominant minority interest, (3) management.
In most cases control is represented by dominant members of the boards of
directors. This study deals with the control, or potential control, exercised
through interlocking directorates between the leading banks and others.
In order to ascertain interlocking directorates, the directors of the 24 leading
banks were listed. The directorships held by these individuals in major corporations and financial institutions were secured from Poor's Directory of Directors and the major connections tabulated. A complete list would include many
hundreds of corporations, both large and small.
For the purpose of this study 100 of the major corporations, savings banks, and
insurance companies having interlocking directors were selected as being representative of the various fields of industry and finance. This tabulation is shown
as attached exhibit No. 1. Reference to this tabulation furnishes the names of
the companies, the total number of their directors, the number of interlocking
directorates between them and the 24 largest banks and their assets as of January 1, 1930, and December 31, 1935.
These companies were then classified by groups and tabulated in order to show
the assets or resources of companies by industries, etc., and the relative proportion of interlocking directorates of each group. This summary is shown as
follows:




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

43

Summary by industries of 100 corporations having interlocking directorates with
24 largest banks
Bank

Name of industry

Automobiles and tires
Amusements
_
-Chemicals and oils
Electric equipment
Foods and mercantiles
Steels
. .
General industrials
Financial corporations
.
Metals
Public utilities
Railroads and transportation .
Telephone and telegraph
Total .

Directors connections

Number
of companies

Assets (millions)
Jan. 1,
1930

Dec. 31,
1935

-

._

87
65
89
36
194
70
202
258
121
119
218
84

19
10
15
19
36
16
47
64
27
35
82
33

5
5
6
2
14
5
15
13
7
9
15
4

$2,164.3
856 0
2,194. 5
745.5
1,944.8
3,649.8
1,956. 5
10,375.5
1,909.1
8,441. 9
14,091. 5
5,255.1

$2,012.5
573 0
2,171.9
592.5
1,631.4
2,930.4
1,830.4
14,119.3
1,801.3
8, 555.8
14,389.4
5,924.1

1,543

_ -

403

100

53,584.5

56,532.0

From the previous tabulation it is apparent that there is a definite community of interest between banks and the major corporate units of the country, since in practically every major unit of industry and finance there is a
relationship existing through interlocking directors. The full extent of the
relationship and community of interest is not completely revealed by interlocking directors alone. Officers of a company may often be representatives of
banks and not appear on a list of the board of directors of either. By this
means, a very active control may be exercised. Also, officers or employees of
banks who are not directors may appear either as a director or officer of a
company and thereby be in a position to exercise some control over industry.
Control may be exercised through other relationships which, if known, would
only emphasize the conclusions reached from this study. With the concentration of wealth in major corporations and financial institutions and of banking
resources in leading banks, and these groups closely allied through interlocking directorates, it is not difficult to understand the control that a comparatively small group of men may exercise O¥er the wealth and economic life
of this country.
From the data reviewed, a list of 100 of the prominent men of the country
who are the interlocking directors has been prepared. This list covers directors of the 24 leading banks who are directors of one or more of the 100
companies or financial institutions and are a typical cross section of the men
who are in a position to control a large portion of our national wealth. The
extent and magnitude of this control and the part that these men play in the
economic welfare of the people of this country is difficult to fully comprehend.
A list of these 100 men, with their banking directorships, is as follows:
Name

Winthrop W. Aldrich
, , . . , '
Arthur M. Anderson
A. Watson Armour
Sewell L. Avery
M. H. Aylesworth
George F. Baker
Newton D. Baker
Steven Baker
Francis D. Bartow
Sosthenes Behn
Edward E. Brown
Francis H. Brownell
Mortimer N. Buckner
Ralph Budd
Newcomb Carlton
Thomas L. Chadbourne
Edward H. Clark
Henry J. Cochran




Bank

-

Chase National Bank.
/New York Trust Co.
| T p Morgan & Co.
Northern Trust Co. (Chicago).
Do.
Irving Trust Co.
First National Bank of New York.
Cleveland Trust Co.
Bank of the Manhattan Co.
J. P. Morgan & Co.
National City Bank.
First National Bank (Chicago).
Chase National Bank.
New York Trust Co.
First National Bank (Chicago).
Chase National Bank.
Manufacturers Trust Co.
Irving Trust Co.
Bankers Trust Co.

44

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS
Bank

Name

Frank D. Comerford
_ _,
Albert J. County
David A. Crawford
Harry W. Croft
Walter J. Cummings
Bertram Cutler
. ,
_. _ .
Arthur V. Davis
Francis B. Davis, Jr
John W. Davis
George W. Davison
_ _ .
Henry P. Davison
Henry W. deForest
Carl A. deGersdorf
William Dexter
Franklin D'Olier
Lawrence A. Downs
Edward A. Duflield
Frederick H. Ecker
Frederick J. Fisher
Leon Fraser
Walter E. Frew
George Peabody Gardner
Artemus L. Gates
Paolino Gerli
Amadeo P. Giannini
Harvey Dow Gibson
Walter S. Gifford
« ™ ,
«.,, .
S. Parker Gilbert
Eugene G. Grace
Joseph P. Grace
Edward B. Greene
William Steele Gray, Jr
-R , , w n^oiof
Robert W. Goelet
James G. Harbord
William A. Harriman
John A. Hartford
David F. Houston
Percy H. Johnston
J. L. Johnston
Thomas W. Lament
Halfdan Lee
Russell C. Leffingwell
E. Eugene Loomis
Lenore F. Loree
Alvan Macauley
Thomas N. McCarter
Harold F. McCormick
Donald R. McLennan
George McNeir
J. P. Morgan
•D- v, A TT nr n
Richard K. Mellon
w-m
T Tv/r^n^
William L. Mellon




•

First National Bank (Boston).
/Chemical Bank & Trust Co.
(Philadelphia National Bank.
Continental Illinois National Bank &
Trust Co.
Mellon National Bank.,
Continental Illinois National Bank &
Trust Co.
Chase National Bank.
(Mellon National Bank.
]Union Trust Co. (Pittsburgh).
New York Trust Co.
Guaranty Trust Co.
Central Hanover Bank & Trust Co.
/ J . P. Morgan & Co.
| N e w York Trust Co
Guaranty Trust Co.
Chemical Bank & Trust Co.
First National Bank (Boston).
Chase National Bank.
Continental Illinois National Bank &
Trust Co.
Guaranty Trust Co.
Chase National Bank.
National Bank of Detroit.
First National Bank (New York).
Corn Exchange Bank Trust Co. (New
York)
First National Bank (Boston).
New York Trust Co.
Manufacturers Trust Co.
[Bank of American National Trust &
\ Savings Association.
(.National City Bank.
Manufacturers Trust Co.
First National Bank (New York City).
/J. P. Morgan & Co.
{Bankers Trust Co.
Guaranty Trust Co.
National City Bank.
Cleveland Trust Co.
Central Hanover Bank & Trust Co.
/Chemical Bank & Trust Co.
\Guaranty Trust Co.
Bankers Trust Co.
Guaranty Trust Co.
Do.
Do.
Chemical Bank & Trust Co.
Manufacturers Trust Co.
First National Bank (Boston).
J. P. Morgan & Co.
New York Trust Co.
Chase National Bank.
National Bank of Detroit.
Chase National Bank.
First National Bank (Chicago).
Continental Illinois .National Bank &
Trust Co.
Bank of the Manhattan Co.
J. P. Morgan & Co.
/Mellon National Bank.
| U n i o n Trugt CQ ( P l t t s b u r g h ) /Mellon National Bank.
| U n k m Tmst C o ( p i t t g b u r g h ) .

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS
Name
Thomas I. Parkinson
James H. Perkins
Thomas N. Perkins
J. Howard Pew
William C. Potter
Herbert L. Pratt
Seward Prosser
John J. Raskob
Jackson E. Reynolds
Andrew W. Robertson
Henry M. Robinson

45

Alfred P. Sloan
Matthew S. Sloan
Solomon A. Smith
Robert C. Stanley
Philip Stockton
Silas H. Strawn
Gerard Swope
Myron C. Taylor
George N. Tidd
A. A. Tilney
r^
v
\rn A^MUCornelius Vanderbilt
Harold S. Vanderbilt
Samuel M. Vauclain
James P. Warburg
Samuel A. Welldon

Bank
Chase National Bank.
National City Bank.
First National Bank (Boston).
Philadelphia National Bank.
Guaranty Trust Co.
Bankers Trust Co.
Do.
Do.
First National Bank (New York City).
Chase National Bank.
Security First National Bank
(Los
Angeles).
National Bank of Detroit.
Irving Trust Co.
Northern Trust Co. (Chicago).
Chase National Bank.
First National Bank (Boston).
First National Bank (Chicago).
National City Bank.
First National Bank (New York City).
Irving Trust Co.
Bankers Trust Co.
/Central Hanover Bank & Trust Co.
(Chase N a t i o n a l B a n k .
First National Bank (New York City).
Philadelphia National Bank.
Bank of the Manhattan Co.
First National Bank (New York City).

Oeorge Whitney

{LLS^uft %.

Richard Whitney
Corn Exchange Bank & Trust Co.
John P. Wilson
First National Bank (Chicago).
William Woodward
1
Central Hanover Bank & Trust Co.
The concentration of wealth in large corporate units and the ultimate control of this wealth by a few individuals have merited for some time the interest and study of men prominent in the affairs of the Nation. The following
statements by Woodrow Wilson indicate the general tenor of a great mass of
material on this subject, a portion of which may be obtained from the reference
material listed in the first division of the study.
"It is true that while most men are thus submerged in the corporation, a
few, a very few, are exalted to a part which, as individuals, they could never
have warranted. To the great organizations of which they are the heads, a
few are able to play a part unprecedented by anything in history in the control
of the business operations of the country, and in the determination of the
happiness of great numbers of people."
"American industry is not free, as it once was free; American enterprise is
not free; the man with only a little capital is finding it harder to get into the
field, more and more impossible to compete with the big fellow. No man can
deny that the lines of endeavor have more and more narrowed and stiffened.
No man who knows anything about the development of industry in this country
can have failed to observe that the larger kinds of credit are more and more
difficult to obtain unless you obtain them upon the terms of uniting your efforts
with those who already control the industries of the country."
"The dominating danger in this land is not the existence of the great individual combinations—that is dangerous enough in all consciousness—but the
combination of the combinations—of the railroads, the manufacturing enterprises, the great mining projects, the big enterprises of the development of
natural water power in the country, banded together in the personnel of a
series of boards of directors into a 'community of interest' more formidable
than any conceivable single combination that dare appear in the open."
"The great monopoly in this country is the monopoly of big credits. So
long as that exists our old variety of freedom and individual energy of development are out of the question. A great industrial nation is controlled by
its system of credit. Our system of credit is practically concentrated. The
growth of the Nation, therefore, and all our activities are in the hands of a
few men who, even if their action be honest and intended for the public in69972—38
4




46

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

terest, are necessarily concentrated upon the great undertakings in which their
own money is involved and who necessarily by the very reason of their own
limitations chill and check and destroy genuine economic freedom. This is the
greatest question of all, and to this statesmen must address themselves with
a determination to serve a long future and the true liberties of men."
SUMMARY

From the study of interlocking control between banks and industry the following conclusions may be reached:
(1) There exists a definite community of interest and interlocking control
between banks and industry.
(2) Of a total of 1,543 directorships in the 100 major corporations there are
403 connections with the 24 banks through interlocking directorates.
(3) Of a total of 488 directorships in the 24 leading banks there are 403
connections with the 100 corporations through the interlocking directorates.
(4) Of the 403 interlocking directorships between the 100 corporations and
24 banks, 230 are held by directors of 7 banks and 103 by directors of 2 banks.
(5) The 100 major corporate units having interlocking directorates represent
concentration of wealth in their respective fields.
(6) Interlocking control is represented by the men holding the 403 interlocking directorates. One hundred men of this group represent the more important
interlocking directorates and the potential control of a large part of our national
wealth.
(7) The attached charts illustrate the relationship existing between the 24
leading banks and 100 major corporations. In the large chart each connection
between the banks and companies is shown.
P A R T III, No. 1.—CHART SHOWING INTERLOCKING DIRECTORS BETWEEN 100 CORPORATIONS AND 24 LEADING BANKS
Public Utilities
9 Companies
$8,555,800,000
119 Directors

Railroads &
Transportatloi
15 Companies

Hetale
7 Companies
$1,801,300,000
121 Directors

$14,389,400,000
218 Di

Telephone &
Telegraph
4 Companies
$5,924,100,000
84 Directors

Financial Corporations
13 Companies
$14,119,300,000
258 Directors

Automobile.
Etc.

General Industrials
15 Companies
$1,830,400,000
202 Directors

5 Companii
$2,012fB00,<
87 Directors

Amusements
5 Companies
$573,000,000
65 Directors

Steel
5 Companies
$2,930,400,000
70 Directors

Chemicals
6 Companies
$2,171,900,000
89 Directors




foods & Mercantile
14 Companies
$1,631,400,000
194 Directors

Ilectric Iquipm't.
2 Companies
$592,500,000
36 Directors

[Moody's and Poor's Manuals]

GOVERNMENT OWNERSHIP OP FEDERAL RESERVE BANKS

Year 1935

[Year 1935 Banking Resources 1936]
W H E E L OF WEALTH.—SUMMARY CHART SHOWING INTERLOCKING DIRECTORS
BETWEEN 100 CORPORATIONS AND 24 LEADING
BANKS

JS-ouxces: Moody's and Poor's Manuals; Poor's Register of Directors]




47

GOVERNMENT OWNEBSHIP OF THE 12 FEDERAL RESERVE
BANKS
THURSDAY, MARCH 3, 1938
HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.
Hearings were resumed on H. R. 7320 at 11: 03 a. m., Hon. Henry B.
Steagall (chairman) presiding.
Other members of the subcommittee present: Mr. Reilly, Mr. Hancock, Mr. Williams, Mr. Spence, Mr. Meeks, Mr. Ford, Mr. Brown,
Mr. Patman, Mr. McKeough, Mr. Transue, Mr. McGranery, Mr.
Gifford, and Mr. Crawford.
The CHAIRMAN. All right, gentlemen.
Mr. Patman, you may proceed.
STATEMENT 0E HON. WHIGHT PATMAN—Kesumed
Mr. PATMAN. With your permission, Mr. Chairman, I will read
a short statement in answer to the questions that you asked me yesterday just before we finished. I would like to read this statement
without interruption.
The 12 Federal Reserve banks exercise almost exclusively a governmental function in holding the reserves required by the statute
law, in protecting such reserves, in furnishing member banks with
Federal.Reserve notes or currency money, and in clearing interstate
checks and drafts for member banks.
They are not banks of deposit and discount; they are not established primarily for the purpose of making money for the stockholders.
It is the duty of Congress to regulate the value of money, and if
this constitutional mandate is carried out, Government officials must
be in the driver's seat and protected from interference by the banks.
Member banks are banks of deposit and discount which deal with
the public exclusively, and there is no occasion whatever for the
Government taking them over and no one is advocating it.
The Government should have an agency completely and entirely
its own, not influenced or directed by any authority except that of
the Government for the purpose of regulating the value of money.
The Government should not pay the banks 6 percent on $132,000,000. It is not needed and the amount, 6 percent, is excessive. One
good reason why the Government should own these 12 Federal Reserve banks is for the purpose of receiving the earnings of the system
which should belong exclusively to the Government without any claim
on the part of the member banks.
49




50

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS
WILL TAKING OVER ADD TO THE POWERS OF THE GOVERNMENT?

Yes; because all directors and officers of these 12 Federal Reserve
banks will be selected by the Government.
The open-market committee now consists of five appointees of
privately owned banks out of 12 who have the power to veto the
present five members on the Keserve Board and to profoundly influence the Reserve Board even if it should be owned.
The Federal Advisory Council would be dispensed with.
The CHAIRMAN. I wish to be pardoned for taking a moment or two
of your time, and I will try to restrain myself after this; but, expressing my own view of the matter, I do not regard the matter
of the profits made by the Federal Reserve System as of transcendent
importance. I think that there are so many considerations that go
so far beyond that
Mr. PATMAN. I am not insisting on it.
The CHAIRMAN (continuing). That it is comparatively unimportant, but I think that this should be said for the record, that the statement that the banks do not need the earnings that they receive from
their small portion of the capital of the Federal Reserve banks seems
to me not to be justified. I think that if you will reflect for a moment
upon the experiences of recent years, you will agree with me that
many of the banks stood in dire need of additional earnings; certainly those that failed needed the additional earnings, and while I
understand that the contribution to the capital of the Federal Reserve
banks under the system now obtaining is not in a true sense a subscription to capital—I do not know exactly how to characterize it;
it is more in the nature of an investment, like an investment in a
Government bond where your return is definite and limited, but
where you do not share in" the profits of the system as ordinarily is
the rule in the case of investments in the capital of a banking institution, yet I have never doubted, and I dislike to say these things,
because it is in the nature of criticism of the management of the
Federal Reserve banks, and I know that the Federal Reserve System
accomplished a great deal for a long time; I have always believed in
it; I thought it was a great forward step and a great legislative
achievement, and I think so yet, but undoubtedly the limited returns
upon the investments of the member banks, and the denial of the
right to collect for services rendered by member banks in the collection of checks, which I have always thought and still think is a legitimate function of banking, and other practical hardships visited upon
member banks, had most disastrous effects upon many of the small
banks of the country which were required under the Federal Reserve
Act to become members of the Federal Reserve System. Many of
them would have continued their former relationships with their
other banks and gotten accommodations in time of need and would
not have joined the Federal Re^°rve Svstem, but they were forced to
come in under penalty of forfeiture of their charter upon refusal.
It turned ou that the Federal Reserve System made unexpected
profits. Undoubtedly those profits have been at times profligately
disposed of in unnecessary operating expenses and seemingly in some
instances unwarranted expenditures, but I think the coutry would
have been a lot better off if member banks of the Federal Reserve
System had been permitted to reap their share of those profits. I




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

5£

have no doubt that we have had numerous bank failures resulting
from the exactions of the Federal Reserve, its restricted policy in the
extension of accommodations to its members, and among the hardships was this limited return on investment.
Now, pardon me for saying what I have, and I will not interrupt
you any more. Go right ahead.
Mr. PATMAN. It is all right, Mr. Chairman.
Of course, that is a question of compensating banks in some way
on account of losses for par clearances. That is the point that the
Chairman is making.
The CHAIRMAN. It was a general situation, and I have said this in
this committee before, that when a bank becomes a member of the
Federal Reserve System, and I am talking more of the smaller banks
that are subject to the vicissitudes of trade and commerce, such as
we have in your section of the country and mine, and we know that
when a bank of that kind joined the Federal Reserve System, they
lost their connections with other banking institutions, for in time of
accentuated demands for cash they could not go to an outside bank
and obtain accommodations; they were met with the suggestion,
"You go to the Federal Reserve."
I happen to have had some observations along this line to support
what I am saying, and they have made me feel very deeply about itThere were in my district quite a number of banks—I can name eight
of them right now—that were forced to close their doors in 1929,1930,
and during that time, where the members of the Federal Reserve
System denied them accommodations to tide them over their difficulties, accommodations that they were entitled to under every commonsense rule of banking, that is, if it had been a business transaction
between one bank and another, without any thought of the great
purposes of the Federal Reserve System, they would have been
entitled to their accommodation. I say, I can name eight of those
banks in a moment that were forced to close their doors and pay their
deposits in full under force, sacrificing their assets, and any man
who knows the alphabet of that situation knows that no bank should
have been forced to do that, but let me say that, in my humble judgment, our only difficulty with the Federal Reserve System, serious
difficulty—and there are other things that should be done, that I
would like to do and have attempted to do, but the great problem is
the administration of the Federal Reserve System.
You can pass all of the laws that you can from now until Christmas, and we will not have an automatic currency system in this
country. We will be obliged to have some sort of control, and when
we get through we will, after all, be more or less in the hands of those
wTho administer the system, and that is the way with most of the laws
passed by Congress. Their efficacy in the final show-down depends
upon administration.
Mr. PATMAN. I thoroughly agree with you. We want the right
kind of administrators.
The CHAIRMAN. NOW, I beg your pardon for taking so much time.
Mr. REILLY. I S it not a fact that your criticism of the administration is because of the difference in the banking views that you hold
and those held by the members of the Federal Reserve Board ?
The CHAIRMAN. Sometimes that is true, but the instances to which
I referred in my own district were because of the action of the governor of that bank down there, who has passed away. Personally I




52

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

liked him, but he should never have allowed a bank in his district to
close its doors because of a lack of temporary accommodations, when
its assets were such that they could realize enough to pay the deposits
under forced liquidation. I mean it was bad judgment and bad
administration. I do not mean that there was any corruption or anything like that. These bankers are just as good as we are, but they
just make mistakes. They do not know everything just because they
have money.
Mr. GIFFORD. I suggest that you keep in mind that under this bill
the Federal Reserve will be run by the people.
Mr. PATMAN. By the representatives of the people and not by the
representatives of the banks ?
Mr. GIFFORD. Yes.
Mr. PATMAN. And

we have never given the Federal Reserve Board
a mandate, but we hope to here, and if they violate it, something can
be done about it.
Now, I think that it is material that w^e discuss the banks that we
are here concerned with
Mr. GIFFORD. But I want you to keep in mind that fact, that Mr.
Eccles was appointed by the representative of the people. How will
you change that?
Mr. PATMAN. We have given him no mandate. We have expressed
our views and given him our suggestions, but he has no mandate from
Congress, and it is for Congress to give him a mandate.
Mr. GIFFORD. In the recitation that you have in the first part of
your bill—and that is all that it is—there is scarcely anything now.
What Avould you call a mandate ?
Mr. PATMAN. Well, then, help us put more punch, more power, and
more strength into it. We will work with the gentleman.
The CHAIRMAN. I want to say this about Governor Eccles, in order
to be fair, that I think that he is a man of great ability, of the highest
purposes and of the highest patriotism.
Mr. PATMAN. NO one questions that.
The CHAIRMAN. And a splendid citizen. But I do not agree with
him in all of his views.
Mr. PATMAN. On June 30, last, according to the Federal Reserve
Bulletin for February 1938, we had in this country, in all, 15,527
banks. Of that number, 6,357 only are members of the Federal Reserve Banking System. Of that number, 6,357, 1,064 of them are
State banks, and the other 5,293 are national banks, under the law
compelled to belong to the System.
A study of the assets of these banks is very interesting. The deposits of all banks, in millions of dollars, on June 30, last year,
were
Mr. WILLIAMS. Are you talking about assets or liabilities ?
Mr. PATMAN. The deposits in these banks.
Mr. WILLIAMS. The deposits are liabilities.
Mr. PATMAN. Yes, sir; but I am referring now specifically to deposits in these banks, which amounted to 53 billions. Of the 53
billions, 35 billions were deposits of the member banks, and the other
approximately 18 billion in deposits were in the nonmember banks.
Now, of the deposits in nonmember banks—and I hope that you
notice this—10 billions were in mutual savings banks. There are 564
mutual savings banks in the country. So 10 billion dollars of those




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

53

deposits were in mutual savings banks, and in the State banks, not
members, 8,605 of them, they had 7 billion in deposits, or, to be exact,
$7,635,000,000.
That information I think is very interesting in the light of what
has happened in recent years. Now, I have
Mr. REILLY. What are you reading from?
Mr. PATMAN. I am reading from the Federal Reserve Bulletin
for February 1938, on page 13.
Mr. WILLIAMS. If these nonmember banks were all members, how
much would they have to maintain in deposits ?
Mr. PATMAN. It would not be great, 6 percent. Of course, 3 percent only is paid in for stock in the Federal Reserve banks of their
districts.
Mr. WILLIAMS. Six percent?
Mr. PATMAN. Six percent is what they would have to subscribe to.
but actually
Mr. WILLIAMS. HOW much would they have to keep in reserves ?
Mr. PATMAN. Three percent.
Mr. WILLIAMS. Oh, no; I am talking about the reserves they would
have to maintain in the banks if they were members.
Mr. PATMAN. If they were to become members, they would have
to carry their reserves, whatever they are: it used to be an average of
12 percent, but now 6 percent.
Mr. WILLIAMS. If there is any purpose in that observation at all,
the question is, how would that change the situation ?
Mr. PATMAN. I am not discussing it from that point of view at alL.
The point that I was making is that these small banks, that reach
out into the Nation, that really do the banking business for the people
out at the crossroads— and there are lots of them—have small deposits.
Mr. WILLIAMS. I thought that you were making the point that they
do not maintain sufficient deposits in amount with the Federal Reserve
Mr. PATMAN (interposing). No; I did not have that in mind, but I
was leading up to this chart here, which shows that the trend during
the last 15 years has been toward larger banks all the time, the smaller
ones going out and the larger ones getting larger.
This chart starts with 1919, and shows to 1931. We had more than
30,000 banks then, and of course the trend has been downward; the
number of banks now is below 16,000. In a period of 12 years,
approximately 15,000 banks failed in this country.
Now, bearing out the point that I was attempting to lead up to,
the average resources in millions of dollars of the banks have been
going up all of the time, so the trend has been to push the little bank
out of the picture entirely, and to make the big banks still bigger
banks. The total resources in billions went up, then went down, and
are going up again.
That leads me to another observation, too, the size of the banks.
Mr. CRAWFORD. Will Mr. Patman yield on that point that you just
covered ?
Mr. PATMAN. Yes,
Mr. CRAWFORD. IS

sir.

it not also true that there are a number of forces
that are at work right now, this very day, which tend to eliminate
more and more of these smaller banks ?
Mr. PATMAN. Well, I hope that there is no force like that at work,
unless it is a bank so small that it is not profitable, that it is not to




54

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

the interest of the community to operate it. I can conceive of such a
situation as that, but, for the information of the gentleman, my
information is that a bank's expenses amount to about 2 percent of
the resources of that bank. W n e ^ n e r ^ is a small bank or whether it
is the biggest bank in the Nation, the average is about 2 percent, and
the study that was made by the American Banker discloses that the
smaller banks, and especially the medium-sized bank, have earnings
that are better than in the big ones. This American Banker, for
August 4, 1937, shows the banks having deposits first under $100,000,
and then from $100,000 to $250,000, and then from $250,000 to
$500,000, and it is the medium-sized bank that earns the most money.
So, if you take the deposits of all of the banks to be 53 billion
dollars, and you take 2 percent of that, you will discover that it is a
billion dollars, approximately, and if you will determine how much
the banks' expenses were last year, you will find out that they were
about a billion dollars. You can take the Chase National Bank, and
you can figure 2 percent of their resources and then find out what
their expenses are, and you can take a bank with $100,000 in resources,
or less, and the expenses are usually 2 percent, regardless of the size
of the institution.
When it gets up beyond the average-sized bank, of course they then
become uneconomic as compared with the average-sized bank.
Mr. CRAWFORD. Let us take this specific case now, because I have
been studying balance sheets and operating statements of individual
banks, and not the general average. Get right down to the brass
tacks of the thing.
When the Federal Deposit Insurance Corporation put in the
needed minimum requirement from the standpoint of minimum
standard, that in itself will undoubtedly close a great many small
banks in this country, because they will not be able to qualify on the
basis of that minimum standard. Their cost for insurance will go
up, and their net earnings will go down. That is one factor that is
operating right now.
Another is cheap money, and Government-loaning agencies which
draw higher-priced loans away from the country banks. I am speaking about banks in towns of 500, 1,000, 1,500, and 2,000 people.
So, I believe that if you will study the balance sheets and operating
statements of those banks, you will find that many of them are
headed for closing within the next 24 months, in spite of all that
should be done.
Mr. PATMAN. I think that suggestion should have the attentiton of
this committee, that banks will be closed that should not be closed.
In regard to wealth being concentrated in the hands of a few, it is
my contention that a few men in this Nation, and a very few, controlling a few banks, control a majority of the wealth of this Nation.
That is a startling statement. It is astounding to many. I hope
that you will take the time to look at this statement that I placed in
front of each one of you, a copy of the Congressional "Record in which
I inserted the information that I would like to discuss, and that is
about these 24 banks.
This information does not represent haphazard statements made by
individuals. It represents much work, work that required many
people several months' time to compile. After it was compiled it was
carefully checked in Government departments, and I do not think
anyone would object if I were to say that Mr. Landis, when he was




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

55

chairman of the Securities and Exchange Commission, personally had
this work checked in the Securities and Exchange Commission, and
there is no doubt about its being true and correct—that is, the
information.
It was so startling to many people and to myself that I would not
put it in the Eecord for a while, because I felt that there was something about it that I did not understand, but after checking into it
more I was convinced there could not be a doubt about it, and it was
placed in the Congressional Eecord June 15, 1937.
This shows, on page 1, that the per capita wealth, national wealth,
has gone up. It also shows the reference material consulted in the
preparation of this information, and, commencing on page 2, you will
find the 175 corporations that were studied named. These 175 corporations in 1930 represented 53 percent of the corporate wealth of
the entire Nation—52 percent in 1930. In 1936 these same 175 corporations represented 58 percent of the corporate wealth of this
Nation; and on pages 3 and 4 you will find that in 1930 these corporations, only 175 of them, represented 18.9 percent of the entire wealth
of the entire Nation. By 1936 they had increased until they represented more than 22 percent of the entire wealth of the entire Nation.
It is not in this statement, but it is true that there is one corporation that owns enough of the wealth of this Nation to control it. If
we had 199 other corporations of the same size, those 200 corporations
wTould own the entire wealth of this country.
Now, these corporations are controlled and dominated, I say, if not
wholly, largely by directors in 24 banks. Those 24 banks have 30.88
percent of all the banking resources of all of the banks in this Nation.
It is almost unbelievable to one who has not checked it, but those 24
banks have resources aggregating almost one-third the resources of
more than 15,000 banks in the Nation.
Of these 24 banks, 13 of them are in New York City. There are
2 in California, 3 in Illinois, 1 in Massachusetts, 3 in Pennsylvania,
1 in Michigan, and 1 in Ohio. These banks have 670 officers. They
have 484 directors. Those 484 directors interlock and are directors of
these 175 corporations that own more than one-half of the corporate
wealth of the Nation.
Now, this [illustrating on chart] represents the hub, the 24 leading
banks, 484 directors, more than $20,000,000,000 in assets. These
[indicating] represent the spokes. If you will notice, the spoke part
leads out to steel, five companies, $2,930,000,000. Sixteen of those
directors are on the steel companies' boards, 16 of the 70.
Here [illustrating] are the food and mercantile, 14 directors, and
36 directors out of 194 are directors in these 24 banks. Here we
have the electrical equipment; there are 19 of the 36 directors, and
those 24 banks have a majority on the boards of all of those
companies.
So these 24 banks, being controlled by a few men who are also
directors of the 175 nonfinancial corporations that own more than
half of the corporate wealth of the Nation, I say, have the greatest
influence over this country of any group of men.
I have another chart
Mr. REILLY. Your statement is very interesting, but do you charge
the Federal Reserve System as being responsible for this consolidation of wealth?




56

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. PATMAN. N O ; I am not bringing that charge, but
Mr. REILLY. Then why
Mr. PATMAN. Wait a minute. You asked me a question. It is a
fair one, and it should be answered.
I do say that if you give a large bank the use of the services and
facilities of the Federal Reserve System, and you deny the use of
those facilities and services to the smaller banks of the country? you
are placing the smaller banks of the country at a disadvantage, and!
you are giving the larger banks of the country an advantage, and byreason of having it, they will destroy the small banks as they have
done, and they will become larger as they have become, with more
powder and more influence.
Mr. REILLY. IS there any reason why the small banks, if they so.
decide, cannot take advantage of the Federal Reserve System?
OPEN-MARKET COMMITTEE SHOULD BE CHANGED

Mr. PATMAN. Well, they have been afraid to, and I do not blame
them, because I think the big banks have largely dominated and
controlled the Federal Reserve System. Take today the Open Market Committee, the most important committee in America. Thebanks have five representatives on it, and the Government has only
five representatives on it at this time. They are there. They are
sitting there to control, you might say, the economic affairs of this
entire Nation, but they are not charged with doing it in the people's
interest. They arg doing it, those five, in the interest of their own
banks, of their own depositors and stockholders. I am not criticizing them. They are carrying out their duty and their obligation to
the people that the}^ owe a duty and obligation to, but let us take them:
off of the Board and place on the Board only people who are charged
with the duty of promoting the general welfare, although it might
conflict with the bankers' welfare.
Mr. REILLY. Assuming that your bill should become a law, what
would you do or advise to be done to destroy this concentration of
wealth ?
DISTRIBUTE PRIVILEGES AND OPPORTUNITIES

Mr. PATMAN. I would not advise any destruction of wealth. I am
not an advocate of distributing wealth. I am an advocate of distributing privileges and opportunities.
Whenever you give the Bank of America in California the privilege of going into your little towns in California and placing a bank
there, first they will go to the owners of the existing bank and offer
to buy them out. They are happy, they are contented, and the people
are satisfied with their services, and they may be making good money,
and they may refuse to sell. They are told "If you will sell, we will
give you a big price, a bonus and everything else, but if vou do not
we will (rot a charter of some kind and we will start a bank in opposition to you."
Most of them will sell out. Those that do not will be crushed,
because this little bank does not have the benefit of the services and
facilities of the Federal Reserve System that the Bank of America
will have, and they will use the Nation's credit to destroy that local
operator of a local unit bank, and I claim that is not fair. I t is not
right that we should permit that to be done. We should encourage




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

57

local institutions against absentee ownership, and the only way to
do it is to give all banks, the smaller ones as well as the larger ones,
the benefit of the services and facilities of this great system that is
backed by the Nation's credit.
Mr. REILLY. HOW would that service that you refer to, that the
big bank is getting, enable them to keep on doing the things that you
say they are doing?
Mr. PATMAN. This little bank will not be in a position to compete.
They cannot make loans and get their loans discounted through the
Federal Reserve, but the big bank can.
The CHAIRMAN. I think that everybody who is at all concerned
.about my views knows that I am a believer in State banks, in community banks, and independent banks, and anything that can be
done to promote the development of that kind of a bank to serve
the local community in the best possible manner I am for. I believe
in that as much as I believe in anything in the world. But is it a
disadvantage to a State bank of that kind to be left free to join
the Federal Reserve System if it so desires and finds it advantageous,
or to stay out if it prefers to do so? It is the one thing that the
State banks enjoy that the national banks do not, that freedom of
action with reference to joining the Federal Reserve System.
Mr. PATMAN. They have been afraid of the System, as the gentleman knows, and this bill, if enacted, will give them the privilege,
without any investments of any kind, of going into the System, of
keeping their reserves upon deposit in a Federal Reserve bank, and
of withdrawing them at will, with no "ifs, ands, and buts" about it.
The CHAIRMAN. I am not objecting to that feature of the bill at
all; but how w^ould it improve the condition of those banks ?
Mr. PATMAN. I think they would come in. They would not be
afraid of the System. Now they are.
Mr. MCGRANERY. HOW many of these companies
Mr. PATMAN (continuing). Because it has been largely dominated
by the larger banks, and the smaller banks do not want to be in the
position of being crushed.
Mr. MCGRANERY. HOW many of these companies that you referred
to are in bankruptcy, under section 77 (B) ?
Mr. PATMAN. I do not. know.
Mr. MCGRANERY, I have been running over this list. There are
about a dozen. There is the Philadelphia Rapid Transit Co., the
Baldwin Locomotive Works, the Baltimore & Ohio Railroad
Mr. PATMAN. YOU are referring to the bankruptcy statute passed
2 or 3 years ago, section 77 (B) ?
Mr. MCGRANERY. Yes, sir. What I was trying to do is to find
out what percentage of these directors that you referred to were
actually named by the court in the case of these companies that are
bankrupt.
Mr. PATMAN. It would be interesting to know.
Mr. MCGRANERY. I think you wTill find that there are quite a
number.
Mr. GIFFORD. Right there, might I ask this, Mr. Patman: In those
corporations that you referred to, do you include railroads?
Mr. PATMAN. Yes, sir; they are included.
Mr. GIFFORD. And you include life-insurance companies?
Mr. PATMAN. Yes, sir; life-insurance companies.




58

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. GIFFORD. And the New England Telephone Co.?
Mr. PATMAN. Well, the American Telephone & Telegraph Co., I
imagine, owns the New England Telephone Co.
Mr. GIFFORD. And those are the corporations that control so much
wealth ?
Mr. PATMAN. Yes,

sir.

Mr. GIFFORD. And you say that their officials are only interested in
their corporations. Are not those corporations composed of the
people who own them, constituting a vast number of ordinary individuals ?
Mr. PATMAN. It would surprise you, my dear sir, to know that all
of the officials of the American Telephone & Telegraph, who incidentally vote themselves high salaries—all of them put together own
two shares out of every thousand of stock in the American Telephone
& Telegraph Co. They own an insignificant amount. It is the control that is so bad, and not necessarily the ownership.
Mr. GIFFORD. But the owners of those concerns are people.
Mr. PATMAN. Yes; they are people, and here is the way they
operate: A blank power of attorney is sent to you to sign, if you are
a stockholder, and you will not nave room to place the name of
anybody else on there—it is a closely written card—except the ones
that they name, that they want you to give your proxy to, and ive
know it is the kind of an election that we would not condone in
electing Congressmen, Senators, or the President of the United States.
Mr. GIFFORD. I would not, if I were you, talk too much about big
salaries, for your Uncle Sam takes most of them.
But what I am interested in is that the people that you are trying
to do something against are the people who, through thrift, put
their savings into these corporations, like the railroads and the insurance companies, and then you say
Mr. PATMAN. I am not trying to do anything against them. I
just do not want to have these officers who are controlling the affairs
of these little stockholders do anything to the rest of them.
Mr. GIFFORD. But, to listen to what you have to say, one would
think that there were corporations with only about 25 people in them,
to look out after them, but, as a matter of fact, it is an aggregation
of a tremendous number of people, and they are looking after them
as honestly as your Federal Reserve is looked after under Mr. Eccles.
Mr. PATMAN. Does the gentleman really think that a very large
number conducts the affairs of these corporations?
Mr. GIFFORD. Have you read the reorganization bill in the Senate ?
Mr. PATMAN. YOU read the report on the American Telephone &
Telegraph Co. made by Dr. Splawn.
Mr. GIFFORD. What I am trying to keep in your mind is the fact
that there may be some private individuals who have really the
welfare at heart of a certain class of people who have indulged in
thrift, in savings, and who are honestly looking out after that class
of people.
The CHAIRMAN. Before you leave that, I want to observe that it
seems that the mere ownership of stock in these large insurance
corporations and other companies seems not to control the policies
under which the companies are administered. I believe you said that
the officials hold only 2 percent of the stock ?
Mr. PATMAN. NO ; only two shares out of a thousand. That is twotenths of 1 percent.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

59

The CHAIRMAN. SO I have always wondered whether the mere
ownership of the stock of the Federal Reserve banks would necessarily bring about the happy results that you desire.
Mr. PATMAN. I do not think that Uncle Sam would send out any
of these post cards with such fine print and with names on it to
give proxies to, so that nobody can put another name in there.
Mr. MCKEOUGH. May I make this observation ?
That chart you had there a minute ago showed that there were 484
directors in the 24 leading banks, and the total of the directors from
the various groups of corporations listed in your statement was 175.
That is a total of 403, as I calculated it.
Mr. PATMAN. A total of 403 ?
Mr. MCKEOUGH. Four hundred and three out of four hundred and
eighty-four, if the addition is correct.
Mr. PATMAN. I do not knowT. This shows the percentage of the
boards that is taken up by the bankers.
Mr. MCKEOUGH. I got 83 percent out of the 484.
Mr. PATMAN. I had not determined that.
Mr. MCKEOUGH. In other words, if that is correct—and I assume
that your research is in fact in keeping with the situation—obviously
83 percent of that control is a sizable majority.
Mr. PATMAN. Yes, sir.
Mr. MCKEOUGH. There

is not much room for that to be whittled
down to less than 50 if it were a 50-50 picture that you are seeking
to bring about; and that brings me to this, if you will permit this
observation, that it points to this counclusion—that the response to
the Government owning the stock in the 12 Federal Reserve banks is
pretty much developed on the premise that the Government now controls the picture, and the ownership of the stock in no way would add
to that measure of control. That seems to be the only objection so
far raised, and my thought is that if that is the only objection, I
think it is an argument in favor of the Government owning the stock,
because if there is no change in policy without additional law, certainly there can be no objection to the Government controlling the
stock by reason of the privileges granted to those banks by the Government. They now enjoy something that they obviously are inclined
to keep in the way of privileges.
So I merely wanted to inject this observation at this time and to
cite the very strong testimony that Mr. Patman has submitted with,
respect to the Interstate Commerce Commission. The Government
does not own any stock in that. It is not a corporate entity, merely
a Commission created by statute, but no railroad representative is
permitted on that Board.
Now, if the act of Congress creating that body in its original concept, and the subsequent enactments of the Congress enlarging the
powers of the body were such that nothing could change that policy,
I do not know what objection there could be now to the Government
owning the stock in the 12 Federal Reserve banks.
Mr. PATMAN. Thank you very much. That Board was established,
incidentally, 51 years ago on February 4 of this year.
Mr. MCKEOUGH. And it has done a very good job.
Mr. BROWN. DO you know what dividends have been paid to the
stockholders of the American Telephone & Telegraph Co. ?
Mr. PATMAN. It runs from nine to nine and a half annually.




.(50

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. MEEKS. Let me ask you something. I have been quite interested in your remarks.
As I understood you a while ago you drew this sort of a picture,
of the big banks having the facilities of the Federal Eeserve and
by virtue of that fact enjoying an advantage which the smaller banks
throughout the country do not have. Is that correct ?
Mr. PATMAN. Yes, sir; they do; especially those in California,
where they have branches.
Mr. MEEKS. I wonder whether you have given consideration to factors such as these, that throughout the country we are building a great
many good roads, and a good deal of private business has gone into
stronger hands—chain stores and larger stores are crushing out the
smaller stores. I have observed that by reason of these good roads
many farmer depositors in the smaller banks now go by automobile to
the larger towns to make their deposits, such as in a county seat.
Then the chain stores are there, and they take a good deal of money
out of local communities.
Isn't that a fact ?
Mr. PATMAN. Yes, sir. There is no question about it.
Mr. MEEKS. And the local communities do not receive the benefit
of much money from these institutions. I have known of smaller
coal companies and mining companies going out of business by virtue
of the fact that bigger companies, with larger capital and more expert
operating technique, came in the field.
Have you considered these various factors? There are others, no
doubt, in connection with this problem that you are now presenting,
about the smaller banks going out of business.
Mr. PATMAN. I certainly have, Judge Meeks. One of the principal means of discremination in retail distribution is a low interest
rate. You take a concern in New York City that has stores all over
the country, and, incidentally, if we had 10 in the food business where
we have 1 now, those 10 would own all of the retail outlets in the food
business. In New York they can get their money for one-half of 1
percent interest, usually, and never have to pay more than 1 percent,
I am sure. On the other hand, the merchants in competition with,
them are compelled to pay a higher rate of interest. That is one of
thep rincipal advantages of some of the larger concerns, the reduced
interest rate which they receive by reason of being able to do that large
amount of business.
Mr. GIFFORD. But the people are benefited.
Mr. PATMAN. For a time, yes. An investigation made some time
ago disclosed that they will go into your town and that they will sell
to the people at low prices and save the people money for a while,
until they put Tom, Dick, and Harry out of business, the people who
built that country in time of peace and helped to save it in time of
war, and when they have put them out of business, they put the prices
right back, and the people have to pay dearly, and they use the profits
made from the people in your home town to destroy the independent
merchant in the home town of Congressman Crawford, or elsewhere.
Mr. GIFFORD. I grant you one-half of that statement; but, as to the
other half, they will have another chain store on the opposite corner.
They have plenty of competition.
Mr. PATMAN. Not always. They often get together.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Q\

Mr. GIFFORD. But we are looking after the people in this argument
of yours.
Mr. PATMAN. Certainly. If the chain stores could always sell at
loss leader prices, and they would never take advantage subsequently
of the elimination of their competition, we would say, "Let them
have it," but they will certainly take advantage of it, and testimony
has been produced by witnesses that is convincing to the effect that
they will do just what I am telling you, that when they get charge of
the market in a town, they put prices up. Food prices are higher in
chain-controlled towns.
Mr. GIFFORD, You still claim that after they put the ordinary man
out of business, then they put their prices up. Some of us refute
that. They have plenty of competition at the moment, so that the
prices to the people still continue to be low.
Mr. PATMAN. In some places they do not. It all depends on the
line of business. It is true that the chains are only doing about 25
percent of all the retail distribution, but that includes everything
from peanut stands to automobile sales. If you will confine it just
to the grocery line, you will find that one corporation now has in
volume 10 percent of the grocery business, and you will find that in
the shoe business they are doing more than 50 percent, and then if
you will carry that study a little further on down to the communities
where they operate, you will find that in many communities they have
an absolute monopoly. They have gone into a town and picked out
the best corner, the best location, and paid the highest rent, of course,
and then by using the profits that they made in some other place,
where they have already destroyed their competitors, they can put
their present competitors out of business, and in any number of lines
of business, they have already a monopoly in many cities of this
country.
Mr. MEEKS. Mr. Patman, the question that I asked was rather
broad and has several branches to it. The crux of it is this: The
effect on the smaller banks, that you reminded us a while ago have
been going out of business, of these local people going to the larger
towns, and even the effect of these stores sending money out to the
larger institutions for deposit.
I recall several towns in my own county where there are less than
1,000 people, and where they used to have two banks. But now, since
good highway travel has come, you see many of the local people, the
farmers and such merchants as are left, driving to the banks in the
county seat to make their deposits, and some of these smaller banks
are just gasping until they have to let go.
It is that phase of the question that I want to direct your attention
to, specifically, and I would like to hear from you on that.
Mr. PATMAN. It is true that good roads have caused many people
to do business in a larger city, where they did not do business before
because they did not have the means of communication, the automobile, or the highways over wThich to travel that they have now, and
naturally some of them have gone away from home for that reason,
but I think that it would involve but a very small part of the business.
That is just my guess. I have not looked into it.
Mr. MEEKS. I have observed it very closely, and it seems to me that
it is responsible for a large proportion of it.
69972—38

5




(32

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. PATMAN. With the Federal Deposit Insurance Corporation
law, there is no reason why these people, should not distribute their
deposits if they have more than $5,000.
Mr. MEEKS. They go to the larger towns, to the chain stores—that
is the attraction—and they do all of their business there when they go.
Mr. PATMAN. Let me finish with the gentleman from Massachusetts.
It is my understanding that last year in Massachusetts the onion
growers received a very low price for their onions. Is that right?
Mr. GIFFORD. I do not know.
Mr. PATMAN. Anyway, the price was very low. The chains got
together and only offered them this low price, and it was so low that
the Federal Surplus Commodities Corporation sent a representative
up there with the Corporation's money to fix the price of the onions
sufficiently high so that those people could get some profit on them,
and that chain stayed out of the market 10 days trying to break it,
and found out that they could not, and then they went into the market
like anybody else and paid the right price.
Mr. GIFFORD. I have in mind two very prominent fruit growers
who said that the businessmen demanded 150-percent profit on their
fruit, because of its decay and all that, and that they could not take
a risk, and they said that the chain stores had never tried to beat
them down on their product, and they were terribly afraid of your bill
with reference to chain stores, because they are the ones now that
furnish the public at large with fruit at a very low price, whereas
before the public paid a tremendous price for it.
Mr. PATMAN. Let us see if the price is so low.
Mr. GIFFORD. It may have been true about onions.
Mr. PATMAN. I know it was true as to potatoes on the Atlantic
seaboard; and not only that, but as to grapefruit and grapefruit
juice, and as to the turkey market
Mr. GIFFORD (interposing). Coming back to these small banks, there
are usually in small communities only two or three men who are
willing to take a risk in building up a community, and man}7 of us
have had, I am sure, the experience of going to a small bank and
hearing them say that their capitalization is only $50^000, and no one
can get out of that bank over $10,000 or $20,000, so that you have to
go some place else to get your money. Your credit is very limited
there; and if you want to do any business at all, you have to walk out
of that bank and go to a bank that will lend you some money.
IF LOCAL BANK BREAKS

Mr. PATMAN. There is one thing about a local bank, and that is that
if the bank goes broke, the community has not lost at all. All of
the wealth still remains right there. It is transferred possibly from
one person to another, but the wealth created by reason of that bank
remains in the community. But that is not true of absentee ownership.
Mr. GIFFORD. Let me finish.
Mr. PATMAN. I know; but I want to finish answering your question.
It is just a little bit off the subject matter we are discussing here today, but you made a point that I think should be answered about the
low cost of distribution. It is not always the small difference in cost
that the customer gets by trading with a national chain, and I will
give the gentleman an illustration right here in the District of Columbia that is backed up by courthouse records.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Q%

The Superintendent of Weights and Measures employed two ladies
to go to the chain stores of one corporation here in Washington and
make purchases. He had had complaints that they were defrauding
people, the people claiming that they were supposed to be buying so
much, but when they actually checked up on it it was less than they
were supposed to receive. So these ladies selected dressed chicken
as the commodity to be bought.
The weight would be given to the lady, and then the clerk would
go to the block to cut the head of the chicken off, and the lady would
say, "No, I do not want you to do that. I want you to wrap it up
just like it is," and in a number of cases they would go back and
reweigh it and make a correction, but all of them did not.
Eighty-one purchases were made—and this is a matter of court
record. Out of 81 purchases made from an independent merchant^
some of them would be high, some would be low, and some would
be exactly right, but out of these 81 purchases made, 68 were under
weight up to a pound and a quarter to the chicken, 13 of them were
full weight, and not one of them was a fraction of an ounce over
weight.
You know why that was
Mr. GIFFORD. Yes.
Mr. PATMAN. Not

because there is a dishonest man owning that
corporation. I am sure he is a good, honest, public-spirited citizen.
But it is because of the system which they have that forces it. One
of the managers told me when we were investigating it, and he put
it in writing, this, he said, "I had to chisel. I did not want to do it,
but I had to to keep my job. I was charged with all of these goods
at the retail price. I did not know what they cost. They would
come around every month and take an inventory, and tell me that I
was short. They did not say how much, but to watch it next month,
Then they would come back next month and say 'You are still short.5
I would say, 'Where is it,' and they would say it is none of my
business."
So they would never know, according to his statement, when they
were long. Then it was none of his affair, but only when he was
short. Consequently you do not know, every time that you are getting this low price that you are getting what you think you are
getting.
A complaint was filed here in Washington, a criminal complaint,
and this man—and I am sure that he is a great man—from New
York came down here. I do not say that he is dishonest or corrupt.
He means to do the right thing. But he came to Washington with
his lawTyer from New York, and they sat on the front seat before
the jury, and with all of their crocodile tears and everything else
they did not convince that jury that they were not guilty, and they
have paid fines in those cases.
So that is the system under which they operate, and you do not
always know that you are getting that discount that you think you
are.
Mr. GIFFORD. I realize that, but your shelves nowadays are filled
with package goods, where they do not ever have to measure the
quantity.
Mr. PATMAN. But I do not want to devote any more time to this
matter of the chain stores here. I will be glad to meet the gentleman at some other time and pursue this.




£4

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. GIFFORD. I was in the grocery business for 10 long years, and
my clerks, everyone that I hired, would never give me a chance;
they would give down weight every time, and cheat me every time
they sold a pound of sugar. You could not buy a 53-pound can of
lard and come out within five pounds of it after it had been sold.
There is such a thing as a balance, and the lady must balance the
pound of butter she gets with the pound of sugar.
But I want you to admit that the chain store today has resorted in
every conceivable i way to package goods, where the quantities have
been carefully measured.
Mr. PATMAN. On nationally advertised goods. But I wonder if the
package is always the same. I understand that there are different
sized packages.
The CHAIRMAN. Gentlemen, the House is in session, and we shall
have to quit now.
We will resume tomorrow morning at 10:30.
Mr. PATMAN. May I suggest that I wanted Senator Owen to testify
tomorrow, and, if the committee does not object, I will ask that he
be heard, and then let me finish after he gets through, either tomorrow or tne next time w^e meet.
Will that be all right?
The CHAIRMAN. That will be all right.
(Thereupon, at 12:10 p. m., an adjournment was taken until Friday
morning, March 4, 1938, at 10: 30 o'clock.)




GOYEBNMENT OWNEBSHIP OF THE 12 FEDEEAL BESEEVE
BANKS
FRIDAY, MARCH 4, 1938
HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.
The committee resumed hearings on H. R. 7230 at 10:55 a. m.,
Hon. Henry B. Steagall (chairman) presiding.
Other members of the committee present: Messrs. Goldsborough,,
Reilly, Williams, Spence, Meeks, Ford, Brown, Patman, McKeough,
Transue, Luce, Crawford, and Gamble.
The CHAIRMAN. The committee will come to order.
Mr. PATMAN. Mr. Chairman
The CHAIRMAN. We have with us this morning former Senator
Robert L. Owen, of Oklahoma, who had a large part in financial
legislation, due to his service in the Senate, especially in connection
with the Federal Reserve Act, and who is so well known to you that
I am sure there is no necessity for any extended introduction of him
from me.
I want to say, Senator Owen, that we welcome your counsel in this
committee; we have need of it, and we want you to feel at liberty to
proceed as you desire, in your own way, in connection with this bill
now under consideration. If you wish, the committee would be glad
to have you proceed without interruption until such time as you wish
to be interrogated.
You may proceed in your own way.
Mr. PATMAN. Mr. Chairman, you have already said in a better way
than I could say what I had in mind, except this, that I feel that
Senator Owen has given more thought and consideration to this subject than any other one man in America. I feel that he is one of the
best informed men in the world, if not the best, on our American
monetary system. I feel that he has done more for the cause of
reform in a dishonest monetary system than any other one man in
America, and I feel deeply gratified to have him come before this
committee and to have him give us his views and suggestions.
The CHAIRMAN. All right, Senator Owen. We will be very glad to
have you proceed.
STATEMENT

OF HON. ROBERT L. OWEN, A FORMER
STATES SENATOR FROM OKLAHOMA

UNITED

Mr. OWEN. IS it agreeable to the chairman of the committee that
I be seated?
The CHAIRMAN. Just as you prefer.
Mr. OWEN. I would prefer to sit.
The CHAIRMAN. YOU do that; suit your own comfort.




66

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. OWEN. Mr. Chairman and gentlemen of the committee, I think,
for the record, it might be advisable with great brevity, to give a
background of my interest in connection with this subject matter.
The first item of any importance in connection with it was an experience that I had in handling range cattle. During 7 years I sent
18,000 steers to the markets, and at the end of that time I came out
of the same hole I went in. I discovered during that time that there
were committees representing the packers who every morning would
fix the price, especially for the cattle that day, and they fixed it at a
point where, although I had a free range, and nearly 100,000 acres of
magnificent grasslands, I made nothing; and I was deeply impressed
by it, because the methods which were pursued in that matter had
afflicted the producers of the United States and had impaired the
national progress.
In 1890, I, with some other friends, organized the first national bank
which Oklahoma or Indian Territory had. For some reason they
selected me as president of that bank, and I served 10 years as its
president—which I do not mention as a qualification as a monetary
expert, but, on the contrary, as a means by which not to know it, if I
may use that term, because a banker does not think in terms of monetary science; he thinks in terms of making safe loans at good interest
and collecting the interest and not losing the loan. He thinks in
terms of his stockholders and his depositors.
I have been elected a director of that hank 48 times. So I have had
some experience with the banks—not a great deal; 1 did not attend to
the detail of the bank, even when I was president of it, but I directed its
policy, and that bank, starting with a cash capital of $50,000, has paid
over $2,000,000 in dividends, and it is doing very well now.
So I am not prejudiced against the banks. I am a friend of the
banks. I do not sympathize with the policy of denouncing the banks
for what has taken place in our country. They did their duty well.
They have been most serviceable to the people of the United States,
and I have deplored seeing them, through the weakness of the banking
structure, lose 16,000 of their number in the last 20 years due to no
substantial fault of the bankers. They have been victims of an
unwise system which has ignored the wisdom of our forefathers, which
has ignored the means by which our forefathers intended to protect
us against the evils which they had witnessed in the past, and because
of which they wrote into the Constitution of the United States an
express direction to Congress to coin money and regulate the value
thereof and put into the Constitution itself the broad powers in Congress exclusively to create money. I speak the language, in substance,
of the United States Supreme Court in the legal-tender cases.
In 1893 I received a circular letter advising me to contract credit,
as the head of that bank, and to use the distress of the businessmen,
due to the contraction of credit, to petition Congress and to write
letters to the Senators and Members of Congress urging them to repeal
the Sherman Silver Purchasing Act, which was done a little later on,
and the contraction which took place at that time caused 60 percent
of the deposits of the little banks which we had there to vanish.
The wholesalers called upon the local merchants to pay up, and pressure was put upon those who were in debt to liquidate their debt at
whatever cost.
At that time I saw a pair of driving horses about 15 hands high
selling in front of that bank for $10, for the simple reason that nobody




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Q7

wanted to buy and to be responsible for their care. There was an
abundant number of horses, and there was a very small amount of
money left in the country.
I mention that item because it was of extreme interest to me, and I
found my reputation and that of my board of directors jeopardized by
this contraction of credit deliberately brought about by circular letters
sent all over the United States—confidential letters, I suppose they
were, but it has been a long time since I saw that letter, and I do not
remember the text, but the text was published in many places, and I
put the text of that letter in a book which I sent to every member of
this committee, called "Stabilized Dollars." I sent you that book on
the 9th of January a year ago, 1937, in the hope that some of you would
have time to read it, and I believe that some of you may have read some
of it.
Mr. GOLDSBOROUGH. I assure you that I have read it with a great
deal of profit, and I have used it as a reference book on occasions,
and I know of no work that has been more highly complimented to
me by monetary experts.
Mr. OWEN. I congratulate myself that it is sowing seed.
Mr. PATMAN. I have had the same experience as Mr. Goldsborough.
It is a very useful and constructive work.
Mr. OWEN. It was a sowing of seed.
In 1896, deeply impressed with the monopolies which were afflicting
the country, and with the means by which they were successful in
the control of the money supply, I went before the Democratic
National Convention. I was then a member of the Democratic
National Committee, elected in 1892, and in 1896 I went to the convention, and before the committee on resolutions I made a resolute
fight, demanding that the convention commit itself to the protection
of this country against panics, and I showed them a way how, which
I had gotten from a man named St. John, which was to provide for
the easy convertibility of bonds of the United States into the money
of the United States in times of panics. I got that principle also
from the Bank of England.
I was defeated in the first fight. In the second contest to the same
end, I got the support of Allen Thurman,. of Ohio, and of Charles S.
Thomas of Colorado, and of William J. Bryan of Nebraska, and the
committee yielded to pressure, and adopted the plank I proposed.
Senator George from Mississippi came in and made a strong speech
against it, on the ground that it was new, that it was novel, that it
had not been considered by the Democratic Party leaders and they
did not know what the result might be of that kind of a plank, and
that it might be taken advantage of to expand'and contract money
by the New York bankers, and it was dangerous, and that they had
better leave it out—and they did, and I stood like Casabianca on
the burning deck; I was the only one that stood persistently for that,
but it did not go through.
I went to Europe in 1898, and spent 4 months in London, Paris,
and Berlin examining methods by which the banks of those great
countries controlled the supply of credit. They all had plans, of
which I made a careful record. I came back and wrote many articles
for the public press, showing how these principles could be adapted to
the American system of banking, giving public control in stabilizing
credit. I put some of them in the Congressional Record when I




gg

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

became a Senator, in 1907. See Congressional Record, February 25,
1908.
The Bank of England, chartered under the law of 1846, met with
a sudden panic in 1847. In that contingency they were not permitted to issue money or credit except against gold, outside of a
limited number of pounds of their original capital stock, and the
directors went to the Ministers of the Crown, and in the ministerial
meeting they passed a ministerial permit authorizing the Bank of
England, regardless of its chartered law, to issue credit or money and
5-pound notes against other securities than gold and without limit.
It was, in effect, an authority of government to the bank of issue to
create unlimited money against assets of a sound bankable character.
The moment that that ministerial permit was declared, the businessmen of Great Britain were advised, upon the authority of the
Government itself, that they would be able to get money against
sound bankable assets, and as a matter of course their fear disappeared,
the urgent demand of many to liquidate current obligations was
abated, and the panic disappeared almost immediately.
The same thing took place in 1857. The same thing was repeated
in 1866, when Overend, Gurney & Co. failed. The same thing was
repeated in 1890, when Behring Bros, failed, a commercial wreckage
that went to the ends of the earth. The people of England have had
this means of quick remedy for a long, long time. I undertook to
bring that to the attention of the people of the United States, and
when I came into the Senate and took my seat on December 16, 1907,
I was there for the purpose of promoting a sound banking system in
the United States. That is what I came to the Senate for. That is
my chief purpose.
Within 90 days from my entry into the Senate, I discussed the
Vreeland-Aldrich bill, which had been offered by Mr. Nelson W.
Aldrich, the chairman of the Committee on Finance, as a means of
meeting the panic of 1907, a panic artifically created, deliberately
created. I gave a record of the facts in the book that I sent you. I
pointed out to you the fact that a man who knew what he was talking
about came and told me in January 1907 that there was going to be
a big squeeze in stocks and bonds, and I asked him how much of a
squeeze, because I knew that he knew, and he grinned and said "Just
enough of a squeeze to make the fellows let loose that cannot hold on",
and I followed it with interest and care. In the meantime I notified
my bank to reef its sails and to strengthen its collateral from borrowers, and to call nobody, but to protect the bank against the contingency of loss. The bank lost nothing, but many others did lose.
It was a grievous loss, and a picture of it was painted by Mr.
Aldrich on the floor of the Senate that has not been surpassed as a
dramatic statement of great power, and which he urged as an argument for the Vreeland-Aldrich bill, which provided for regional
currency associations by which the banks associated together in
regional groups could add their bank assets as a basis for the issue of
money. This was a principle of the British system to which I have
previously referred.
I analyzed that bill, recognized its good qualities gladly, and said
that I would support it if necessary, but I pointed out its weak spots,
that it had many constrictions in it, so as to make it difficult for an
individual bank to get the proper supply of money against sound
bankable assets, and I urged its amendment on that occasion. I think




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

QQ

it might be of interest in this connection to say, I advocated on the
floor of the Senate, in a 3-hour speech, that the United States Government should exercise supervisory control over the banking system,
that all money should be legal tender, that bank deposits should be
guaranteed, that the United States should issue the money of the
country, that no bank should be allowed to lend money for speculation in securities in the stock market, and that the security exchanges
should be put under public control. That speech was made last
Friday 30 years ago, on the 25th of February 1908.
I advocated an emergency currency fund, the quick conversion of
United States bonds into currency through the Treasury of the
United States by permit of the Secretary of the Treasury in times of
panic or great emergency. In this address (p. 2427, Cong. Rec,
February 25, 1908), I said:
In discussing this matter, Mr. President, it should always be kept in mind that
it is not the welfare of the bank or of the depositor, however desirable these questions are in fact, that should be considered, but the real question to be considered is:
The prevention of panic.
The protection and promotion of our national commerce.
The firm establishment of stability in business affairs.
The maintenance in active operation of the productive energies of the Nation.
Panic is like a stampede in a theater at the cry of fire. The remedy is, first,
a fireproof building; second, abundant avenues of escape, wide open.

On the 25th of March 1908, I demanded on the floor of the Senate
a committee that should be charged with the duty of studying this
system of banking, so as to advise the Senate of the United States
what was the best means by which to strengthen our national banking structure. Mr. Aldrich then and there, on the floor of the Senate, acquiesced in the suggestion, and I had had a previous agreement
with him that he would do so, and the Monetary Commission was
the consequence. They studied the subject matter for 4 years.
I am reciting this history, because I want this committee to realize
the enormous amount of study which has been given to this question
by the authorities of the United States through the Congress of the
United States. That committee reported in 32 volumes after 4 years
of study, and 2,500 auxiliary books which they had collected from
the ends of the earth relating to banking systems all over the world.
Those books are all in the Congressional Library now for those who
are interested in the subject matter. They brought in a bill called
the National Monetary Commission bill, and did a great deal of
work to excite public interest in it, and it was a bill which had very
substantial merit. It had the demerit, I thought, that it left the
management of the banking system, which provides the money of the
country, entirely in the hands of privately owned banks. I did not
think that that was wise, because the policy of the banks is exactly
the reverse of what the policy of the Government would be in the
matter of expanding and contracting credit.
Under our system of government we have built up a structure which
was perfectly natural and which I do not feel disposed to criticize in
any harsh way whatever. The Government of the United States
naturally and normally failed to provide the people of the country
with an adequate supply of the medium of exchange to meet the
requirements, constantly expanding year by year, of products and
services which had to be exchanged by the people with each other.
The Congress of the United States did not realize that. The people




70

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

were compelled to realize it by their own necessities. They had to
have money in order to transact their business. They transacted a
great deal of business without any money. The individual citizen
would go to his merchant and say "I have not any money at present,
but I will have money after a certain time from the proceeds of my
labor, from my cattle, from my hogs and cotton crop, and so forth,
and I want you to credit me and let me come to the store and get
what I need for my supplies while I am preparing the crop, and so
forth," and an entry on the books of the merchant served the purpose
of money and the going in and getting the goods at the store and having them charged served the purpose of money, but it was not adequate.
In a civilization such as we have developed, wherein you will find
in an ordinary department store tens of thousands of different articles
made by modern machinery in enormous volume, to exchange those
products with the people who would like to buy those products is
absolutely impossible without an adequate supply of money with
which to do it.
Under this system which we have built up, the banks, when times
are good and prosperous, begin to expand credit, and as they expand
credit, the expansion grows on itself, and they expand to excess, and
when they expand to excess it has the effect of causing property values
to rise correspondingly, and then it is soon discovered that these values
are too high, and there comes a reaction, and the reaction excites great
fear, and the depositors and the banks alike through the process of
fear, contract the credit, which means the money of the country, and
they contract that to great excess, and because of that excessive contraction they bring about the destruction of property values, they
bring about the weakening of the security upon which the banks have
made loans, they weaken the solvency of the borrowers, they frighten
the banks who have their capital in jeopardy, and the banks naturally
contract credit and ask to have the ioans liquidated, and prudent borrowers make haste to liquidate when they anticipate conditions of this
character.
For that reason, the policy which works against the interests of the
people in this field needs to be corrected by some power greater than
that of the banks, who cannot cooperate with each other in such a
matter. The only power that can do that adequately is the power of
the United States, of all of the people, and the policy of the United
States should be, when an undue expansion takes place, or what is
called inflation, when the word "inflation" is properly used—when
undue expansion takes place, the Government ought to be in a position to correct that, in order to prevent interference with the normal
relations of debtor and creditor, and the normal relation of the buying
and selling of goods which is necessary to achieve and maintain uniform, maximum production.
Therefore the policy of the Reserve Board and of the Reserve banks
should be to correct these unhealthy tendencies when the y occur
injuriously to the public interest. For that reason the Government
of the United States ought to have control of the Federal Reserve
System in such a way that they could make effective the policy to
which I refer.
It is for that reason that I approve the Patman bill, which provides for taking over the 12 Federal Reserve banks under the ownership of the United States Government or by the people of the United




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

>]\

States whose interests are so vitally and deeply affected by the panics
which have occurred from time to time, I believe now some 25 times
since we established this Government, and three times in the last
20 years, 1921, 1932, 1937, excruciating periods of suffering for
millions of people.
In the depression of 1932 I want to call the attention of this committee to the fact that the suffering was so extreme that the personal
suicides increased to 22,000 per annum, an increase of 14,000 above
the previous record, many of which were even then due to the conditions in this country which made poverty so unendurable that
people preferred to die rather than to live.
I am not going to describe the effects of these last three panics beyond calling to your attention with the greatest possible brevity the
fact that the first year of the panic of 1921 caused a loss in the products and services which the people previously enjoyed of 15 billion
dollars. That is a recorded fact, not a theory.
The loss of products and services under the panics of 1929 to 1936
amounted to 164 billions of dollars of products and services that
might otherwise have been enjoyed.
The panic of 1937 has been more sudden and more violent than any
which preceded it, and the effect on production has been more violent.
Let me call your attention, gentlemen of the committee, to the record
found in the files of the Federal Reserve Bureau of Research, the index
of physical production. I sent a letter to the members of this committee by mail, with which was a copy of the report of Sir Reginald
McKenna, former Chancellor of the British Exchequer. In that he
said that the index of physical production, or the actual physical production of Great Britain, had increased in 5 years under managed
money 50 percent. That is 10 percent per annum under a system of
managed money, where the people were supplied with a sufficient
amount of money to transact their current business.
Our index of physical production was set at 100 by the Calvin Coolidge administration for the average of the years 1923 to 1925. That
index of physical production is an index that should normally rise
without any assistance or special assistance on the part of Government, not less than 4 percent per annum. The index of physical production that should be 4 percent per annum each year should be followed by a 4 percent increase, so it compounds itself as you proceed;
and, taking 1924 as a basis, the index should have increased from 1924
to 1937 by 13 times 4 percent, plus the actual compounding percent,
or about 68 percent. I have made the calculation. That is substantially correct.
The index of physical production, without the assistance of anyone,
and without panics, should have been for 1937, 168.
While we did substantial service in overcoming some of the effects
of the depression, our index of industrial production last May reached
122. Then it went down, down, down, and now it is 79. We have
lost 43 points, or about 35 percent in the index of physical production
since last May, and I hope that you will read the letter which I sent
you, enclosing the statement from Sir Reginald McKenna. He is a
high authority. He was Chancellor of the British Exchequer. He
has had charge of the London City and Midland Bank for 25 years or
more, the largest commercial bank in the world, I believe, over 3,000
branches, over 2 billions of deposits.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

I know Sir Reginald McKenna very well. I had the honor of
visiting with him in London immediately after the armistice in 1918.
He was associated with Sir Edward Holden, also formerly Chancellor
of the British Exchequer, and who at that time was the head of the
London City and Midland Bank, and those two were deeply interested
in the Federal Reserve banks which had financed the war to the extent
of 40 billion dollars without any disturbance of credit conditions in the
United States, although the bankers assured the Government that it
would be impossible to raise over 2 billions when the war started, but
we raised 40 billions without difficulty under the Federal Reserve
System. So the act was well drawn for national emergencies.
At that time, Sir Edward Holden and Sir Reginald McKenna spent
2 days with me talking about the Federal Reserve System, the Federal
Reserve Act, its management, and so forth. They gave me a banquet
at the Hotel Cecil, with 80 financiers and the leading representatives
of the British Treasury there, and Sir John Bradbury was there, and
Sir Robert Chalmers, and various dignitaries, and for 3 hours
I answered their questions with regard to the operation of the Federal
Reserve Act and they were deeply impressed with it, and an,effort
was made to amend the charter of the Bank of England, to give it
greater powers to correspond with the powers we had given the
Federal Reserve System. But the English are very conservative,
and no change in the charter was made.
I recite this because I think it is of importance for the committee to
realize the importance of the present experience of Great Britain for
the last 5 or 6 years in managed money. They have accomplished
some very important results. They have restored prosperity reasonably. They have increased their physical production 50 percent, and
that is a colossal transaction. They have reemployed over 2 millions
of workmen in the last 5 years under that system who previously
were unemployed. They have given the businessmen of Great Britain
a 2-percent annual rate on the use of money, and our businessmen have
got to compete with that 2-percent rate when they come into competitive conditions in the world's markets with the products of English
industry.
Now, in 1920, on May 18, in Washington City, at a secret meeting
of certain members of the Federal Reserve Board and 36 class A
directors of the Federal Reserve banks, and 12 members of the Federal
Advisory Council, they had an all-day meeting. The minutes of that
meeting fill a small book of some 60 or 70 pages and will be found in
Senate Document 318, published in February 1923. I recommend that
to your careful perusal. You will find there where they deliberately
agreed to contract credit and currency, to drastically contract it.
On the floor of the Senate, between January and June 1920, knowing
that they were secretly working for the contraction of credit and currency, I entered 11 different protests, verbally and in writing, against
that policy. I want history to record that fact. I pointed out to the
Senate and to the people of the United States that if they permitted
that kind of treatment, they would first experience a serious depression, bringing sorrow and grief to the people of the United States, and
if that was persisted in, through the private management of that
institution, they should not be surprised if the people of the United
States would demand that the Federal Reserve System should be
turned into banks of discount and deposit. I am opposed to that
remedy, but the remedy proposed by the Patman bill, to take over




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

73

these banks, is for the purpose of preventing private interests, by
cajolery, by intrigue, by cleverness in social relationships, and in the
scientific use of economic jargon, to control the policy of an institution that ought to be exclusively employed in the welfare of all of the
people of the United States, and not permitted to be used to promote
the interests of those who speculate in money.
I speak respectfully of those who speculate in money. In a certain
intellectual sense, they have my admiration, not that all of them are
deserving of admiration, but they follow with reasonable alacrity when
the leaders set the pace, and what they do is simple enough. Just
what they did at that secret meeting on May 18, 1920, and which they
were able to write into the records of one of our great and patriotic
political parties, was this: On the 10th of June 1920, there was written
into a platform of one of our great parties a provision that that party
would carry on a persistent fight against the high cost of living by
the courageous and intelligent deflation of over-expanded credit and
currency. Well, the}^ contracted, and the general price level, the allcommodity index, which in May was 167—and I confess it was too
high; I confess it was at that time 37 percent too high because of the
speculation in commodities following the World War, when there was
a scarcity of commodities; but from 167, by the contraction of credit
and currency, that index fell to 93 the following June, 74 points.
Then, under Calvin Coolidge, we had a serious attempt to stabilize
the value of money, and they set standards that were believed to be
sound and fair; they set the standard of 100 for the price level of 1926y
and under Benjamin Strong's management, he being the governor of
the Federal Reserve Bank of New York, in which he controlled credit
in a substantial degree through his influence directly or indirectly over
the great banks of New York who cooperated with him, we had an
era of very substantial prosperity, but in that era there took place a
very unusual thing which followed the great distress of the panic of
1921.
In the panic of 1921, our great industrial companies discovered that
they had not a sufficient amount of reserve money to bear the stress
of the sudden loss of business, when their expenses went on and their
income was reduced subnormally. They therefore put on a campaign
to correct that condition which they regarded naturally as an evil, to
expand their cash reserves, and the best way to do it was to sell their
stocks and bonds to the public. So, great campaigns were put on to
sell stocks and bonds to the public. These great institutions were
admirably managed for the most part. They were money-making
concerns. They deserved the confidence of the public as investments,
and the public bought the stocks to an extent which I think is not
generally understood, but which was put into the record of this committee in the hearings on the Goldsborough bill in 1932, in which Mr.
Goldenweiser, the Director of the Bureau of Research of the Federal
Reserve Board, testified while I was on the stand that these industrial
corporations had sold to the public over 50 billions of dollars of stock.
It was a grand performance, representing the highest skill and
activity humanly possible, and the great institutions had so much
cash on hand that they looked around to see how they could employ
it and get some interest on it.
Nothing was easier. The call money market was absorbing all the
money that anybody was willing to lend, and at increasingly high
rates of interest. The margins were abundant, 40 and 50 percent.




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The security could be sold overnight. There did not appear to be any
risk in it whatever, and so attractive was it that they not only took
money which was held as reserves by the industrial corporations, but
they also attracted money from the small banks all over the country.
I found that my own bank, of which I was a director, had $1,000,000
loaned up there. When I discovered it, I objected to it very seriously,
and it was withdrawn, but my directors told me tha,t they did not
have any demand for it at home, and they were getting a high rate
of interest on call, and the margins were abundant, and it was safe,
and they could do it through their correspondent in New York without difficulty, and they did not see any reason why they should not
make that money.
The CHAIRMAN. DO you remember how high the call-money rates
went at that time?
Mr. OWEN. The highest point which I recall was about 25 percent,
just about the time of the crash.
Now, I do not blame anybody——
The CHAIRMAN. What is the highest rate of interest that your bank
received on call money in New York?
Mr. OWEN. I do not remember. I think at the time it was somewhere around 8 percent, but the rate did run up to a point above 20
percent; and those processes represent human nature in action. I do
not think it advisable to criticize the motives of people who do the
natural thing under the conditions under which they are living, and I
am not willing to do it, because I do not like to impugn motives of
individuals; I do not think it is wise and just to do it, as a rule, but I
am calling the attention of this committee to these things because of
their bearing upon the importance now of taking over these Reserve
banks without any nonsense about it, for the reason that you have
. then an instrumentality subject to the control and the influence of
the Congress of the United States in the discharge of its constitutional
duty of regulating the value of money. You cannot regulate the
value of money except by regulating the flow of credit in the form of
demand bank deposits in circulation. The demand bank deposits not
in circulation do not function as a medium of exchange. They function as a warehouse receipt, and as a measure of value.
Money has several different aspects. One of its aspects is a medium
of exchange—the great aspect. Another is as a measure of value,
and the third is purely as investment.
There are many men who have the wisdom to know that they can
invest in money just as profitably as they can invest in property.
There are men who know that money can increase in its purchasing
power in terms of stocks 100, 200, and 300 percent, just as well as men
who know that stock can increase from a low price 100, 200, and 300
percent, and this last panic which took place, I think, was clearly due,
first, to the general condition of hoarding credits which had been built
up through the terrible agony of 1931, 1932, and 1933, and 1934,
when men hoarded demand bank deposits.
In 1932 and 1933 they hoarded pocket money on such a colossal
scale that there were over 1,000 communities in the country, collected
by the Department of Commerce, who resorted to barter exchanges
and to the issuance of the scrip money. The Chase National Bank
has on exhibit to any of you gentlemen who would care to see it in
New York, 2,000 pieces of scrip money issued in violation of statute
law, but in accordance with the law of self-preservation, which rises




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

75

above statute law. The scrip money was issued on paper, on leather,
on wood, and on metal, and it was due to the hoarding of pocket
money which did not exist in sufficient quantity to enable the people
to carry on. The clearing houses during this period authorized the
issue of clearing-house certificates to an extent of over $600,000,000.
But the real hoarding which takes place, which is most dangerous,
which is most harmful to our commerce and industry, is the invisible
hoarding of demand bank deposits, and how shall we ascertain to
what extent that invisible hoarding is taking place? Fortunately we
have the actual figures. There were twenty-four and a fraction billion
dollars of demand bank deposits in 1929 which were active, in circulation. One thousand two hundred and twenty-seven billions dollars
of checks were circulated during that year and debited on the books
of the banks of the United States, measuring the flow and activity
of that twenty-four and a half billion dollars of demand bank deposits
in all the banks of the United States in 1929, but when the people
became frightened, it fell to nine hundred billion in 1930, and in 1932
it fell to four hundred and fifty billions, and in 1933 to four hundred
and thirty billions. In the meantime, the deposits themselves decreased very substantially, but the decrease was more largely in the
hoarding than in the contraction of the actual volume of demand bank
deposits. But in 1936, when the demand bank deposits had crept
gradually to twenty-four and a fraction billions, the total of checks
debited against the books of the banks was $611,000,000,000. Last
year it was $637,000,000,000, but I call your attention to the morning
Post, the morning Record, which shows that the clearances of last
week were 26 percent below what they were a year ago.
Now, that contraction of demand bank deposits is a thing which
can only be controlled by an instrumentality in the hands of the
Congress of the United States.
Let us ]ook at what took place in 1937, when the Federal Reserve
Board called upon the banks to raise their reserves to twice what they
had been before. It created a reactionary impression and promoted
credit contraction. When they did that, some of the banks sold their
bonds and there was a corresponding contraction of credit to the extent
of nearly two billions. The amount I estimated from January 6 to
August 13 was 1,850 millions, but that was not the most important
matter. The important matter was the cause of the policy of contraction which was broadly advocated during the spring of 1937 by
Mr. Morgenthau in his address1 at the Harvard Conference on the 27th
of February 1937, which was advocated by Mr. Wallace, of the Agricultural Department, and three of his assistants who spoke over the
radio protesting against the prices of the country being too high.
The sagacious gentlemen who were experts in monetary science and
who study monetary science for the purpose of making a living out of
it, advised their clients who speculate in money—and perhaps the
word "speculate" might be regarded by some as offensive, eo I might
say those who merchandise in money and who merchandise in stocks
as a means of merchandizing in money, converting money into stocks
and stocks into money, and money into stocks, and back and forth
from one to another—these monetary experts of New York, of Chicago,
of Boston, and San Francisco naturally and wisely had the sane
common sense to advise their clients who had accumulated stocks with
the expectation of the stocks remaining stable and going higher—they
advised them to sell their stocks, not to do it too fast, not to disturb




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

the confidence of the purchasing public, but to sell their stocks as
rapidly as it could be discreetly done, without glutting the market.
That was done on a tremendous scale, and gentlemen of sagacity
conveyed their stocks to gentlemen of less sagacity, who in turn conveyed those stocks to gentlemen of still less sagacity as the market
went step by step down the hill, and the more learned and sagacious
gentlemen accumulated cash in the form of demand bank deposits
which they held in storage,7not earning any interest, but on the theory
that the money which the} were accumulating would increase in purchasing power, in terms of the various stocks which they were selling,
and we sawT under this process United States Steel go from 126 down
to under 50. So that the dollars which were accumulated by the sale
of United States Steel at 126, when it went down to 50, could buy
about two and a half times as much steel stock as they had sold.
Isn't that common sense, and a good way to make money? Is
there even any moral objection to it, in the ordinary use of the word
"moral" as used in the business world? It is a matter of judgment.
Men who think property is going down sell it, and acquire property
that they think is going up, and then the same thing will reverse itself,
and when the thing gets down to the bottom, and the gentlemen who
have accumulated money invest the money in stocks at the low price,
that money begins to flow again, and as the stock market rises in
consequence of this, the money will flow more and more actively,
and the money which has been hoarded for the purpose of a rise in
purchasing power, for the purpose of buying first-class real estate
under mortgage in the New York centers and elsewhere, when that
has been gratified and the money which has been accumulated in this
way has been judiciously invested in property, then we will see a
reversal of the matter, and money will begin to flow into rising
property.
Now, when the United States takes the step of saying that it is
going to give the people of the United States stable money, that they
are going to establish a money system which will furnish the people of
the United States with a medium sufficient to easily move all of their
products and services from and to each other—when they agree that
they will do what the Goldsborough bill of 1932 proposed to do, you
will see the money which is frozen with a view to its rise in value
begin to move, because then they will know that the end of the depression paralysis is at hand and that there will be a rise in the value
of property. You will then release this frozen money.
But that is not enough. This is not just one case of which we are
speaking. We are speaking now of a national policy for all time, by
which the hope expressed by the President of the United States to
the London Monetary Conference in 1933 shall be really achieved,
when we shall have a dollar whose purchasing debt-paying power
shall be the same from one generation to another. That is a noble and
humane ideal. It is one easily capable of achievement. It is one which
I believe will be accomplished now under the patriotism and courage
and intelligence of this committee and of this Congress, and of the
present Senate.
I want to say this: That the time for study of this matter has to be
drawn to a close. I remind you that on this question, the committee
of which I was chairman in 1913, took 3,000 pages of testimony to
establish a system that would give stability to the purchasing power
of money and in the debt-paying power of money.




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77

In my committee in 1914 a thousand pages of testimony was taken
on the control of the security exchanges. Under Mr. Goldsborough's
efforts, nearly 3,000 pages of testimony was taken in the study of this
question. The subject matter is now understood by thousands.
I wrote into the bill which was introduced by me in the Senate on
the 26th of June 1913, a provision that the powers of the system
should be employed to promote a stable price level, which meant a
dollar of stable purchasing debt-paying power. George Shibley was
responsible for that ideal, a grand and noble man, a student—and a
great student—of monetary science, who wrote a book of wonderful
merit in 1896, called Honest Money. It was a prophecy. It was
the sowing of seed. George Shibley is not here now, but the evidence
which was taken at that time, in 1913, sustained the wisdom of the
policy.
But there were those who did not want stable money. There were
powerful interests that preferred to have the management of money left
exclusively in the hands of those who understood the money business.
There were those who desired to retain private control over these
questions. In their view, it was better for the public interest. In
their view, it held out the opportunity for profit, and our system being
based on the profit system, they thought should be encouraged to the
highest degree so as to hold out the greatest possible profits to those
who were energetic and sagacious.
I shall not quarrel with their view of the matter, except to point
out that my chief antagonists in liberalizing the Federal Reserve
Bank Act of 1913 were guided by these forces, through Mr. H.
Parker Willis, who did not believe in the quantitative theory, and
who derided the idea of the public regulation of the value of money.
I was not able to keep that item in the Federal Reserve bill. It was
stricken out in the House. I was unable to replace it in the Senate.
But the act functioned, nevertheless, fairly well until the conservative element who believed in the private control, who believed in the
view entertained by those who presented the bill drawn by the National Monetary Commission, were successful in modifying to that
extent the Federal Reserve Act of 1913, but not to impair its real
meaning of supervisory control by the Government of the United
States over the system, but when they got charge of the personnel of
the Federal Reserve Board, through Mr. Paul Warburg, and Mr.
W. P. G. Harding, and Mr. Strauss, and Mr. Adolf Miller, they were
able to have that secret meeting on the 18th of May 1920, and bring
about a contraction so violent that it threw 5,000,000 people out of
employment; and the same forces, unrestrained in the stock market,
expanding credit to great excess between 1926 and 1929, raised the
price of stocks to a fantastic point where they would not possibly
earn dividends, and therefore wise bankers constantly warned those
who were buying such stocks of the danger of it, and it resulted in a
sudden change of public opinion on October 23, 1929, with the crash
which followed.
I did my utmost to protect Mr. Hoover against that. I spent a
month preparing for his special use a memorandum, 16 printed pages
with 12 charts, which I presented to him at a luncheon in May 1929,.
warning him of what was going to take place in the stock market, urging him to study the question or to have his experts study it, so as to
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abate what otherwise would happen with colossal violence, and urging
him to prepare to correct the reaction when it took place.
The chairman of this committee will remember that I gave him a
copy of that memorandum several years ago. I do not know whether he
retained it or not, but he will recall it surely. It was a very interesting
memorandum, at the close of it, because I said to Mr. Hoover at the
close of it that if he failed to meet the exigencies pointed out in the
letter, it would discredit him and his political prestige, and greatly
impair the prestige of the party to which he belonged. I had supported Mr. Hoover for the Presidency of the United States, on the
ground that he was more thoroughly equipped for that post, because
of his own service in Commerce and abroad, and I thought he would
have appreciated the message I gave him.
But I only refer to that as a historical matter which is worth while
to consider, since the political consequences of not giving the people
of this country relief against a depression are just as certain as the
night that follows the day; and I say to this committee, and. I say to
this Congress, that if this Congress fails now to give relief, it will be
just too bad.
I want to say more, and that is that it would be very unwise to
treat this matter as a partisan matter. I want to compliment Mr.
Goldsborough for the great work he did in bringing about a better
relation and understanding of these matters by the examination which
he caused from 1922 on up to 1932, and the bill which he then presented, with the approval of the Committee on Banking and Currency
of the House—and I believe it was practically a unanimous report.
It was debated 2 days in the House, a very simple bill, declaring it
to be the policy of the United States to restore and maintain the
value of money according to the standards of 1921 and 1929, and
directing the Secretary of the Treasury, the officers of the Federal
Reserve Board, and the Reserve banks to make effective that policy.
That was all, but enough, and it passed, not by a partisan vote.
There were 117 Republicans who voted for that measure. That
measure was treated as our great leaders on both sides would have it
treated and should have it treated, as a nonpartisan patriotic measure
intended to protect the people of this country from the agony of
repeated depressions which have taken place and vexed our souls so
frequently in the past. As I say, 117 Republicans voted for that bill,
and it passed by 289 to 60, and, of the 60 who voted against it, only
12, by the will of the people, remain in the Congress.
I think that that is a pretty good political index for those who
know how to measure political signs. The people of this country
are studying this matter, and they understand it a great deal better
than the public press realizes. It is a favorite hobby with the public
press to say that nobody understands the question of money. Nothing
could be more erroneous than that statement. Millions of people
in the United States understand it. The British people understand
it, and they are regulating the value of their money now to their
great advantage. The Swedes understand it; they are doing the
same thing. These seeds which have been sowed by the Shibleys and
the Goldsboroughs and others are bringing their reward in the public
knowledge.
This Committee understand this matter perfectly well. I have not
the slightest doubt of that. I have not the slightest doubt that every
man on this Committee understands it perfectly well. You may




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

79

differ as to some of the details, but surely you cannot differ as to the
fundamental facts with regard to the matter.
The Goldsborough bill was based on the quantitative theory of
money and on the regulation of the value of money and proposed to
carry out the Constitution of the United States, which gave Congress
the exclusive right to create money and to regulate the value thereof.
It was based not only upon the right and duty of Congress to regulate
the value of money, but the power of Congress to regulate the value
of money by regulating the volume of money in the form of credit and
currency, and in the form of demand bank deposits and currency
functioning as money.
There are those who disbelieve in the quantitative theory. There
are those who do not believe it is possible to regulate the value of
money.
Even so distinguished a gentleman as the former chairman of this
committee, now in the Senate, expressed that view on the 8th of
July 1932, in an attack on the Goldsborough bill, when he said
substantially that the quantitative theory had been repeatedly
exploded, and that the theory of regulating the value of money was
all Greek to him, and he did not understand the Greek language at all.
Well, I sometimes seem to speak Greek. I have often found that
I was speaking Greek by talking and not being understood, and many
men do that; they assume a background of knowledge on the part of
one to whom they speak, and unless the background is there, the
language will not be understood, and one should not condemn other
men because they differ in opinion, and do not understand. If you
look into their background, you will find that their premises are
different. I would not condemn the National Committee on Monetary
Policy, which represents some 66 economists, of many universities of
the United States, who have protested against the question of managed money, because they say, in substance, that money does not
control the value of commodities or property, that money is comparatively stable, and they will prove it by taking the records and
showing that the money in circulation outside of the Treasury is
comparatively stable, and was not only stable during the depression
of 1929 to 1936, but actually rose a billion dollars, over a billion dollars
from June 30, 1929, to 1936. The money actually increased while
commodity values and the value of farm products went down to below
half of what they had been before.
What do they mean by money? They mean by money, currency,
and they do not mean anything else but currency.
J. P. Morgan said before the Pujo Committee in December, 1912,
that gold was mone;y, and nothing else is, and Mr. Barney Baruch,
in his magnificent, illustrated article of November 25, 1933, in the
Saturday Evening Post, declared that inflation was the enemy of
mankind, and described as inflation any expansion of money not based
on gold redemption.
Those views men have a right to entertain, but when they have
those views they have a background of premises entirely different
from another man who has a different set of premises in mind, and
you have to know both premises.
When I talk about money, I do not talk about currency in your
pocket only. I know that that kind of money transacts less than 5
percent of our business in the United States, and I know that demand




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bank deposits as a basis of checks transact 95 percent and more of the
business of this country, and therefore when I speak of money I
practically ignore currency, because it only occupies a relatively
small position. I speak in terms of demand bank deposits. I think
that men should be respectful to each other's opinions and not impugn
motives merely because you differ in opinion in regard to an economic
question.
Now, it is for these reasons, and as a means of giving a stability to
the debt-paying purchasing power of money, and for carrying out the
principles of the Goldsborough bill of 1932", that I advocate and favor
the absolute control of the Federal Reserve banks by the Government,
so that the agency shall be itself under the control of Congress.
At the present time the Federal Reserve Board get their salaries
paid by the privately owned banks. 'That is not a good system. At
the present time the privately owned banks can veto any act of the
Federal Reserve Board in the matter of open-market operations, because they have five private citizens as members of the open market
committee against five public functionaries on the Federal Reserve
Board. The Federal Reserve Board cannot move.
What kind of a system is that? It does not meet my approval. I
protested against it at the time the Bank Act of 1935 was passed.
Woodrow Wilson refused to agree that there should be any bankers
put on the Federal Reserve Board. The bankers wanted to have the
right to nominate a certain number of them. He refused to do that,
on the very reasonable ground that the public control was a public
matter, belonging to the whole of the people of the United States, and
that in undertaking to regulate the value of money and to regulate the
flow of credit to the banks, the public had an interest that was not
necessarily the same as that of the bankers, or that the bankers
might have, and he refused to agree to that. That was in 1913.
So it has proved to be to the disadvantage of the public that the
personnel of the Federal Reserve Board should be influenced so largely
by bankers. I quoted in the book that I sent to the members of this
committee from Mr. Paul Warburg, showing exactly how he and his
conservative friends had finally got control of the policies of the
Reserve Board. I remind you of that, and ask you to keep it in
mind in considering these questions.
Now, there is a very important distinction between the ownership
of Federal Reserve banks and the ownership of member banks. The
member banks are engaged in the transaction of banking business.
The Federal Reserve banks should be engaged in the monetary business, in regulating the flow of credit, so as to protect the welfare of all
of the people of the United States and especially the interests of those
who are engaged in banking in any line.
This system, in my opinion, should be so framed not only as to
take over the Reserve banks, and the reasons given by Mr. Patman
in his address, I thought were excellent, but in addition to them I
want to call attention to this. Under the management of our banking system that has heretofore prevailed, by the nature of their business
they expand to excess against the public interest, and they contract
to excess against the public interest, and they are incapable of helping
that. They follow the law of human nature, the law of profit and of
safety. You cannot expect them to cooperate. They are not
charged with any political responsibility.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

g]

I have a great respect for them, and great sympathy for them, but
they cannot be charged with that political duty, and the United
States, through its powers, should have for its policy precisely the
reverse of what naturally takes place with the banks. The banks
naturally expand to excess through optimism; they naturally contract to excess through pessimism, and the United States Government,
knowing that, and knowing that it is against the public interest,
knowing that it inflicts dreadful losses, knowing that it is the mother
of poverty, and that without those processes we could absolutely
abolish poverty in this country and raise the standard of living to a
higher point than civilization has ever conceived—knowing all that,
it is high time that the Government should exercise its power to
neutralize this uncontrollable tendency to expand to excess, this
uncontrollable tendency to contract to excess by the member banks
and by the nonmember banks.
For that reason, and for the reason of keeping the Government of
the United States out of the banking business, and keeping the
Government of the United States in the monetary business, and keeping the bankers out of the monetary business and keeping them in
the banking business, I trust that this bill will be so drawn as to use
the powers of the system for the complete protection of every banker
of this country, big and little. The least of these should be the object
of the greatest solicitude, because they are the ones who down in the
little county at home furnish the accommodation for every little
businessman who wants to borrow money in small amounts, money
needed to transact their business, and to be safe in making the loan,
and have plenty of time with which to liquidate it, so that their plans
may be made with dependable security. There is no reason why the
great powers of this system should not be employed to give absolute
protection to every one of these little banks against the possibility of
squeezing which might arise from any cause.
We contemplate a new system entirely. The background of the
past must not be used in contemplating the system proposed by the
bills now before this committee. In the past we had no protection
whatever from these recurring depressions. They were just taken as a
matter of course, and people got to regard them as an act of God.
They were due to the processes of human nature, the desire for profits,
and the desire to have safety from loss. Those are human qualities
created by nature itself, and against that tendency we must have an
instrumentality endowed with power and with wisdom, to safeguard
all of our people.
We are all a great family here, drawn from the ends of the earth,
of T every race, of every color, of every previous political condition.
W e have come here seeking liberty, seeking happiness under a charter
that guarantees freedom of speech, freedom of assembly, freedom of
the press, freedom of religion, the right to life and liberty and the
pursuit of happiness; and how sadly we have failed to carry out the
great purposes of the charter is exhibited by the pathetic words of
the President of the United States, who has told us over and over
again that over a third of our Nation is underfed, underdothed, and
undersheltered.
And look at the wreckage which we have permitted to take place
In the last 20 years. It is a shocking record, discreditable in the




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

highest degree to our intelligence, but not incapable of complete and
perfect repair.
We are now face to face with a condition which again has emphasized upon the attention of the American people the importance of
this matter. I therefore welcome the depression of 1937. Yes; it
has caused many to suicide; that is true. It has caused many bankruptcies—yes, that is true. It has taken the last hope away from
many who thought that they were going to escape from the happenings of 1929 and 1936—that is true, too. But it takes a national
catastrophe to move the American people into action, and they are
beginning to move now; they are beginning to move in this committee, and in this House of Representatives, and I hope that the
movement will end here for the good of this Nation.
Now, Mr. Chairman, I have given a brief sketch of this matter. I
have given the principal reason which I think justifies the taking over
of these banks, the important and financial reason that the United
States is furnishing 4% billions of dollars of money to these banks, and
the member banks have a credit in the form of stock in the amount of
$132,000,000, and that is sufficient to answer any question as to the
relative investment in these banks. The real value of the banks 13 the
charter granted by the Congress of the United States. The right of
the United States to amend the act at any time is proven by this, that
you can liquidate these banks at will, you can liquidate the Federal
Reserve Board at will.
I favor the enlargement of the Federal Reserve Board as proposed
by the Patman bill, because I think it will be beneficial. I doubt the
advisability of putting on as voting members the officials who are otherwise charged with very great responsibilities. I think the same end
could be accomplished by having a representative properly qualified
to attend monthly meetings of the Reserve Board, so that the Departments of Agriculture, of Commerce, of Labor, and the Treasury should
be kept in a position of cooperation and coordination with the economic
views of the Federal Reserve Board and its actions, and so that they
might mutually advise each other. I think that that could be accomplished very well without giving them the voting power and putting
the responsibility of voting upon them. I think the responsibility
should be entirely upon the Board.
I think that there should be another step taken in connection with
the Board. I think there should be in this bill a provision by which
the House of Representatives and/or the Senate of the United States,
by simple resolution, could call on the President of the United States
to nominate a successor to any or all the members of the Board that
that are not functioning to the satisfaction of the Congress of the
United States, whose special agents they are, and I think it is necessary to do that in order to have it understood that they are representing the will and the positive direction of the representatives of the
people of the United States, and that they are not there in the attitude
of using their own judgment contrary to the will of the Congress of the
United States, or indifferently to the will of the Congress of the
United States.
When the Goldsborough Act was passed in 1932, and the campaign
which followed resulted in the defeat of Mr. Hoover by 7,000,000 votes,
although he had previously been elected by a majority of 7,000,000,
those votes were of Republican and disinterested citizens who changed
from one party to the other because they relied upon the action taken




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

g$

by the House of Representatives, assuring them of the restoration of
the price level of 1921 and 1929 average, and the stabilization of the
value of money. On that platform Mr. Roosevelt was elected, and
it is written into that platform in terms that ought never to be forgotten, where it pledged sound currency at all hazards, and he interpreted sound currency correctly, and in that platform, the very first
paragraph, were written words which I shall never forget and with
which I was intimately familiar at the time they were written, that
the depression was due to "the indefensible expansion and contraction
of credit for private profit, at the expense of the public."
I think that the latter part could as well be omitted. It was the
indefensible expansion and contraction of credit that caused the
disaster, regardless of the alleged motive which might to some extent
have existed and to a very great extent might not, but the political
aspect of it was in the latter part of the sentence; but I remind the
committee that when the action was taken to contract currency and
credit in 1920 and 1921, the Democratic Party in 1924 wrote an elaborate plank connecting that action of indefensible contraction of
credit with the destruction visited upon the farmer and businessmen r
and urged the restoration of the Federal Reserve System for the purpose for which it was intended.
I think that that platform might well be written into this record as
a reminder, and I ask the permission of the chairman to insert that
platform of 1924.
The CHAIRMAN. It will be made a part of the record.
Mr. OWEN. It will act as a historical reminder on this question.
Is there any objection?
The CHAIRMAN. I say, it will be inserted.
(The excerpt from the 1924 platform referred to is as follows:)
REPUBLICAN CONTRACTION OF CKEDIT AND CURRENOY

We denounce the recent cruel and unjust contraction of legitimate and necessary credit and currency, which was directly due to the so-called deflation policy
of the Republican Party as declared in its national platform of June 1920 and
in the speech of acceptance of its candidate for the Presidency. Within 18
months after the election of 1920 this policy resulted in withdrawing bank loans
and discounts of over five billions of dollars and in contracting our currency by
over fifteen hundred millions of dollars. This contraction bankrupted hundreds
of thousands of farmers and stock growers in America and resulted in widespread
industrial depression and unemployment. We demand that the Federal Reserve
System be so administered as to give stability to industry, commerce, and finance,
as was intended by the Democratic Party, which gave the Federal Reserve
System to the Nation.

Mr. OWEN. In recommending that the Congress retain the right
to remove members of the Federal Reserve Board at will by a vote of
no confidence, I do so believing that our experience with the Federal
Reserve Board since the passage of the Federal Reserve Act makes
this safeguard necessary. And with great brevity, I recall a few of
the important facts which justify Congress in retaining the power to
remove.
In 1920 the Reserve Board deliberately caused the panic of 1921.
The Reserve Board in the most substantial manner contributed to the
panic of 1929-32. In 1932 the Reserve Board vigorously fought the
Goldsborough bill, which expressed the overwhelming will of the House
of Representatives. In 1933, Congress having given the administration the power to expand credit and currency $6,000,000,000, the




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Reserve Board used its influence with the administration to prevent
this necessary expansion. From March 15, 1933, to March 14, 1934,
the Reserve banks, under the supervisory control of the Federal
Reserve Board contracted credit and currency 2.7 billion dollars.
In January 1934 the Reserve Board advised $2,000,000,000 of gold
be withdrawn as a basis of credit expansion in the United States and
its sequestration as an international stabilization fund for the impossible purpose of stabilizing the pound sterling and the French franc.
The futility of this action has been demonstrated in the last 18 months
by the French franc falling in purchasing power approximately 50
percent. The Reserve Board was responsible for the advice which
sterilized a billion and one-half of gold in order to prevent it being
used as a basis of credit expansion. The Reserve Board, in its supervisory control of the Federal Reserve banks—having the power to
expand credit so greatly needed—has refused to expand the credits of
the Federal Reserve banks and has not used the powers given to the
Board by the Banking Act of 1935. The Reserve Board, having
power through its influence with the President to prevent private
persons being put on the open-market committee, did not use its
power to prevent that interference with public control. It is, I think,
quite well known that the present Governor of the Federal Reserve
Board does not believe in the quantitative theory—does not believe
that the Government can exercise the power to regulate the value of
money. He believes that the banks should have the power to expand
the money supply and of course to contract it. He does not believe
in the principles laid down by the Goldsborough bill of 1932, upon
which Mr. Roosevelt was elected.
The Reserve Board has offered no plan for correcting this depression and is letting nature take its course. No plan is being offered by
the Federal Reserve Board, or the Treasury Department, to end this
destructive depression. On the contrary the policies which have been
declared by the Federal Reserve Board have contributed in a grave
manner to producing the depression of 1937. Ever since the passage
of the Banking Act of 1935 the chairman of the Federal Reserve Board
has been warning the country against inflation, using the odious term
"inflation" to condemn any expansion at a time when nearly one-half
of our demand bank deposits were being hoarded. The Federal
Reserve authorities were not only responsible for the failure of the
President to expand the credit authorized by Congress in the Thomas
amendment of 1933, but persistently assured the President during
1934, 1935, and 1936 that the banks were full of money and theie was
no need for any expansion of the money supply of the country. The
Federal Reserve Board by opposing any expansion of credit encouraged
people who were hoarding demand bank deposits to hold their cash in
anticipation of its increased purchasing power.
Our check money supply in 1929 was 1,230 billions. It fell to 430
billions in 1933; slowly increased to 600 billions in 1936 and to about
630 billions in 1937. The last report of clearings in February 1938
was a fall of about 25 percent from a year ago.
The depression of 1937 was due, in my humble judgment, in large
part to the attitude of the Federal Reserve Board and the Secretary
of the Treasury in pursuing a contraction, policy. This was done by
demanding a cessation of public expenditures and the balancing of
the Budget by cutting down public expenditures for that purpose,
instead of pursuing a policy of expanding the money supply and




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

85

thereby raising the price level, and thereby raising employment and
wages. Mr. Morgenthau, in his Harvard conference speech, minimized the monetary factor; demanded contraction to balance the
Budget; stated the noblest objectives of the President; but stated
also that such objectives were very difficult of achievement, if not
impossible. The Board of Governors of the Federal Reserve System
followed up this policy of Mr. Morgenthau by declaring similar views
in its letter to Senator Smith of the Committee on Agriculture in the
Senate opposing the proposal of Senator Thomas to establish a monetary policy. The result of these policies by the Reserve Board was
to give the experts operating on the security exchanges good reason
to believe that there would be a recession of prices.
The administration was lead to declare that the prices were too high
because some of the monopoly prices had risen to excess. This was
a contraction policy. As a consequence sagacious men took the
lead on the stock exchanges and sold their stocks which they expected
to go down in price and bought dollars by selling stock believing that
the dollars would rise in purchasing power in terms of the same stocks.
They were quite right about it. And as the process of selling stocks
brought about a falling market, the fear of loss and the hope of gain
lead to a wholesale selling of stocks and to a wholesale accumulation
of cash credit in exchange for such stocks. The depression was caused
by the same forces that have always caused depressions.
It is painful and distasteful to call your attention to these historical
facts but it seems to be necessary in order to put an end to such untoward circumstances and to establish a system which Congress
advised in the Goldsborough bill of May 2, 1932, when, by a vote of
289 to 60, they demanded the restoration of the normal, predepression
price level and its maintenance. This can only be done by expanding
credit to a predepression normal and maintaining it. England has
verified the truth of the theory of the Goldsborough bill. The report
of Sir Reginald McKenna to the stockholders of the Midland bank,
to which I have called your attention, demonstrates the method and
the favorable results.
(The report of Sir Reginald McKenna is as follows:)
EXTRACTS FROM THE ADDRESS OF THE RIGHT HONRABLE REGINALD MCKENNA,
CHAIRMAN OF THE MIDLAND BANK, JANUARY 26, 1938, AS GIVEN IN THE
LONDON ECONOMIST, JANUARY 29, 1938

My Lords, ladies and gentlemen, the year 1937 opened with a good prospect
of sustained business improvement. The industrial outlook was so promising,
indeed, that fears were expressed of a coming boom. There were signs of growing speculations on the stock exchange and in raw materials; some commodities,
particularly metals, had made a disturbing jump. Speculation, however, was
speedily checked by a reduction in the quantity of money, and a decline in prices
followed. The decline went so far as to cause some anxiety, and, although the
quantity of money was later restored, the closing months of the year that had
opened buoyantly were marked by a more subdued outlook.
DEPRESSING AMERICAN INFLUENCES

Meanwhile depressing influences had been at work in the United States. In
April President Roosevelt declared that some prices, particularly of the nonferrous
metals, were too high. At the same time the gold scare, based largely on unjustified inferences from that statement, gave rise to fears of a restrictive monetary policy and precipitated a general decline in stock exchange quotations and
primary commodity prices. But what might have been no more than a temporary break developed in the United States into a real business recession. The
confidence of industrialists, already disturbed by the policy of the Government,




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

became seriously shaken, ancPcapital construction was arrested. Happily^ no
similar obstacle to business enterprise is present in Great Britain, and there is no
indication here that the drop in stock exchange quotations and commodity
prices will lead to a comparable decline in general trade.
It is natural that a set-back first in prices and then in trade should be taken to
confirm the fears of people who are dubious about both the theory and practice of
a managed currency. Management has meant cheap and abundant money, and
in their view long-continued cheap money must lead to over-expansion of industry and trade, which has its inevitable reaction in a slump. The alleged benefits of cheap money, they tell us, have been exaggerated, while the danger of inflation is always present. Now they see that a fall in prices and a drop in employment have taken place while money is still cheap, and they regard this as definite
condemnation of a managed currency.
*
*
*
*
*
*
*
* * * Much had to be learned and is being learned, but, however, difficult
it may be to put on one side the ideas to which long usage of the gold standard
has accustomed us, we find in practice that the system is working smoothly. In
the light of our present knowledge a managed currency can no longer be regarded
as a mere temporary makeshift while the gold standard is in abeyance.
*

*

*

*

*

*

*

* * * It will be remembered that the gold standard, having been suspended
on the outbreak of war, was brought into operation again in April 1925. It was
maintained for over 6 years until September 1931, when once again it was suspended. For the first time we then set about controlling our currency without
-any active effort to restore the gold standard. We started a true experiment in
management, and the experiment has now lasted for a period almost precisely
as long as the restored gold standard was in operation, that is for rather over 6
years from Septermber 1931 to the present time. In answering the question,
then, how have we fared, we can compare our economic condition during two •
equal periods, one on gold and the other under management.
*

*

*

*

*

*

*

* * * When the demands upon the Exchequer are as heavy as they are
today, both for national defence and social services, I cannot imagine any Chancelor of the Exchequer closing his eyes to the immense economy in the service of
the debt that has been made as a result of monetary policy.
The relative degree of cheapness and abundance of money in the two periods
is indicated by a comparison of the bank rate and the quantity of bank deposits.
From 1925 to 1931 the average bank rate was approxiamtely 4%6 percent. On
the bandonment of the gold standard the rate was raised to 6 percent as a precautionary measure which was soon found to be unnecessary. It was lowered
by stages until at the end of June 1932 it stood at 2 percent, where it has remained
ever since. There were no less than 16 changes of bank rate in the first period of
6 years, all of them consequent upon the obligation imposed on the Bank of
England to protect its meagre gold stock. The subsequent stability at 2 percent
has lasted over 5}i years. No previous period of stability of so long duration can
be found in the last hundred years, a fact which suggests that the frequent description of present money rates as abnormal is hardly justified. It is difficult to
draw a line between the normal and the abnormal, but a rate which is now in its
sixth year and shows no likelihood of variation in the early future might perhaps
put in a claim to being no more abnormal than any other. The effect of freedom
from the restrictions imposed by the gold standard is no less apparent in the
quantity of money than in the rate paid for its use. Bank deposits, which were
about £1,800,000,000 on the average for 1931, rose to nearly £2,300,000,000 in
1937.
TRADE AND EMPLOYMENT

The increase in purchasing powe,r shown by this growth of deposits has been
as beneficial to industry and trade as to the treasury. If we resume our comparison and consider our condition at the beginning and end of each of the 6-year
periods, the conclusion is inescapable that, whatever other forces may have been
in operation, a managed currency is at least consistent with flourishing trade.
Let us look first at weekly wage rates, taking rates in 1924 as the basic figure of
100. In 1925 the corresponding figure was 102; by 1931 it had fallen below 97;
but by last year it had risen again above 103. Taking the same year as the basis,
profits, according to Sir Josiah Stamp's calculation, stood at 104 in 1925, dropped
to 77 in 1931, but rose again to 120 in 1936, the last year for which this index is
available. The figures of industrial production repeat the same story in another




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

87

form—a decline over the first 6 years and a rise in the second by perhaps 50
percent. Thus, it is evident that, while business was on balance dropping away
in the earlier period, it was steadily improving in the later.
Wages and profits are a measure of the incomes of the mass of the population.
Production measures the degree in which our industrial capacity is being used; it
governs the total of employment and unemployment, the returns for which make
perhaps a more striking comparison than any others. Between 1925 and 1931
the total of our insured workers rose by 1,200,000, but the employed fell by 200,000,
and the unemployed rose in consequence by 1,400,000. This was how we stood
at the end of the first 6-year period. In the second the insured workers increased
by a further 800,000, but the number of those employed grew by as much as
2,100,000, thus reducing the unemployed by well over a million. What a contrast,
a decline in employment of 200,000 in the first period; an increase of 2,100,000 in
the second. No figures could be more convincing; no figures could exemplify
more clearly the change in our economic condition in the two periods. We have
still some way to go before we shall be utilizing our full productive capacity, but
the experience of the past 6 years indicates that in currency and credit policy we
have not been led astray in using the opportunities for intelligent management
which the departure from gold presented. I have not suggested, and I would not
for a moment do so, that the pronounced improvement in our position as between
the two periods is due solely to the change in the monetary system. But I do
suggest that there is nothing in our present condition to indicate that the change
has been other than for the better or that it is fraught with unknown perils in the
future.
Mr. OWEN. I enclose for your information a table from 1920 to
1937 giving the annual figures for the volume of check money employed, the price level, the index of physical products, the volume of
currency in circulation, the dollar index, and the amount of exports
which show how economic consequences follow the money supply. It
should be remembered that from 1926 to 1930 the expansion of credit
took place almost exclusively in the security exchanges and not in the
wholesale-commodity markets.
Expansion andcontraction of the money supply
Checks *

Year
1920
1921
1922
1923
1924
1925
1926
1927
1928 _
1929
1930 ._
1931
1932
1933
1934
1935
1936
1937

_
_
_..
.

. .

_

702
575
624
666
694
795
845
920
1.074
1,230
900
660
450
430
470
530
611
634

Physical
products

Currency 1

166.5
87
93.4
67
96.3
85
100. 3
101
94.9
95
103.0
104
100.4
91
94. 1
93
96.7
96
95.2
100
86.8
92
72.1
78
63.9
61
57
65.0
74. 6
63
79.8
91
80. 6
109
81.7 (Dec.) 79

5.2
4.6

Price
level

4.2
4.5
46
4.5
4.6
4.6

4.5
4.5
4 2
4.5
5.4
5.4

5.4
5.6
6.2
6.4

Dollar
index
60
107
103
99
105
97
100
106
105
105
115
138
156
153
134
125
124
122

Exportsl
8.2
4.5

3.8
4.2
4.6

4.9
4.8
4.9
5.2
5.2
3.8
2.4
1.6
1.7

2.1
2.3
2.4
3.2

i Amounts in billions and decimals thereof.

The importance of a legislative mandate is that monetary policy
should be a matter of statute law upon which businessmen may predicate their future contracts with dependable security on a dollar of
uniform, permanent, debt-paying, purchasing power. No monetary
policy declared by an executive officer, even of the President, himself,
has the permanence which is required as a basis of dependable security.
An Executive policy may be changed at any time, but a policy fixed
by statute law cannot be changed except by the Congress, itself.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

If the policy merely depended upon the Secretary of the Treasury,
or the Governor of the Federal Reserve Board, these officers may die,
may resign, may change their minds, and there is no dependable security in such a policy.
I deem it advisable to call your attention to the action of the
Secretary of the Treasury when over 800 millions of maturing obligations of the United States fell due September 15 1937. He refused to
take advantage of the maturity by liquidating the debt with bank credit
in the Reserve banks, which would have saved the taxpayers the
interest on such securities, would have helped relieve the Budget and
would have expanded demand bank deposits by 800 millions and
offset to that extent 800 millions of demand bank deposits hoarded
by the operations on the stock exchanges. And again in March 1938,
he is repeating this process of negation and refusal to expand. The
Reserve banks are following this same policy of refusing to expand
and are selling Government bonds of a higher rate of interest to the
banks and taking up the short-term notes that bear a low rate, thus
transferring to the banks the earnings on these bonds. This is against
the interest of Budget balancing and is giving favors to private interests at the expense of the public interest.
In my humble judgment the sale of baby bonds by the Treasury is
a means by which the small depositor having demand deposits can
be induced to part with their demand bank deposits and thereby
diminishing the purchasing power of small depositors. It will be
remembered that the chairman of the Board of Governors held that
the payment of the soldiers bonus was a dangerous "inflationary"
movement, although I understand he now advocates expending a
billon dollars in cash as a means of stopping the downward course of
depression. This attitude seems to me all the more remarkable since
the soldiers bonus was paid almost exclusively in bonds and not in
cash. If these bonds issued in payment of the soldiers bonus, or other
hords for that matter, were now bought for cash credit by the Reserve
banks, it would convert such bonds into liquid money which the
country so greatly needs.
It should be remembered that the normal increase of the business of
the United States, before interrupted by depression, is 4 percent per
annum. Therefore, from 1926 to date, there should have been a
normal expansion of credit for use in the wholesale commodity markets
and for the general transaction of legitimate business, of approximately
50 percent. Instead of which, under the management of the Reserve
banks and the Federal Reserve Board and the Secretary of the Treasury, we had a contraction of our check money by two-thirds from
1929 to 1933, with universal ruin as a consequence. A year ago before
this committee I gave tables showing the maldistribution of demand
bank deposits subject to check by consumers. Those interested in
this matter should see these tables in the hearings on the Goldsborough
bill of a year ago.
I thank you, Mr. Chairman and gentlemen of the committee, for
your courtesy in inviting my views with regard to this matter. I shall
now be glad to answer any questions which you may desire to ask.
Mr. LUCE. I have a question, Mr. Chairman.
The CHAIRMAN. We have been so deeply interested in your statement that we have departed from the ordinary practice of the committee, which is to adjourn soon after the meeting of the House. It
so happens today that the House has a matter before it in which




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

89

every member of the committee is interested. Notwithstanding that,
we have gone 35 minutes beyond the usual time because of our pleasure
in listening to your address. But we must adjourn now. The
committee will be glad to have you come back at your convenience,
if the members desire to interrogate you.
(Thereupon, after an informal discussion, off the record, it was
agreed that the witness would present himself for questioning on
Monday, March 14, and the committee then adjourned until Monday
morning, March 7, 1938, to then take up another matter at 10:30
o'clock.)




GOVEBNMENT OWNERSHIP OF THE TWELVE FEDERAL
RESERVE BAMS
MONDAY, MARCH 14, 1938
HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. G.
The committee met at 10:50 a. m. to resume hearings on H. R. 7320,
Hon. Alan T. Goldsborough presiding.
Other members of the committee present: Mr. Reilly, Mr. Williams,
Mr. Spence, Mr. Ford, Mr. Brown, Mr. Patman, Mr. McKeough,
Mr. Transue, Mr. Gifford, Mr. Luce, Mr. Crawford, and Mr. Gamble.
Mr. GOLDSBOROUGH. The committee will come to order.
Senator Owen, when you concluded week before last, Mr. Luce had
just expressed a desire to ask several questions, and I have been
waiting, hoping that he would come in, and I have asked the clerk to
call him. If he does not come right away, we will proceed with some
other member who may desire to interrogate you.
STATEMENT OF HON. ROBERT I. OWEN, A FORMER UNITED
STATES SENATOR FROM OKLAHOMA—Resumed
Mr. OWEN. All right, Mr. Chairman; I am ready whenever the
committee wishes to proceed.
Mr. PATMAN. May I ask a question?
Mr. GOLDSBOROUGH.

Yes.

Mr. PATMAN. Senator Owen, many people claim that the way to
balance the Budget is by reducing expenditures. Other people claim
that we should put money into circulation, and that the increased
velocity of money will cause an increased amount of taxes to be collected, and in that way the Budget will be balanced easily.
Would you please give this committee the benefit of your views on
that question?
Mr. OWEN. The Budget can be balanced, of course, by cutting
down the expenses of Government and dismissing a sufficient number
of employees, by cutting the expenses of Government to within the
amount of money that is being received, but in doing that it would
feed on itself and there would be a falling off in revenues as a consequence.
The other way to balance the Budget is to expand the money supply
and thereby expand employment and wages, and raise the national
production to a maximum of employment, and in that way create
incomes for corporations and income for individuals, and from those
incomes collect the revenue necessary to support the Government and
to meet the Budget—in other words, to balance the Budget by creating
additional income.




91

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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

I might use a simile. A man who found himself in distress, through
having expenditures to feed and clothe his family greater than his
income at the time, ought not to starve his children, and deny them
clothing, but he should use his credit until he increases his income,
and he should diligently increase his income by every means in his
power.
The Government of the United States can double its income by
furnishing the people of the United States with an adequate supply of
money with which to exchange their products and services with each
other, and a demonstration of that has been repeatedly made before
this committee. It was made before the committee 4 years ago; it
was made in 1932; it was made a year ago, both by the tables which I
inserted in the record at that time and by those which were inserted by
Carl Strover, of Chicago a year ago before this committee, in which
it was pointed out that the rising price level is due to the expansion
of available money, and that the raising of the price level is invariably
followed by a rise in factory employment and factory wages.
Of course, after you reach a point where those who are capable of
being employed, and those who are willing to work, are all engaged,
you can serve no further purpose by expanding the money supply,
because when you reach that point you have a sufficient amount to
exchange products and services, but when you go beyond that amount
you are engaged in inflation and, when you engage in inflation by
producing too great an amount of money, you have the effect of
increasing the value of property beyond a normal reasonable level and
decreasing the purchasing power of money, to the disadvantage and
injury of the creditor and of those who happen to have insurance
policies or bank deposits in the form of savings accounts, and so forth.
So that there comes a point where you have a sufficient amount of
money, and if you go beyond that, you then go into inflation, which
nobody with an understanding of monetary science would agree to
at all. Nobody wants inflation who understands what it is.
But this country has been deluged with the use of the word "inflation" in lieu of legitimate expansion, thereby stigmatizing legitimate
and needed expansion and making it bear the odium of the term
"inflation," which, by its proper meaning, is unjustified expansion, is
indefensible expansion, is an expansion of currency harmful and
injurious and unjust to the creditor and to the property owners.
Mr. PATMAN. YOU used one phrase there that I have noticed is
being used generally over the country, but I doubt if all of us are in
accord with what it means, the phrase "the money supply." Some
people contend that you must actually issue the physical, tangible
money and place it into the hands of the people. Others contend
that the money supply consists of checks as well as money, and that the
money supply can be increased through bank credit without the issuance of any more physical, tangible money.
What is your meaning of the phrase "the money supply"?
Mr. OWEN. The money supply of the country is the money which is
employed by the people of the United States in exchanging their
products and services with each other, and in transferring dollar
values from one to another, and that consists of about six and a fraction billion dollars of currency now, and it consists of checks which are
drawn against demand bank deposits in circulation, which amounted
last year to 630 billion dollars.




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93

Mr. PATMAN. The velocity of money has much to do with the
money supply, does it not?
Mr. OWEN. The word "velocity" has been used to mislead the
public. The word "velocity," when applied to the turnover of a
demand bank deposit, varies according to the individual deposit.
The demand bank deposit may have zero velocity, and we have billions of demand bank deposits now having zero velocity, and because
it has zero velocity it does not function as money at all except in the
sense of the storage of money and in the sense of a warehouse receipt
for money, money being held subject to call by the depositor; but the
deposit which is circulating 50 times per annum is the deposit which
is serving the money supply of the country.
In other words, the serious problem is to stir up these dormant
demand deposits and get them into the channels of trade, production
and commerce. That is one way to do it.
But there is another way to do it. Suppose that these demand
bank deposits are being held by great corporations for the purposes
of reserves, to protect themselves against a shrinkage of their business,
like the United States Steel, which dropped from a production of 90percent capacity down to under 30-percent capacity during the year
1937. In that case they begin to suffer a loss, and if they have no
reserves with which to meet that loss, they will be compelled to use
their credit and to obtain the money by whatever means they can,
but it is a dangerous situation for a corporation to face a great deficit
and a great depression without any supply of cash with which to meet
the contingency.
• Now, I do not think it is advisable to treat people as culprits who
built up reserves, or to penalize them with taxes, because while it is
desirable that they should not hold demand bank deposits unemployed,
for they thereby contract the money supply—it is not desirable for
them to do that from a public standpoint, when the country is
powerless to replace that money so contracted. But you are not
without remedy. All that you have to do is to buy United States
bonds, or bankable assets by the Federal Reserve banks, and you can
convert those nonliquid assets into immediate money, to replace the
money hoarded by the corporations for reserves.
Mr. PATMAN. One more question, and I will yield to my good friend
from Massachuesetts, Mr. Luce.
In other words, the Open Market Committee, composed at this
time, since the new appointment was made to the Federal Reserve
Board the other day, of Mr. Draper, of six from the Federal Reserve
Board and five private bankers, has the power to remedy this situation, but, as I said, on that committee there are five bankers and for
that reason do you believe that it would be better to have just
Government officials on the Open Market Committee?
Mr. OWEN. I do not think that any private person has any right
to exercise the governing power of the people of the United States,
especially in so important a matter as controlling the volume of money
and thereby regulating the value of money.
Mr. PATMAN. And do you feel the same way about the Advisory
Committee? Do you feel that its make-up is likewise objectionable?
Mr. OWEN. I feel that the Advisory Committee should be terminated, and I think the Open Market Committee should be terminated,
and give the power completely to the Federal Reserve Board.
69972—38

7




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. GIFFORD. I want to ask a question.
Mr. PATMAN. I yield to Mr. Luce.
Mr. GIFFORD. It is just one question; that is all.
Senator Owen, if we abolished the five members representing the
banking fraternity, and added to the Board men like Governor Eccles,
men having his viewpoint, would that be satisfactory to you?
Mr. OWEN. With the same viewpoint, it would be most unsatisfactory to me.
Mr. GIFFORD. Exactly. They might be of the same viewpoint.
Mr. OWEN. Yes; and they might not be, but the bankers are certain
to be of the wrong viewpoint, and we can control our own officers,
but we cannot control those whom we do not appoint and who do not
take an oath of obligation to the people of the United States.
Mr. GIFFORD. However, the point that I want to stress is that
Governor Eccles is the chairman of the Board of Governors of the
Federal Reserve Board, and an appointee of the President, and the
President could appoint all of the same viewpoint should he see fit
to do so.
Mr. OWEN. I do not think that the President of the United States
knew what Mr. Eccles' viewpoint was sufficiently at the time he
appointed him, because if he had known that Mr. Eccles was altogether acceptable to Mr. Ogden Mills, he might as well have kept
Mr. Ogden Mills in as Secretary of the Treasury. I call attention to
Mr. Ogden Mills' recent book, The Seventeen Million, on page 91,
where he gives a strong endorsement of Mr. Eccles.
Hon. Ogden Mills in his book, The Seventeen Million, published
July 1937 by Macmillan, advised the country among other things
that—
While cyclical business movements cannot be eliminated In a dynamic society,
we possess the technique to mitigate their swings (p. 96).

Members of the Banking and Currency Committee will doubtless
remember that when Mr. Mills was Secretary of the Treasury he appeared before the Banking and Currency Committee of the House
maintaining this thesis that you could not control cyclical booms
and depressions. He stated off the record at that time that if he
could tell how to do that he would be the smartest man in the world.
Since then men who have made no claim to being above the ordinary
in intellectual capacity have stabilized the value of money in Sweden
and in Great Britain, giving a stable money to hundreds of millions
of people throughout the world and bringing great prosperity as an
immediate effect. Great Britain, since the Goldsborough bill was defeated in 1932, has established stable money and has increased its
physical production 50 percent.
In Mr. Mills' book (p. 91), he says:
In an able and penetrating article published in the April number of the
magazine, Fortune, Mr. Eccles, Chairman of the Federal Reserve Board of
Governors, has outlined measures that can be taken to mitigate the security of
the business cycle.
I am so completely in accord with nearly all of his suggestions, and they are
so consistent with the principles that govern a free economy, that I cannot do
better than to recite them.

The interesting matter is that the Honorable Ogden Mills, who
bitterly fought the Goldsborough bill in 1932, which proposed the
establishment of stable money at a normal predepression level, is in
almost perfect accord with the chief monetary adviser of the present




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

95

administration. Mr. Mills in 1937 apparently had no idea that the
United States was on the immediate brink of a violent depression..
He said on page 94 of his book :
We are faced with an inflationary boom as to the seriousness of which Mr.
Eccles at least has no doubts. It could be arrested were there the will to do so.
But the will seems to be clearly lacking. Were it not, the first step, balancing
the Federal Budget, would be taken.

The inflationary period so clearly seen by Mr. Mills, Mr. EcclesT
and Mr. Morgenthau was met in many ways by the chairman of the
Board, Mr. Eccles, and the Secretary of the Treasury. Mr. Morgenthau—some of which I referred to in my testimony on March 4, 1938,
before this committee—with the unavoidable consequences that resulted in a major depression for the reasons pointed out in my testimony. The President of the United States was fully justified in his
release of February 18 last in putting the responsibility of that
statement upon the Chairman of the Board of Governors of the Federal Reserve System, the Secretary of the Treasury, the Secretary of
Agriculture, the Secretary of Labor, and their experts.
The release framed by these responsible authorities, as the economic
and monetary advisers of the President, began the statement with
proclaiming the noble objectives of the President, with which all.
citizens could agree. But they offered no intelligible plan for achieving these objectives. They charge, in effect, that they have been
obstructed in achieving.these objectives by "the behavior of prices."
As if the behavior of prices were primary causes instead of being"
effects of credit contraction as to the general price level. Even the
monopoly prices, such as copper, which went to 17 cents a pound and
quickly fell to 9 cents a pound, fell as a result of the contraction of
the money supply of the country. The most impressive feature of
this release, prepared by Mr. Eccles and others, is the entire omissionr
or reference to, the contraction of credit by the banks and by depositors hoarding demand bank deposits, and the absence of a plan to
correct the contraction of credit by the expansion of credit.
Mr. G1F.70RD. That is all that I care to ask.
Mr. LUCE. Senator, when you were before us, you reviewed the
history of the Federal Reserve Board, and brought out that in the
original act you advocated giving instructions to the Board to bring
about what may be called managed currency.
Mr. OWEN. It was a provision in a bill which was submitted on
June 26, 1913, to the Senate by myself, at that time chairman of the
committee, and it was also submitted to the House of Representatives
by Mr. Glass, who was chairman of the House committee at that time,
and in that bill there was a provision that the powers of the System
should be employed to promote a stable price level.
Mr. LUCE. Yes.
Mr. OWEN. It was

the same thing as promoting a stable dollar,
since a stable price level really means only the purchasing power of
the dollar itself.
Mr. LUCE. I came on the committee in 1919, and in the following
year there occurred a depression, and you will recall that there was a
joint agricultural inquiry which in due course investigated the matter
of what action had been taken in regard to the agricultural interests
of the country. Agriculture had been inflated in the war, and the
farmers had profited more by the war itself than any other one class,




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

except perhaps the railroad employees, and there were two schools of
thought. One wanted the balloon exploded at once, and the other
wanted it deflated slowly, and the committee divided in its judgment
on that question, Mr. Ogden Mills thinking that the Board had been
too slow in acting, and the other members headed by Congressman
Anderson thinking that the Board had been too quick in action. This
was followed not long afterwards by the beginning of a discussion in
this committee which ran through 10 years. We spent many, many
hours and days in debating the question as to whether the Board
ought to be explicitly ordered to manage the currency.
Through that time, the Board consistently and continuously held
that it had the power and did exercise that power according to its
best judgment, which may or which may not have been good judgment.
Finally Mr. James Strong, who has recently passed away, had
persuaded Governor Ben Strong of the New York bank to come out
squarely for the view that explicit instructions ought to be given to
the Board, but the Board said in effect again and again and again,
"We have that power; we are exercising that powder, but, for heaven's
sake, do not order us to do it."
That has alwa}^s seemed to me a rather finical difference of
.opinion
Mr. OWEN. Rather what?
Mr. LUCE. Rather petty—that is not quite the right word—an
insignificant difference of opinion. Yet, when finally we brought in the
so-called Goldsborough bill, those gentlemen who did not w^ant explicit power were exceedingly strenuous in their criticisms of those of
us who at last decided that they ought to be told to do these things.
The Board's reason apparently was that they were afraid that if
they failed in exercising those powers to the general satisfaction of the
public, public opinion might be strong enough to secure the abolition
of the Board.
The pending bill seems to contemplate, or seems to be based on
the theory, that the Board has not functioned properly. Always,
when there are mooted questions, the people who disagree with the
action of an administrative agency want to change it, want to change
the Board, and this is by no means the first of the proposals that have
been laid before us to change the Board.
Now, as Mr. Gifford pointed out, the Board is appointed by the
President, and I rather think that it has been almost completely
changed in its personnel by the present administration, but whether
under Republican or Democratic administration, the Board is the
subject of constant attack.
Pardon this long introduction, but it brings up questions that are
uppermost in nry mind, and one is, what assurance have we that if
the Board were completely changed, reconstructed, it would reach
any different conclusion from what previous Boards have reached?
Mr. OWEN. IS that your question?
Mr. LUCE. That is the question.
Mr. OWEN. I am asked the question, if I understand it correctly,
what assurance would Congress have in the future that a Board
would change its policies. My answer is, you have no assurance.
The best answer to that is that the House of Representatives, on
May 2, 1932, after all of these hearings to which you have referred,
and after these hearings were based on the Federal Reserve Act




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Q7

itself, in 1913—after all the hearings which took place in this committee in 1922, 1924, 1926, and 1932, and after 2 days7 debate in the
House of Representatives, the House of Representatives, by a vote of
289 to 60, declared that it was the policy of the United States to restore
the value of the dollar, as ascertained by the Department of Labor
for the years 1921 to 1929, inclusive, and directed the Federal Reserve
Board, the Federal Reserve banks, and the Secretary of the Treasury
to make effective that policy.
Since that time, although that was the expression of the Congress
of the United States, 289 to 60 voting for it, and, of that 289 there
were 117 Republicans, and of the 60 who voted against it, the American people retired 48 of them and only left 12, but notwithstanding
that colossal expression of public opinion by the highest legislative
authority in this land, the Federal Reserve Board refused consistently
and persistently to carry out the will of the House of Representatives.
Therefore, the answer to the question of the distinguished Member
from Massachusetts, what assurance we have with regard to the
future conduct of this Board under existing law, is that we have no
assurance whatever, or, rather, I should say that we have the assurance
that they would continue to disregard the opinion of the representatives of the American people in Congress assembled.
It therefore follows that unless you put in this bill an imperative
mandate, they will not obey it.
Mr. LUCE. NOW, of late we have been given to understand that
this country would be better governed were the administration of the
affairs of Government controlled by the President. The Senate at
the moment is discussing at great length that problem. The opinion
seems to be that it is wise to have the President control the policies
of the administrative officials. Assuming that to be the case, what
can the House and the Senate do about it?
Mr. OWEN. I do not make any assumptions in that case, but I will
say this: That the Constitution of the United States clearly points out
to this committee, and to the House of Representatives, and to the
Congress of the United States, and to the President of the United
States, that it is the exclusive right of the Congress of the United
States to create money, according to the interpretation in the legal
tender cases by the Supreme Court of the United States, and it is the
duty of the Congress of the United States not only to create the money,
but to regulate its value, because that is the express mandate of the
Constitution of the United States. If this committee does not obey
the mandate of the Constitution, I do not think we can expect the
Federal Reserve Board to obey the mandate of this committee.
Mr. LUCE. This committee, of course, has nothing directly to do
with the administration of the currency laws. That was turned over
to the administrative agency. For some years the Federal Reserve
Board has been not only appointed by the President, but the Secretary of the Treasury has cooperated with the President in advising
with the Federal Reserve Board.
What justification would we have for Congress questioning the
President of the United States and his conduct in that connection?
Mr. OWEN. We have this justification, that on the 18th of February
the President gave out a release to the country which had been prepared by the Secretary of the Treasury, the chairman of the Board of
Governors of the Federal Reserve Board, and by the Secretary of




<)g

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Agriculture and the Secretary of Labor, and that declaration started
out by declaring the objectives of this administration, which were all
that anyone could desire, I take it. They were excellent. They were
not called objectives, but called policies in the release, but obviously
they were not policies, but objectives.
When it came to the body of the release, the first thing that was
brought to the attention of the public was that the administration had
been obstructed in achieving these policies by—and this is a quotation—"the behavior of prices/' and the release followed, giving no
definite plan for achieving these objectives, and, strangely enough,
coming from the chairman of the Board of Governors of the Federal
Heserve System, and from the Secretary of the Treasury, it made no
mention of what had taken place during 1937, when we had a collapse in the value of stocks, amounting to $25,000,000,000 or more,
when we had United States Steel in its operations fall from 90 percent
of capacity to under 30 percent of capacity, when we had the index
of industrial production fall from 122 in March, April, and May 1937 to
79 at present, a fall of 43 points in industrial production, and no explanation was made of that astounding occurrence, and no remedy
was proposed, and there was no recognition in that release that that
depression had been caused by a contraction of money by the banks,
and had been caused further by the hoarding of demand bank deposits
to the extent of billions.
Therefore, when the President puts this responsibility upon his
advisers, as he did, and since no man is omniscient, and since any
President is almost compelled to rely upon his technical advisers, it
comes down to an objective lesson of which Congress should take note,
that these advisers of the President have not themselves understood
what caused the depression of 1937, nor what the remedy was, and
yet I call attention to the act of this Congress of May 2, 1932, in the
Goldsborough bill, and I again call attention to the fact that the campaign which immediately followed was based upon the restoration of
the predepression price levels, and I might call attention to the morning Post, on page 6, where a quotation is made from the President of
the United States himself. I do not have it in my memory with accuracy but I will put it in the record. There is a clipping here that
I have that might be read for the reporter.
(The following was thereupon read from the article from the
Washington Post:)
The President's recent dissertation on the need of a balanced price structure is
in line with earlier statements. On April 19, 1933, he said "It has got to be a
definitely controlled inflation. * * * It has got to be a controlled price
level, but keep it from going too high."

Mr. OWEN. That is sufficient.
The country understood that we were going to restore predepression
conditions, and the great popularity of the administration turned
largely upon that point.
Mr. PATMAN. Explain the significance of that statement. I do
not believe that you have explained that this statement was made by
the President in 1933, but not released until today.
Mr. OWEN. NO; the quoted statement was not given out to the
press at that time; it was just in a press conference, but it is now
detailed
Mr. PATMAN. For the first time.
Mr. OWEN. For the first time, as far as I am informed.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

99

Mr. MCKEOUGH. Being brought about by reason of the fact
Mr. OWEN. There is no secret about it; everybody knows that that
was in the platform of the Democratic Party, the very first part of
the platform, which stated that the depression was due, among other
things, to the indefensible expansion and contraction of credit. It is
the same cause that has caused all panics. The 1907 panic -was
caused by that. It caused the panic of 1921, caused the panics of
1929 and 1933, caused the panic of 1937—nothing new about it.
Every student of monetary science knows it perfectly well.
Mr. MCKEOUGH. May I ask a question right there? Isn't it a
possibility that without any action on the part of the Federal Reserve
Board of Governors, the large banking interests of the country would
go ahead and buy Government obligations, even though the Federal
Reserve Board of Governors and the Open Market Committee's
operations might attempt to sell them in order to create an additional
money supply?
In other words, the purpose of my question is this, to have your
opinion as to the possibility of the large banking interests of the
country thwarting the will of the Board of Governors in its open
market operations. Is that a possibility?
Mr. OWEN. The explanation which I gave on March 4 before this
committee I believe to be the true explanation, and that is that when
it was understood by the country that the expenditures of Government
for relief, and so forth, were going to be cut down severely, that we
were going to cut down expenditures with a view to balancing the
Budget, and when there was evidence that the Treasury Department
did not intend to expand, and refused to expand, as they did on September 15, when $817,000,000 of Government securities matured, and
instead of their being paid with credit, they were renewed—the evidence of that kind which I enumerated in my testimony on March 4
caused men who are sagacious to advise their clients to sell stocks and
to accumulate money for the simple reason that their stocks under
those conditions would go down in market price and the money would
go up in purchasing power, so that money which was received from
the sale of United States Steel at 126 could, at the bottom of the
depression, buy two and a half times as much as was sold in January
and March 1937.
That is the point. It is very simple. It is not involved at all.
Anybody can understand that if the money supply of the country
consists of demand bank deposits in circulation, and those demand
bank deposits are taken out of circulation, you have not the money
with which to transact the normal business of the country.
I want to call the attention of the committee to the amount of
money which is needed to transact the normal business of this country.
Mr. MCKEOUGH. Senator, right there, isn't there evidence
Mr. LUCE. Mr. Chairman
Mr. MCKEOUGH. That these sagacious gentlemen might be able to
thwart the will of the Federal Reserve Board, even though it were
carrying out the will of Congress?
Mr. OWEN. I do not know to what extent their persuasive power
might influence the opinion of the Board.
Mr. MCKEOUGH. NO; I mean in open conflict with their desires.
Mr. OWEN. NO; not if the Federal Reserve Board chose to exercise
its power
Mr. LUCE. Mr. Chairman




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. OWEN (continuing). And would buy the bonds and bankable
assets. Then they could replace the money which had thus been
withdrawn for hoarding by those who sold those stocks.
Mr. GOLDSBOROUGH. Mr. Luce, you may resume.
Mr. LUCE. Seitator, we had brought our discussion, before this diversion, to the point of understanding, I think, that this bill, like its predecessors, results primarily from dissatisfaction with the judgment exercised by the Federal Reserve Board.
Mr. OWEN. That would be an excellent reason.
Mr. LUCE. NOW, we learned in the course of these previous hearings
through the years that the Board had two powers, the power of the
rediscount rate and of the open market operations. There has since
been added, and I am not quite clear whether there is a distinct lire
between it and the two of which I have spoken, but there has since
come to the surface the control of our reserves. That makes three
powers that the Board has, which may or may not have been wisely
used.
Do you think that additional power should be given the Board
beyond those three?
Mr. OWEN. The power to expand credit and to contract credit
through the buying and selling of bonds and securities is the broadest
possible power and would be in my opinion sufficient. In my opinion
the question of the rate oi interest should be modeled upon that of
Great Britain which now gives to the borrower a 2-percent rate per
annum. Credit should be furnished for productive purposes in this
country at as low a rate as any competing country furnishes to the
producers of that country. It is true that the market rate for money
now is very, very low, which only means that there is a congestion of
credit not employed in industry, but in hoarding, that is available to
transfer credit to the Government at an exceedingly low rate; but I
do not approve of the Government selling bonds to the banks at all as
a means of obtaining money, for the reason that the Constitution vests
the exclusive power in the Congress to create money required for legitimate purposes in the United States. Abraham Lincoln was opposed
to paying the banks an interest annually for the privilege of creating
money. I put that statement from Abraham Lincoln in the book
Stabilized Dollars, of which I sent a copy to every member who was on
the committee on January 7, 1937.
Mr. LUCE. Those are
Mr. OWEN. Answering your question—I have not forgotten it; it
involved three points, the purchase and sale of securities, the interest
rates, and the reserve requirements.
The reserve requirements in my opinion should be expanded to 100
percent—not as at present, to 26 percent in the central cities on demand bank deposits, but to 100 percent, for the reason that when you
put the reserves at 1C0 percent, you take away from the banks the
opportunity to expand credit unduly and to contract it unduly.
By that process that I am suggesting, you would remove the fear
of the banks against a run by the demand bank depositors, because
you would have on hand 100 percent of the demand bank deposits
available for liquidation if all of the demand bank depositors wanted
their money, but they won't want their money when they know that
they can get it. That is a peculiarity about human nature.
# But there is another way to do it, to which I wish to call the attention of the committee, that would not interfere with the banks ex-




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

paneling their loans, under the controlled plan that I am going to
suggest, after they had 100 percent reserves. The bank could still
make those loans, and although it would appear to create the money,
it would not be creating money under the plan that I am going to
suggest, and that is that the Federal Eeserve banks shall expand the
credit to the extent of 100-percent reserves, requiring the member
banks to segregate and hold, earmark, the securities necessary to
make the reserves of the bank entirely safe in the extension of such
credit.
In other words, the member bank under the system I suggest would
be in a position to say to its depositors, "We have 100-percent reserves
in the Federal Reserve banks against the deposits which are in our
bank."
In that contingency we would have a new system of government in
the United States, in which fear of the depositor would be absolutely
abolished, in which the power of the banks to expand and contract
through optimism and pessimism would no longer be a menace to the
country, because it would be under the control of the Federal Reserve
banks and the Federal Reserve Board who could, by regulation, prevent the banks from going to excesses either one way or the other.
They would have no fear, and they would still be able to make more
money than they made heretofore, because there are at present
approximately 50 millions of individual accounts of depositors in
the United States, and a dollar-a~month average for taking care of
those accounts and keeping the books would produce $600,000,000
of revenue, and a reasonable charge on the larger checks, those of
larger volume, of a dollar a thousand, would create a similar amount,
and they still would have the opportunity of lending money which
they hold for savings accounts and for time deposits, and for demand
bank deposits that are inactive and not in circulation but they would
have to be classified as time deposits in order to segregate them.
The banks ought to be allowed to make a reasonable return on their
investments. I do not believe that anybody would begrudge them a
generous return on their investments and services. They have about
7 billions in capital, surplus, and undistributed profits, so that under
the management of a Federal Reserve Board having power, the banks
would be perfectly safe.
But what is far more important than the safety of the banks is the
continuance of the maximum productive power of the people of this
country, and I call your attention again to the fact that in the very
first year of the depression of 1921, there was a loss of products and
services of $15,000,000,000, and in this last panic of 1929 and 1936,
taking it as a total, it made over $164,000,000,000 of products and
services which this country could have enjoyed if we had an intelligent
banking system.
Mr. LUCE. YOU have introduced a subject that is of great importance and interest, and that the committee may have occasion to
consider later, but for the moment I am anxious to know, or to have
your judgment, as to whether the Federal Reserve Board now has
the power to require the adoption of 100-percent reserves.
Mr. OWEN. It has

not.

Mr. LUCE. And that not being in this bill
Mr. OWEN. I do not know what this bill is to which the honorable
Member refers.




102

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. LUCE. I am referring to the one for the reorganization of the
Federal Reserve System and the taking over of the Federal Reserve
banks by the Government.
Mr. OWEN. There are several bills here.
Mr. GOLDSBOROUGH. It is H. R. 7230, introduced by Mr. Patman,
which is the bill which is now before the committee, Senator.
Mr. OWEN. Oh. I was present when Mr. Patman made his statement, and my recollection is that he not only proposed taking over
the banks, but that he emphazised the need of a mandate.
Mr. GOLDSBOROUGH. There is no mandate in the bill, Senator.
Mr. OWEN. I should say that there should be.
Mr. PATMAN. There is in the first section, but it is not sufficient.
I offered an amendment in the first statement that I made, to go in
the bill as a specific mandate.
Mr. LUCE. Was that a mandate for the 100 percent reserve?
Mr. PATMAN. NO, sir; for the 1926 prices.
Mr. LUCE. Well, then we are quite agreed that this bill does not
touch that very important question.
Now, in the matter of the 1926 price level, it was explicitly used in
the Goldsborough bill 6 years ago
Mr. OWEN. It was substantially used. It used the average of from
1921 to 1929.
Mr. GOLDSBOROUGH. The reason that that was done was because in
1926 cotton was very low, and some members of this committee were
apprehensive that their constituents might think that they wanted to
reduce the price of cotton.
Mr. OWEN. Yes; I remember.
Mr. GOLDSBOROUGH. That is what happened.
Mr. LUCE. The President, in a press conference a few weeks ago,
I think, pointed out that contracts—I cannot give his exact words,
but the substance of it was that contracts affected the issue, in view of
the fact that injustice might be done by taking a date too remote or
perhaps one too near. That raised the question of the average life of
contracts. Professor Irving Fisher, in one of his writings some years
ago, said that he had found that the average life of a contract was 11
months, taking into consideration all of the outstanding obligations of
the country. I asked the professor in a conversation later whether he
was of the opinion that that was the correct figure, and he said no, that
he had changed his mind as to the length of the contract, but he did
not give me the figure which he then had in mind.
Mr. GOLDSBOROUGH. May I make an observation at that point?
Mr. LUCE. Yes.
Mr. GOLDSBOROUGH.

Professor Fisher also on one occasion was
asked to estimate the actual value of a child when born, and he made
it $79.38, and some man who had a great many children said that if he
had known that a young one was only worth that, he would not have
spent the time he did walking the floor.
What I mean by that is that the accuracy of these estimates is
open to very great dispute.
Mr. LUCE. But certainly it cannot be the fact that the average
life of contracts today is 12 years.
Mr. OWEN. Mr. Luce, I would remark in that connection that the
volume of indebtedness of this country, which is estimated at
$250,000,000,000, has not changed very much from 1926; that the
indebtedness of the United States, which was incurred during the




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

1Q3

World War, was incurred on the basis that was down as low as 60
percent in the matter of the purchasing power of the dollar, and all
the way from an index of 60 to an index of 70, 80, or 90 when the
World War came on.
Now, you have got to have some standard, and for that reason
1926 was adopted by the Congress of the United States in 1932, as it
appeared in the evidence at that time that it was approximately the
average of 19^1 to 1929, inclusive, and it also appeared that it is the
same as the average if you take the years 1914 to 1930, inclusive, and
it is quite a good deal lower than the average of 60 of the dollar of
May 1920, and the dollar in February 1933, when it was 167. In that
case it would make an amount of something over 113 as the normal,
but 100 has generally been agreed upon by those who have studied the
matter as a fair normal level, and for that reason it has been advocated
by those who wanted to have some settled point to which they could
move.
Mr. LUCE. That I understand and appreciate. I was simply inquiring whether you thought the President was justified in abandoning
the use of 1926.
Mr. OWEN. I do not think he has abandoned it. I think the President has naturally relied upon Mr. Eccles, and Mr. Morgenthau, and
their experts, and upon the Agricultural Department, I suppose—
they have experts, too.
But you are face to face here with realities. Here we are at the
bottom of a most serious depression. Here we are facing a case where
the employment of the people has been rapidly diminishing. We
are faced with an index of industrial production that has fallen 43
points in less than 1 year, and unless the Congress does something to
correct it, we may have a cataclysm in this country that will not stop
at mere financial distress, but in political turbulence.
I am very desirous myself of protecting the American capitalist
system. The capitalist s}7stem of America, while it has some weak
spots, has many points of great advantage—tremendously forceful
organizations, great bureaus of research, wonderful productive power—
and merely because we have some weak spots in our system, it would
be very unwise, in my opinion, not to recognize the merits of our
system. I think that we have a perfectly wonderful country, and if
you compare the amount of consumption of products of this country
with other countries, you will find that this country far surpasses any
other country in the world, barring none, and for that reason I think
we ought to cherish the institutions that we have, and protect them—
protect all banks, the big banks as well as the little ones, but protect
the little ones as well as the big ones, and give them the reserves
through credit against securities which they have in their possessionf
and which will be honestly managed.
Taking it by and large, our banks have been honestly managed.
The 16,000 that have been destroyed have not been destroyed through
their willful mismanagement or through dishonesty; it has been
because of a defective system, where we permitted the dollar, by
which all things are measured, to violently expand and contract in
volume, and therefore violently expand and contract purchasing
power.
Mr. LUCE. We come then to the point of agreeing that the President's proposal to abandon 1926 as the standard is open to discussion.




104

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Now, one more thing
Mr. OWEN. I do not agree that there has been any abandonment
of the matter. The 1926 price level was asserted practically by the
Congress in the act referred to, of May 2, 1932.
Mr. LUCE. He certainly referred to 1926, and brought out this
question of the life of contracts.
Mr. OWEN. YOU take the ordinary current value of a contract, and
it is not very much affected by the fluctuations which normally take
place in money, because the current values in day-by-day transactions
or week-by-week transactions are not very serious in their changes
and do not immediately reflect the changes which are forecast by
those who are more expert.
Mr. LUCE. That question, of course, has received most careful
consideration by the highest law court in England and by our own
liigh court, and they differed in their conclusions.
Mr. OWEN.
Mr. LUCE.

Yes.

And certainly the discussion of the matter would
indicate it was one of importance.
But now there is only one more thing that I want to ask you about,
and that is, what advantage do you think would accrue from having
the ownership of the Federal Reserve banks in the Government itself
instead of in the member banks?
Mr. OWEN. The advantage of having it with the Government is
that the member banks really and truly do not control through the
directors that are chosen. Those directors are put on through a
discreet little campaign engineered by those who are concerned with
controlling the banks. Moreover, the United States has furnished to
those banks over four and a half billion dollars of cash money without any consideration at all, and the banks have only contributed
132 million dollars in buying that stock, upon which they have heretofore received 6 percent, and the bill, as I understand it, proposes
to give them 6 percent from the date of the last dividend to the
passage of the act.
But the point is that these banks, so-called, are really institutions
established not for the purpose of carrying on a banking business in
the ordinary sense at all, but established as monetary banks with a
view to regulating the value of money, and they ought to exercise
the duty of regulating the value of money free from rany interference
by private business, no matter how respectable the} are.
That was the position taken by Woodrow Wilson when the bankers
came with a very important committee, representing billions of dollars of money, and urged upon him that the Reserve bill should contain
an item authorizing a certain number of bankers to be put on the
Federal Reserve Board, and he refused, for the reason that it was a
governing business, and that private persons, however respectable,
should not be permitted to conduct that governing business because
of their financial power.
Mr. LUCE. Was it your judgment when you shared in framing the
Federal Reserve Act that it was unwise in this particular?
Mr. OWEN. At that time I favored giving the Government a
majority on the board of directors of the Reserve banks, but you may
remember that there was a tremendous, concerted, powerful fight
made by the banks against the passage of that bill. They wanted a
central bank such as had been framed by Mr. Aldrich, which had its
merits, and that bill had behind it some very powerful advocates, and




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

1Q5

it, I think, was very serviceable in helping to bring the attention of the
country to the importance of a public control over the reserves of
the banks and a public control or a centralized control over our money
system. It was with a view to putting an end to panics that that
bill was proposed, not just to give assistance to private persons, although it did it to that extent, but the purpose of the bill, after 4
years of study and 32 volumes of reports by the committee, was to
give this country stability, and that was the purpose of the Reserve
Act.
Mr. GOLDSBOROTJGH. Senator Owen, Mr. Luce has questioned you
about the length of contracts, and quoted Professor Fisher. As I
understand the real utility of a stable price level insofar as the relation
of debtor and creditor is concerned, it is to protect both sides in a
long-term contract.
Mr. OWEN. Certainly.
Mr. GOLDSBOROUGH. You remember, I am sure, the condition between 1879 and 1900, when prices had continued falling1, end mortgagesand mortgage bonds could not be paid, but the condition from 1900 to
1914 was just the reverse. Prices were rising, and debtors paid their
debts, so that I do not think we are particularly concerned in business
contracts which run from 2 to 12 months. It seems to me it is these
long-term obligations which will be assisted and made equitable by a
stable price level; and, as I understand it, that is your view?
Mr. OWEN. It is. My point is that the most important thing in
this bill, or one of the most important things in this bill and in proposed measures of a similar nature, is that businessmen in the United
States can make long-time contracts with dependable security, but
they cannot make long-term contracts with dependable security if we
permit the condition to continue where private persons, through speculation in the stock exchange, can violently expand and contract the
purchasing power of money and destroy the value of property. There
is no dependable security for businessmen so long as that condition
remains.
Mr. FORD. May I ask a question?
Senator Owen, if it were possible to devise a method through the
mandate of Congress or otherwise to stabilize prices, would that not
be a tremendous advantage to manufacturers, for instance, of flour,
cotton goods, and so forth, and save them the expense of hedging on
the exchange to protect large purchases?
Mr. OWEN. It would to a certain extent, but you cannot stabilize
the price of a commodity which might double in volume due to a
very favorable season, or which might be contracted to one-fourth.
of normal by a tremendous drought. You cannot stabilize individual
items. The only thing that you can stabilize is the purchasing power
of money, because you can absolutely control the volume.
Mr. FORD. Suppose that you had a production of 1,100,000,000
bushels of wheat in 1938, as we had in 1915. Where would wheat go?
Mr. OWEN. It would go down.
Mr. FORD. Suppose on the other hand that cotton, tobacco, and
all of our products immediately doubled, or went up 25 to 35 percent?
Where would our price level go?
Mr. OWEN. If they were all to be doubled in volume, they would
go down in exchange value.
Mr. FORD. Then there is no device possible for the absolute stabilization of a general price level, where you have factors of that type?




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. OWEN. DO not use the words "general price."
Mr. FORD. General prices.
Mr. OWEN. Individual prices. You cannot stabilize an individual
price.
Mr. FORD. I know, but these two, three, four, or five great commodities are so important, and they play such a part in the general
index that their falling would immediately affect the general price
level.
Mr. OWEN. Yes; it would, to & comparatively small extent, and in
event there should be a world war, or in event there should be a disaster or drought in the United States, or any great, change in the
volume of commodities, you should in that event not change the volume of money at that time, because of those conditions, for the reason
that those climatic conditions correct themselves within one season.
Mr. Carl Strover deals with that quite at length, pointing out the
importance of how to handle it, and it is easy enough to handle it by
allowing the price level to remain unchanged by virtue of an enormous
drought.
Mr. FORD. Then do I understand that you attribute the present
recession or depression or whatever you want to call it purely to the
handling of the monetary system, or do you attribute it partially to
great surpluses that have accumulated in certain lines and to additional production in manufacture over and above what the market
would absorb?
Mr. OWEN. YOU take the price of cotton, for example. Here we
have 17,000,000 bales of cotton, a great oversupply. Now, that is
due to the large amount of cotton produced, but in addition to that,
when you have a contraction of the money supply such as we have,
you make that disaster much worse. If you had money expanded
to a norm, the price of cotton would not be so low as it is now, notwithstanding the fact that there are 17,000,000 bales.
There are four things that enter into the price of cotton. First
comes the supply of money and the demand for money, that fixes
the price of cotton, but in addition to that comes the supply of cotton
and the demand for cotton, and those four factors enter into it.
Mr. FORD. I had always supposed that the demand for cotton
entered into its price.
Mr. OWEN. Certainly it does.
Mr. FORD. There was a time in this country, for a number of years,
when we exported up to 66% of our entire cotton crop. That has
been almost entirely, if not completely, wiped out, that export market.
Mr. OWEN. I take the liberty of calling to your attention the table
on page 63, which I put in Dollar Stabilized in which it is s.hown
that as the check money contracted from 1929 down to 1933, our
exports and our imports contracted in corresponding ratio, and they
fell to one-third of what they had been when our check money fell to
one-third of what it had been.
(The tables referred to follow:)




CHART NO. 1.—Monetary chart exhibiting expansion and contraction with results, 1913-24
Wilson adi.linistratioii

1913

June 30 *
1.
2
3.
4
5
6
7.
8.
9.
10
11.
12
13.
14.
15.
16.
17.
18.
19
20.
21
22.

Total banks 2
_
Total capital
Total loans 2
Total investments 2
Total deposits 2
Total demand bank deposits (excluding public funds) 3
United States currency in circulation 2 2 i
Checks cashed (per annum) by all banks
Commodity index (price level)
_
Dollar index
Index, physical products
__
. _
Unemployment 5
Index carloadings
_ _
Construction contracts
Number 2 of commercial failures
Exports
Imports2
__ . ._
Total value common stocks 2 6 _
Index farm products
Value farm lands 2 _ _
Treasury receipts 2
Total reserve bank credit 2
__
_
1 The first 7 lines relate to June 30 only.
2
Indicates billions and decimals thereof.
» This record begins in 1927.
4 This record begins in 1929.
5
Indicates millions or decimals thereof.
6
This record begins in 1925.
The above figures are from Federal Reserve Board records.




1914

1915

25, 993 26,7655 27, 062
4.4
4.3
4.5
15.3
15.7
5. 5
5.8
18.1
17.2
18.8
___ ___ _

2.5
1.8

_

1917

1918

1919

1920

1921

1922

1923

27, 513
4.6
18.0
6.6
22.3

27,923
4.9
20. 5
7.8
25.8

28, 880
5.0
22.4
9.4
27.5

29,123
5.3
24. 7
11.8
32.4

30,139
0.0
30.8
10.8
37.0

30,832
6.4
29.0
11.0
34.5

30, 389
6.6
27.8
12.2
36.8

30 178
6.8
30.4
13.3
39.3

29,348

4.2

129. 0

46
643
135. 6

52
702
166. 5

4.6
694
94.9

65.6

70.7
84
63
6,451

78.7
1.4
91
63
8,881

7.9
3.9

8.2
5.3

4. 2
4.5
46
624
575
666
93.4
96.3
100. 3
9Q7
1 071 1 038
69.9
79.8
65. 6
4.2
3.4
1.5
100
79
87
56
84
79
19, 652 23, 678 18, 7iS
3.8
42
4. 5

3.6

3.4

67. 4
1 484
38.8

68.3
I 464
40.6

82.9

122. 0

47.5

56.2

18,280

___
69 8
38.4
.7

22,156

1.8

3.6
1.8

71 6
39.6

70 3
39. 5
_7

2
^

1916

3.2

69. 0
1 449
38.9

Harding and Coolidge
administrations

16, 993
5. 5

3.8

.

820

13, 855

2.4

6.2
3.0

78. 2
42.2
.S

134.0
45.5
1. 1
.6

9,982
6. 1
3.0

140. 2
49.9
3.7
1.6

737

156. 9
2. 5

601

167.4
66.3
6. 7
3.3

1924

7-1
31.5
13.6
42.1

1 054

£
F>

fj

M

Q
^
^
ft
W
U1

81.3
2.3
97

W
G
^

20,615

)5

4.6

2.5

3.1

3.8

3.6

^

80.6
61.4
5.6
2.1

92. 8
54.0
4. 1
1.2

9S.0
52.7
4.0
1.2

94.3
50.4
4.0

O
K
HH

C
d

CHART NO. 2.—Monetary chart exhibiting expansion and contraction with results, 1925-3
Coolidge administration

Hoover administration

Roosevelt administration

O
1925

June 30
1.
2,
3.
4.
5.
6.
7.
8.
9.
10
11.
12.
13.
14.
15.
10.
17.
18.
19.
20.
21.
22.

Total banks J
_ - .
Total capital
Total loans i
„_
Total investments *
Total deposits i
.
Total demand bank deposits (excluding public funds)
United States currency in circulation i .
__
Checks cashed (per annum) by all banks *
Commodity index (price level)
_. _
Dollar index
Index, physical 2
products
Unemployment
Index carloadings
Construction contracts
__
Number of commercial failures
Exports 1
„ _
Imports *
Total value of common stocks i. _ . .
Index farm products
Value farm lands i
Treasury receipts J
__
Total reserve bank credit *

1926

28, 841 28,146
7.4
78
33.9
36.2
14.9
15.4
45.9
47.9
4.5
795
103.0

_. .

971

86.4
1.7
103
122
21, 214
4.9
4.2
29.7
109.3
49.4
3.8
.
1.1
.

_. _

4.6
845
100.4
996

91.1
1.6
106
129
21, 773
4.8
4.4
35.6
100.9
49.0
1.2

1927

1928

1929

27,061

26,213

25,330

8.3

8.9

37.4
39.5
16.4
17.8
49.4
51.4
23.4
23.3
4.6
4.5
920
1,074
94. 1
96.7
1.063
1 031
93.4
96.0
2.0
2.2
103
103
129
135
23,146 23, 842
4.9
5.1
4.2
4.1
42.0
52.9
96.5
106.7
47.4
47.6
1.1

1.6

9.5

41.5
16.9
50.5
22.4
4.5
1,230
95.2
1.050
100.0
1.8
106
117
22, 909
5.2
4.4
77.3
103.3
47.8
1.4

1930

1931

1932

1933

1934

24,079 22, 071 19,163 14,624 15,894
8.1
6.9
7.4
10.0
95
35.4
27.8
22.2
21.43
40.6
17.5
18.2
17.9
21.2
19.6
36.9
50.5
34.2
47.6
38.5
22.2
14.9
15.5
19.5
14.0
5.4
4.2
5.4
4.5
5.4
450
900
470
660
430
63.9
74.6
86.8
72.1
65.0
1 152 1.387
1. 565 1.538
1.340
63.8
92.8
78.5
61.5
57.2
12.3
8.7
13.1
13 7
4.7
75
58
62
92
56
63
25
32
92
28
26, 355 28, 285 31, 822 20,307 12,185
2.4
1.7
2.1
3.8
1.6
2.1
1.4
1.7
3.1
1.3
63.9
47.4
34.4
15.6
36.3
45.7
65.4
53.2
63.3
88.9
47.8
43.7
36.8
30.3
31.6
3.3
2. 2
2. 1
3. 3
1.0
.9
2.2
2.3
2.5

1935
16,053
7.3

20.3
24,1
41.3
18.9
5.6
530
79.8
1.253
91.0
12.2
63
37
11,879
2.3
2.0
36.2
78.3
32.8
4. 0
2.4

1936
15, 803
20.1
27.8
45.9
22.5
6.2

80.6
1.241
109.0
10.5
72
61
(3)
(3)

46.9
78.2
25
hj

The above figures represent expansion and contraction of credit and currency—money.
1
Indicates billions and decimals thereof.
{
Indicates millions or decimals thereof.
The above figures are from Federal Reserve Board records.
3
The imports foi the month of September 1936 were 216 millions. The exports for the month of September 1936 were 220 millions. Below these lines, the index references are to
the years involved, except 1936. The checks cashed per annum include from January to December as do the indexes for those years.
NOTE.—In July 1936 about 10.5 millions of persons out of 52 millions of employables were still unemployed (estimated),
Ordinarily, total bank deposits include public funds, but not in this chart.




>

5zJ

W

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

1Q9

Mr. FORD. I do not see how that affects cotton.
Mr. OWEN. It has an effect on cotton, for example, because it
explains how that foreign demand for cotton is cut off when we have
a contraction here at home of our money supply.
Mr. FORD. A contraction of the money supply ought to do what?
Lower prices?
Mr. OWEN. A contraction of our money supply has the effect of
making the dollar buy more and the commodity buy less.
Mr. FORD. It is a lowering in price?
Mr. OWEN. Yes.
Mr. FORD. Under

those circumstances, why wouldn't it be attractive for foreign countries to buy all the stocks that they can buy
at the lowered price?
Mr. TRANSUE. They have to buy dollars first.
Mr. OWEN. They have to buy dollars first, and the dollars are hard
to get.
Mr. SPENCE. Why was it that the word "regulate" was used in the
Constitution? Is there an historical reason for that?
Mr. OWEN. Yes.
Mr. SPENCE. What was that?
Mr. OWEN. The reason was that

you could fix weights and measures.
You can fix a yardstick. You can fix a bushel basket. You can fix
a pound avoirdupois, but you cannot fix the value of money, which
changes with the demand for money and the supply for money.
Therefore you have to regulate it by regulating the supply to correspond with the demand.
Mr. SPENCE. I am a great believer in the wisdom of the Constitution.
Mr. OWEN. I am a great believer in the wisdom of the Constitution,
too, and what I am praying for now is that it will be carried out.
Mr. SPENCE. Was there a reason for it? Was there a historical
reason?
Mr. OWEN. I have just given you the reason.
Mr. SPENCE. Was there fluctuating money at that time?
Mr. OWEN. Why, certainly. You had as many as 50 different
pounds used; the word "pound" meant 50 different pounds, and so
it was necessary to fix the pound, to fix the yard, to fix the bushel, to
fix the gallon and the barrel, because these terms were used loosely
by different groups of people with different meanings. You had,
therefore, under the Constitution, to charge the Central Government
with the duty of fixing weights and measures, but you could not fix
the purchasing power of money. That had to be done by regulation,
because you had to regulate the supply in relation to the demand in
order to give it a stable purchasing power.
Mr. GOLDSBOROUGH. Mr. Reilly wants to ask you a question.
Mr. REILLY. Senator Owen, your theory is that a stable price level
of all commodities can be maintained if the Government will manage
and regulate the currency?
Mr. OWEN. Why, certainly.
Mr. REILLY. HOW generally is that theory held by bankers and
by men who are students of the monetary question?
Mr. OWEN. I should say that in recent times, in the last 20 or 30
years, all informed monetary students know that the value of money
depends upon the supply of money in relation to the demand for
69972—88

8




110

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

money. That was the subject of a text by Gustave Cassel when he
appeared before Columbia University and delivered his lectures on
post-war monetary stabilization, and he illustrated that by giving
the experience of every country in Europe. He made the same
lectures at the University of Chicago. His book was published by
the Columbia Press in New York.
Then, when Professor King came down here from the University of
New York, he confirmed that in his testimony recently given. Of
course, nobody understands that better than Irving Fisher or Robert
Hemphill, or any number of men who appeared before the committee.
Mr. GOLDSBOROUGH. Mr. Reilly makes the point, I presume, that
these 60 gentlemen whose names appeared on the back of letterheads
do not agree with that propostion.
Mr. OWEN. NO; they do not, and I will explain that, if I may be
permitted to do so.
Mr. REILLY. Well, now. Senator Owen
Mr. OWEN. May I explain that?
Mr. REILLY. IS it not a fact
Mr. GOLDSBOROUGH. He wants to explain it.
Mr. REILLY. Yes,

sir.

Mr. GOLDSBOROUGH. Proceed, Senator.
Mr. OWEN. The 60 gentlemen who were organized by the activity,
I think, of Mr. H. Parker Willis, representing economists in various
universities organized what is called the Economists National Committee on Monetary Policy, and they recommended that the means of
restoring prosperity in this country was to go back to the old domestic
gold standard which we had previous to 1933; that was their recommendation, and their contention was, broadly, that prices are not
affected by the supply of money, that if you take money and examine
it, you will find that the mone}^ in circulation, outside of the Treasury
from 1929 was four and a half billions, roundly, and it increased to
over six billions, and yet commodity prices went down while the
money supply was rising; ergo, money does not affect commodity
prices.
The only difficulty that we have about that is that the}^ are dealing
with pocket currency when they refer to money, and they ignore the
fact that 95 percent of our national business is transacted by check
money, and they ignore the fact that when these prices went down,
they went down correspondingly with a contraction of check money,
which fell from 1,230 billions in 1929 to 430 billions in 1933, showing
that they were juggling with the word "money," meaning by money
currency only, and that argument is repeated in a clipping that I
received this morning from the Wall Street Journal, that the only
thing that affects prices is currency.
Nobody who has any monetary intelligence will maintain that any
longer, and I do not mean to say that disrespectfully. I say it
descriptively.
Mr. REILLY. Senator Owen, somebody has suggested that the
way to solve the cotton problem was to take about 15,000,000 bales
out into the Atlantic Ocean and drown them.
Mr. OWEN. I think that it would be a good deal better for the
United States Government to take the surplus cotton and to give a
bed to every man in this country who has no good bed.
Mr. REILLY. But you have to do something to cotton before you
could give them that bed.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

]_]_]_

Mr. OWEN. I would have the Government buy the cotton.
Mr. REILLY. Assuming that you bought in all the excess cotton,
would the price of cotton go up?
Mr. OWEN. The price of cotton will he affected by the supply and
demand, just as is the case with any other commodity. All commodities depend for their price upon supply and demand, and the
demand also must cover substitutes, because people can substitute
other things, for instance.
Mr. TRANSTJE. We have a call of the House, and I wonder if Senator
Owen can come back tomorrow.
Mr. OWEN. I would be delighted to come.
Mr. PATMAN. There are several members who would like to interrogate him.
Mr. OWEN. I would be glad to come back.
Mr. GOLDSBOROUGH. The committee will adjourn until tomorrow
morning at half past 10, when Senator Owen will resume.
I would like to ask that, if there are any other members who desire
to question the witness, that they confine themselves to the issues
involved in H. R. 7230.
Mr. PATMAN. Except, Mr. Chairman, that Mr. Binderup will offer
an amendment to this bill, which I think is a germane amendment.
Mr. GOLDSBOROUGH. Mr. Patman, it was understood, and I am
acting under the instructions of the chairman, that the assurances of
a hearing which were given in June 1937 on this bill were not on
amendments to the bill which changed the issues in the bill, and I
must insist that the discussion be confined to the issues involved in
H. R. 7230.
Mr. BINDERUP. May I take the freedom to ask you if it is a fact
that when I am before this committee, I can only talk about taking
over the 12 Federal Reserve banks, and cannot say anything about
that which leads up to that, and that which goes further than that,
which makes it feasible to propose the amendment suggested?
Mr. GOLDSBOROUGH. The idea is this, that there are certain issues
involved in this bill. The one issue that you refer to is not the only
one involved in this bill. There is the issue of increasing the number
of directors of the Federal Reserve System, but 1 do not think that
we should go outside of the issues involved in tins bill.
Mr. MCKEOUGH. We have to go to the House. Let us decide
those matters as they are presented.
(After further discussion on this point among the members as they
were leaving the bench, the committee recessed, to meet again at
10:30 o'clock Tuesday morning, March 15, 1938.)




GOVEENMENT OWNEKSHIP OF THE 12 FEDEEAL
EESEEVE BANKS
TUESDAY, MARCH 15, 1938
HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.
Hearings on H. R. 7230 were resumed at 11 o'clock a. m., Hon. T
Alan Goldsborough presiding.
Other members of the committee present: Mr. Reilly, Mr. Williams,
Mr. Spence, Mr. Meeks, Mr. Ford, Mr. Brown, Mr. Patman, Mr.
McKeough, Mr. Evans, Mr. Transue, Mr. Gifford, Mr. White, and
Mr. Crawford.
Mr. GOLDSBOROUGH. The committee will come to order.
Gentlemen of the committee, Senator Owen will now proceed, and,
when he concludes, without objection, the committee will hold an
executive session for just a few minutes.
Mr. PATMAN. I did not hear that, Mr. Chairman.
Mr. GOLDSBOROUGH. Senator Owen will now proceed, and when he
concludes, without objection on the part of the committee, the committee will hold an executive session.
Mr. PATMAN. That does not contemplate forcing him to finish
today?
Mr. GOLDSBOROUGH. Oh,

no.

Mr. PATMAN. But when he does get through?
Mr. GOLDSBOROUGH. Yes. It may not be today, but if he does get
through today, the committee will hold an executive session for a few
minutes. I do not know that it will be necessary to hold it some other
time, but, as far as the Chair is concerned, the gentleman may continue
until he completes his statement, today, tomorrow, or the next day.
Mr. PATMAN. That is satisfactory to me.
STATEMENT OF HON. ROBERT L. OWEN—Resumed

Mr. OWEN. Mr. Chairman and gentlemen of the committee, before
answering questions I would like to be permitted for a few moments
to point out the manner in which the experience of Great Britain and
the United States has disclosed the importance of correcting contractions of credit or money by immediate expansion of credit or money.
I pointed out in my previous testimony the experience of Great
Britain in giving a ministerial permit to the Bank of England to issue
legal tender money against bankable assets in 1847 and immediately
correcting the panic of that date, and they had on automatic contraction, because the ministerial permit disregarded the statute law fixing
the charter rights of the Bank of England, and therefore as rapidly




113

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

as they could contract they did it, because the expansion was at
variance with the law itself and had to be approved by an act of
Parliament which always followed the ministerial permit.
The same thing was done in 1857 and stopped the panic then by
quickly expanding legal-tender money or credit against bankable
assets, and again the contraction took place because it was at variance
with the statute law fixing the charter rights of the Bank of England.
The same thing took place in 1866. The same thing took place in
1890, as I previously pointed out, with contraction taking place
automatically under the law. In other words, the English had automatic expansion and contraction by a ministerial permit and by force
of statute law.
I venture to remind the committee that in 1907, when we had the
panic in New York, in the fall of 1907, and when call money went up
to over 100 percent, Theodore Roosevelt gave his approval to the
issuance of $100,000,000 of clearing-house certificates. That functioned as money, and they were based upon bankable assets, and
served a useful purpose.
At that time I had just been elected as a Senator from Oklahoma,
and he was assailed in a public meeting held by the Southern Congress
at Muskogee, and I defended Theodore Roosevelt on that occasion
because he had done a thing which served the public interest, and
served to abate the panic, which had reached very dangerous proportions.
I call your attention again to what was done on the 4th of August,
1914
Mr. GOLDSBOROUGH. Will you permit an interruption?
Upon what theory was Mr. Roosevelt assailed at the meeting at
Muskop-ee in 1907 to which you have referred?
Mr. OWEN. He was assailed by Democrats on the ground that he
had violated the law in giving his approval to clearing-house certificates, and I defended him on the ground that it was like assailing; a
a fireman for using; water that had not been filtered in a fire and putting
out the fire even if the water was not absolutely approved as it ought
to have been.
Now, in 1914, when the German Emperor, through his ambassador
at St. Petersburg, notified Sozonoff, the head of foreign affairs of the
Russian Empire, that the German Emperor regarded that a state of
war existed, it sent a shock throughout the world, and Frank Vanderliu, of the National City Bank of New York, celled me up on the longdistance phone and told me that on the following Monday we would
have a dangerous panic in New York unless the administration would
do something about it, and I thereuopn immediately framed an
amendment to the Vreeland-Aldrich bill, which had been made a part
of the Federal Reserve Act in 1913, so that an immediate use could be
made of the money issued, under the Vreeland-Aldrich authority,
based on bankable p«cets, °ud the Tre^Fury sent over, at the beginning
of the week, about 300 million dollars of notes based on the VreelandAldrich Act, all of which were afterward redeemed.. There was no
loss about it, but the fact that $300,000,000 at that time was poured
into New York to meet the shock to credit served to prevent the panic.
When in 1932 a run was made upon the Loop banks in Chicago,
there were sent $300,000,000 of Federal Reserve notes to Chicago,
which were paid out readily to the depositor; who demanded their




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

money from the banks. That $300,000,000 stopped that panic and
remove the fear that the people had that they would not be able to
get their deposits, and in that way they stopped the run on the Loop
banks. It did not stop the destruction of the small banks throughout
the suburbs of Chicago.
In 1933, January or February, when the banks were subjected to
extraordinary pressure, there was issued about $2,000,000,000 of
Federal Reserve notes, and except for the issuance of those
$2,000,000,000 of Federal Reserve notes sent to the banks of the
country upon their request, and against assets, of course, the destruction of our banks would have been very much more serious.
I call attention to these things because here we have a series of
events, and I could enumerate others, but that is sufficient, it seems to
me, and it has now been recognized by the students of monetary
science throughout the world that you can regulate the value of money
by regulating the flow of money or credit which functions as money.
This has been put into effect with great advantage by the English
people, and during the last 6 years they have increased the index of
physical production 50 percent, as explained by Sir Reginald McKenna
in his report to the stockholders of the London City and Midland
Bank last February, a copy of which was put in the record with my
testimony on the 4th of March, and it has stabilized the pound sterling
throughout the so-called sterling area, which covers 500,000,000
people.
But Great Britain is not the only one that has done that. That
was done also in Greece and Turkey, which transact their business
through London, and the same thing has been done, substantially, by
Sweden, under the advice of Gustav Cassel, to whose lectures I made
reference a few days ago, one of the greatest monetary experts in the
world, the man who is responsible for what is now known as the international gold standard. He was the man responsible for doing away
with the gold standard in domestic circulation throughout the world.
His advice first put that into effect in India, but it was the collapse
of the gold standard through the defective system of the United States
that caused the nations of the world to go off the gold standard in
domestic issue. What we did in the United States was to increase the
purchasing power of golcl 176 percent from May 1920 to February 1933,
with the effect that it impaired to that extent the purchasing value,
the exchange value of commodities throughout the world where the
nations of the world used gold as a metal of redemption and as a basis
for their currency, and as a consequence of that they were compelled
to go off the gold standard and did go off the gold standard, Great
Britain beginning in September 1931. A table of the manner in which
they went off the gold standard, with the dates, I furnished to the
members of this committee in a book called Money which I wrote
and presented to every single Member of the House of Representatives
in March 1933.
YvTe now have the use of gold internationally as a medium of settling
international balances, but I wanted to emphasize on the minds of the
committee the extent to which the principles I have referred to, of the
contraction of credit, are corrected by an expansion of credit, and
howx many important cases have taken place in the world's history,
some of which I have recited this morning, and the consequence that the
world has discovered how to regulate the value of money by regulating
the flow of money and credit.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

That is not only true with regard to Great Britain, but Sweden.
It is also true with regard to the Argentine, and New Zealand, and
Australia. Of course, South Africa and India followed the suit of
Great Britain.
I mention this as a thing which ought to be of record and ought to
be clearly in the minds of the members of this committee and the
Members of this Congress in dealing with this question. I thought
it a deplorable thing this morning to read in the public press a statement from one of our highest officials in the Government, that we had
the best currency in the world. Yet that currency, and the purchasing power of that currency, have gone through violent changes in the
last year, due to the failure of our officials to realize the truths of
monetary science to which I have been referring, and which I have
been expounding before the committee. The statement was that our
currency was the best in the world, and yet that currency has increased
in purchasing power in terms of commodities, 784 commodities, from
113 to 125. What kind of currency is that, that changes its purchasing
power in that manner?
But the change in purchasing power is very much greater in other
fields. Take the field of United States Steel stock, for instance; there
the purchasing power of money increased 150 percent from January
to October, 1937, and so with all of the securities, our gilt-edge securities, the best form of property, perhaps, in the United States.
We have been in the habit of thinking of the property changing
value. But the dollar has changed in its value in relation to those
properties, because in the field where those properties are subjects of
merchandise, the volume of dollars has decreased violently, and
therefore the purchasing power of the dollars in those fields has
increased correspondingly.
I wanted to emphasize that because there was a release given out
this morning by the so-called Economist National Committee on
Monetary Policy, over the authority of some 90 gentlemen who are
professors of economy
Mr. GOLDSBOROUGH. They were the same "statesmen" that we
were referring to yesterday.
Mr. OWEN. Well, we have an addition of about 30 to that number
this morning.
Mr. GOLDSBOROUGH. I did not notice that, but it is the same
group.
Mr. OWEN. I had my attention called to it just before the committee met, and I wish to remind the committee of what the policy
of those gentlemen has been, when they urged upon Mr. Roosevelt in
a round robin that the real remedy for all of our troubles was to go
back to the 1900 gold standard. I take the liberty of reminding you
also that they represent all of the endowed universities in this country,
and these universities are not afraid of an endowment, and they
know where endowments come from. They remind me of our very
good President, whom I loved, President Taft, who was described by
one of his opponents as a most excellent gentleman, surrounded by
other excellent gentlemen who knew exactly what they wanted.
I do not have to debate with the National Committee on Monetary
Policy, I urged them to debate with me when I was acting as chairman of the Sound Money League in New York, and I was unable to
get any response from them to appoint a champion on their behalf




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

H7

and debate this matter in public. They cannot stand debate, because they are fundamentally wrong, and they are attempting to use
personal prestige and the prestige of the universities of this country
as a means of controlling public opinion. It is time for them to appear and present the reasons which influence them, and present them
where they can be subject to cross-examination. You will remember
that Professor Spahr appeared before this committee, and you will
remember the cross-examination to*which he was subjected and the
impression that he made upon this committee.
Mr. GOLDSBOROUGH. He is their bellwether, you know.
Mr. GIFFORD. Are there any honest men?
Mr. OWEN. Pardon?
Mr. GIFFORD. Have we doubts about everyone else but ourselves?
It is possible that that indictment of yours can be that broad, so wiio
is there left?
Mr. OWEN. I could not quite hear the gentleman's statement.
Mr. GIFFORD. IS there anybody left who is sincere and honest?
That is such a broad indictment that I begin to fear that there is no
one left but ourselves.
For instance, you referred to the 160 names on this paper here.
Mr. OWEN. I thought that there were 90, but I am commenting
upon the argument which they made and upon the connections which
they have. I am not impugning the individual honesty of any one
of them, but I have a right to point out what their affiliations are in
connection with their testimony.
Mr. GIFFORD. Harvard now boasts of their absolute freedom of
expression, and it certainly is turning out some people who may be
classed as Bolshevists, and who have a viewpoint absolutely contrary
to the viewpoints of people of wealth.
Mr. OWEN. I will make the observation that I was referring to
individuals wlio signed this round robin, and I was not referring to
Harvard College nor to other colleges, which are of the greatest importance in this country, to which we are deeply indebted, and for which
I have the highest honor and respect, and I have said nothing that
should be interpreted as any desire or wish on my part, or purpose, or
will, to discredit any of the great universities. For them I have the
highest admiration and respect.
But when an economist is controlled by the economic views that
were current 100 years ago, and does not accept modern conditions
which have been entirely changed since these old textbooks were
written, when we have gone into a period where currency only transacts
5 percent of our business, and where check money transacts 95 percent
of our business, and they ignore that, I have a right to point it out, and
I have a right to criticize the individuals and I do criticize their view
on this matter without impugning personal honesty, and without setting up for myself any standard of superiority to any other honest man.
Mr. PATMAN. I think the committee appreciates your views, Senator
Owen. As one member of the committee, I do.
Mr. OWEN. I feel abundantly able to defend myself.
Mr. GIFFORD. 1 am not going to sit here and listen to blanket
indictments
Mr. OWEN. There has been no blanket indictment. I indict their
views as untrustworthy, misleading, and unintelligent. I am opposed
to the advice that they give, for reasons wiiich I have submitted to
this committee.




118

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. PATMAN. DO the people who have charge of these large endownment funds have anything to do with the selection of these
professors?
Mr. OWEN. Oh, I don't know, and I don't wish to go into that. I
have said all that I wish to say with regard to that. I regret very
much indeed that I was allowed to be led off to make such a comment, because I avoid always as far as I possibly can, severe criticism,
of anybody else, knowing my own frailty.
Mr. GOLDSBOROUGH. Senator Owen, when Professor Spahr was
here about 2 years ago, he said openly more than once before this
committee that this economic group to which he belonged knew all
about the subject. That was his statement before this committee,
that they were the final, absolute authority.
Mr. MCKEOUGH. He admitted it; did he?
Mr. PATMAN. Or confessed it.
Mr. REILLY. That is not an unusual position for groups to take.
Mr. GOLDSBOROUGH. Some of them are a little more modest in
expressing it openly than he was.
Mr. REILLY. I want to ask the Senator a question.
Mr. OWEN. All right. I am ready for questions.
Mr. REILLY. YOU had a conference with Mr. Hoover in the spring
of 1929, when you saw the panic coming?
Mr. OWEN. Yes, sir.
Mr. REILLY. And he

did nothing, when you urged him to do
something?
Mr. OWEN. Well, he thought that if he attempted to use his power
with the Federal Reserve Board, he would be charged with political
interference with the Board, and I said to him that he was charged
with the duty of seeing that the law is faithfully executed, and if the
panic turned out badry, he would he held responsible for it and the
party which he headed would be held responsible for it, and I asked
him to give this matter express study. I was not attempting to tell
him the final solution, but was only giving him a warning of what I
thought was going to happen, and as to how he could correct it when
it did happen, because I knew how it had been treated in Great
Britain and I thought he could do the same thing by quickly expanding
credits in case of a violent contraction of credit. But I had to be
content with giving him counsel, and I gave a copy of the memorandum
that I had given to Mr. Hoover to the chairman of this committee
some years ago, just for historical curiosity and that is all. I was not
making any political point about it, because I was only trying to help
Hoover and to help the country, and I did not succeed, but I referred
to it the other day in my testimony— —
Mr. REILLY. What would you have done at that time, if you had
been President of the United States?
Mr. OWEN. The first thing that I would have done would have
been to stop the Federal Reserve Board from raising the rate of interest
to the businessmen of this country to a point where they could not
get any help or relief from the Federal Reserve banks in the way of
credit. When they raised the rate to 6 percent, it meant that the
ordinary bank would have to charge 7.30 percent at least, in order
to lend money without loss. That meant cutting off the businessmen of this country, who were engaged in production, transportation, and in commerce, of the facilities of the money supply.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

I protested against it, and I asked the Reserve Board to permit
me to appear before them and argue it, and they refused.
Mr. REILLY. In other words, your judgment is that the Federal
Reserve Board, in trying to control Wall Street, hamstrung the
manufacturing and other interests of the country?
Mr. OWEN. They were apparently under the impression that raising the rate of interest would stop speculation in Wall Street, and
I answered that by showing them the researches which had been
made by Harding and Owens of the Brookings Institute, which
demonstrated in six major and six minor bull-and-bear movements
that raising the rate of interest did not stop speculation in Wall
Street and did not end the depression when it took place, did not
cause a prompt restoration when it took place of normal conditions,
and that-book is a valuable contribution, and that book I called to
their attention, and I called it to Mr. Hoover's attention in that
memorandum.
Mr. REILLY. SO that, Senator, all that was necessary at that time,
in your judgment, was to have the Federal Reserve Board lower
interest rates to businessmen?
Mr. OWEN. It is my opinion that at that time they should have
lowered the rate to the people who were transacting the business of
this country, and that they should have cut down the, interest rate
on call loans in New York, that they should not have allowed the
high call rate in New York to take the money away from every little
bank in this country and thereby starve the people at home of the
money that they needed to transact the business of the country, in
order to make a profit out of it by a high call rate in New York.
Mr. GOLDSBOROUGH. Is it not a fact that since England went off
of the gold standard in 1931, not only the Bank of England, but every
one of the Big Five, as they are called over there, have been able to
maintain a rate of 2 percent per annum, which has been very greatly
in the interest of the people of Great Britain?
Mr. OWEN. That is so reported in the report of Sir Reginald
McKenna to the stockholders of the Midland Bank, a copy of which I
presented in my testimony on the 4th of March. It has been 2
percent now for a little over 5 years, without a change, and to the
great benefit of the industry and the commerce of Great Britain.
That is the report, as I said, make by Sir Reginald McKenna,
former Chancellor of the British Exchequer, a man who for 25 years
has had a controlling hand in the affairs of the Midland Bank, one
of the greatest banks in the world, having 3,000 branches and over
two billion in deposits.
Mr. REILLY. The panic having begun, and prices having begun to
fall, what would you have done if you had been President at that time?
Mr. OWEN. Immediately expanded credit.
Mr. REILLY. HOW would you have done it?
Mr. OWENS. Buy bonds.
Mr. REILLY. HOW many?
Mr. OWEN. TO the extent necessary.
Mr. REILLY. What do you think would have been the extent of the
purchases which would have been necessary?
Mr. OWEN. I should think four or five billions, probably, because
then the money which was running into hiding would turn around and
come out, and not be hoarded in demand bank deposits, but would
then have been invested in property.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. REILLY. Mr. Hoover bought some bonds, didn't he?
Mr. OWEN. I do not know.
Mr. REILLY. Yes; he bought several hundred million.
Mr. GOLDSBOROUGH. He bought them until the agitation was over.
Upon the passage of the Goldsborough bill, he stopped.
Mr. REILLY. He bought them, and they found out in New York
that the money went back to the banks.
Mr. GOLDSBOROUGH. That is exactly what happened, that they
began to buy bonds for the purpose of trying to forestall the passage
of the Goldsborough bill in 1932, and as soon as Senator Glass was
able to block it in the Senate, they stopped.
Mr. OWEN. Let me

Mr. REILLY. I am not dealing with the reason.
Mr. GOLDSBOROUGH. That is what happened.
Mr. REILLY. I am dealing with the result. They bought several
hundred million dollars worth of bonds, but it did not have any effect
at all and the money found its way back to the banks.
Mr. GOLDSBOROUGH. They bought at the rate of $50,000,000 a
week. It did not mean anything. It was not intended to mean
anything.
Mr. OWEN. May I answer Mr. Reilly?
Mr. GOLDSBOROUGH. Proceed, Senator. Excuse me.
Mr. OWEN. Mr. ReillyMr. REILLY. What in your opinionMr. OWEN. Pardon me; let me answer.
If you will examine the record, you will find that while the Reserve
banks bought bonds under the demand of Mr. Hoover, they sold other
credits correspondingly and betrayed Mr. Hoover's desire for expansion.
Look at the record.
Mr. REILLY. I take it that they had to sell bonds to get money to
run the Government, so that they had to buy bonds and they sold
bonds at the same time.
Mr. OWEN. If you will examine the record, you will find what I
stated to be true, that they did not expand credit.
Mr. REILLY. I am not asking these questions in criticism. I want
information.
Mr. OWEN. I am giving you information. I am calling your attention to the record as shown by the weekly bulletin of the Federal
Reserve banks.
Mr. REILLY. It is your judgment that if you had issued about
$4,000,000,000 of new money, it would have cured the situation?
Mr. OWEN. I would have bought bonds.
Mr. REILLY. I mean putting the money out.
Mr. OWEN. That creates the money.
Mr. REILLY. YOU would have to get new money to buy the bonds.
Mr. OWEN. Not at all.

Mr. REILLY. Where would you get it?
Mr. OWEN. Create it.
Mr. REILLY. That is new money, isn't it?
Mr. OWEN. Yes, but you create it. You do not borrow it.
Mr. REILLY. I did not say borrow it. You would put the printing
presses to work, to print Federal Reserve notes to buy bonds?
Mr. OWEN. NO.




GOVERNMENT OAVNERSHIP OF FEDERAL RESERVE BANKS

Mr. REILLY. What would you do?
Mr. OWEN. Buy them on credit.
Mr. REILLY. YOU would have to give the man something when
you bought his bonds.
Mr. OWEN. YOU would give him credit.
Mr. REILLY. If you bought $10,000 of bonds from me, would you
not have to give me $10,000 in money?
Mr. OWEN. NO.
Mr. REILLY. What would
Mr. OWEN. Credit.
Mr. REILLY. The fact of

you give me?

the matter is that they did issue the
money for those bonds when they bought th~m.
Mr. OWEN. YOU state that to be a fact.
Mr. REILLY. I said it, that the Government did issue Treasury
notes or Federal Reserve notes to buy these bonds.
Mr. OWEN. In my opinion, they bought them with credit only.
Mr. REILLY. But that credit won't last. The bonds are used up
after a while, aren't they?
Mr. OWEN. NO. They are put into a vault of the Federal Reserve
bank against the credit which they emit.
Mr. REILLY. It is your contention that the Government could go
on buying billions of bonds without issuing any new money?
Mr. OWEN. YOU have not got to issue currency when you create
this credit, because the credit functions as money.
Mr. REILLY. What do you give the people when you buy their
bonds?
Mr. OWEN. When you buy the bonds from the public through the
Federal Reserve banks, you buy those bonds with credit.
Mr. REILLY. All right. Now
Mr. OWEN. Wait just a minute. That is identically the thing
which is done by the Chase National Bank when it buys Government
bonds. They do not pay for them in paper money, in currency.
They pay for them with a cash credit on the books of the Chase National Bank, subject to check, and that is all they pay for them with. It
is with credit, a credit entered on one side as a liability against the
bonds and on the other side as an asset in the bank.
Mr. REILLY. All right, Senator. Then, if }^ou put out 4 billion
dollars of bonds, would any more currency go out into the world?
Mr. OWEN. NO, sir.
Mr. REILLY. Not at all?
Mr. OWEN. Not necessarily.
Mr. REILLY. YOU put money

If you wanted it, you could get it.
out because of the quantitative theory
of money, don't you, and raise the price level?
Mr. OWEN. DO not confound currency with money.
Mr. REILLY. Currency acts as money, doesn't it?
Mr. OWEN. Yes, it does, but that is not the only thing. Credit
acts as money.
Mr. REILLY. Let us get clear on this thing: If you were President
now, and wanted to issue money, you would go out aPxd buy bonds,
would you?
Mr. OWEN.

Yes.

Mr. REILLY. And there would not be any great amount of money
or currency go into circulation at all?
Mr. OWEN. NO, not unless the people wanted it.
Mr. REILLY. And that would automatically bring prices down?




122

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. OWEN. NO. Bring prices up.
Mr. REILLY. What is the cause of this panic?
Mr. OWEN. The cause of this panic is the hoarding of demand
bank deposits, chiefly.
Mr. REILLY. What do you mean by hoarding?
Mr. OWEN. Using the money unemployed, and holding it as a
storage of value for the purpose of buying1 United States Steel stock
back when it goes down to the bottom. That is what I mean.
Mr. REILLY. I have talked to quite a few bankers, and they are*
perfectly willing to lend any amount of this hoarded money that they
have on deposit.
Mr. OWEN. They cannot lend this hoarded money that does not
belong to them. It belongs to the depositors in the banks.
Air. REILLY. DO you mean to say that a bank cannot loan depositors' money?
Mr. OWEN. I am sure that a hoarded bank deposit belongs to the
man who owns the deposit, and not to the bank.
Mr. REILLY. But he puts it in the bank for the purpose of letting
the bank use it.
Mr. OWEN. NO.

Mr. REILLY. Does he put it in there as a cold storage proposition?
Mr. OWEN. Yes.
Mr. REILLY. What

would you do now if you were in President
Roosevelt's position, to relieve the conditions of panic?
Mr. OWEN. I would direct the Reserve banks to buy bonds until the
hoarded deposits went back into action and bought property.
Mr. REILLY. YOU will admit that that is a theory that not very
many authorities on money and finance as;ree with.
Mr. OWEN. I have asserted before this committee, and made it
plain, I thought, that those who think in terms of money as being
currency only confound their own thinking and confound the thinking
of the public, because they ignore the fact that credit in the bank
subject to check is money, and because it is money, it must be dealt
with as if it were money. The term "money" means anything having
a conventional use and emplo}7ed as a medium of exchange and
measure of value. Money is only a medium of exchange when used
as currency or credit, when it is in circulation. When it is used as a
means of hoarding, the currency can be locked up in a tin box or
hoarded in a vault in Kentucky, as gold, and credit can be hoarded
by being left in the bank unemployed, waiting for a convenient
occasion to buy United States Steel stock at 50.
Mr. MCKEOUGH. Mr. Reilly, will you yield right there, please?
Mr. REILLY. Yes.
Mr. MCKEOUGH. Senator,

is it your opinion that those who control
the now frozen demand deposits can by reason of the present policies
of government keep them frozen, even though the Government may,
as did Mr. Hoover, at least gesture in that direction to unfreeze those
demand deposits?
If I have not made my point clear
Mr. OWEN. YOU involve several different questions, and you bring
in Mr. Hoover. I wish that you would take just one plain question,
and let me answer that.
Mr. MCKEOUGH. Let me ask you this—and may I introduce this
question by this statement, that I share your view entirely—but




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

what I am getting at is, how can we unfreeze by governmental action
the now frozen demand deposits?
Mr. OWEN. A most excellent question, which I welcome.
Mr. MCKEOUGH. I

Mr. OWEN. Let me answer it, please.
How shall we unfreeze these hoarded demand bank deposits that
have destroyed the money of the country? Is that the question?
Mr. MCKEOUGH. Exactly. That is the question.
Mr. OWEN. Here is the answer: The reason that they hoard money
is because they know that the money or believe that the money is going
to rise in purchasing power in terms of stocks
Mr. MCKEOUGH. And other property?
Mr. OWEN. Wait a minute, please. That is the reason. They
hold the money because they think that that money is going to rise in
value. That is why they hold it, but when you have the Government
buying bonds and increasing the money supply, they know that money
is going to fall in value in terms of stocks and in terms of other forms
of property, and, therefore, having the profit motive, they will invest
that money in stock or real estate or property of some kind rather than
hold it where it is going to lose its value.
Mr. MCKEOUGH. Senator, thank you for that answer I share
that view absolutely.
Mr. OWEN. That is the way to unfreeze the frozen demand bank
deposits, and what this committee needs to do is to lay down a mandate providing a method and giving instructions to the executive
officers of the United States to pursue that policy of stabilizing the
purchasing power of money, so that men will not sell their stocks and
property in order to get money for the purpose of having the money increase in value through a panic. They can create a panic without
deliberately intending to do it.
My opinion is that those who have sold their securities have been
absolutely within their rights. I do not criticize them a particle.^!
do not charge them with any intent to create a panic. I only charge
them with having done what their sagacious advisers suggested to
them to do, that they had better sell their stocks, because stocks
would probably go down in market price and they would be able, with
that money, to buy back the same stocks at a profit. That advice was
sound economically and financially, and has proven to be so, and I am
not disposed to criticize them or to impugn their motives. I think
that they were within their rights.
Mr. MCKEOUGH. I think that you are very charitable.
Mr. OWEN. NO, no; just.
Mr. MCKEOUGH. I am not willing to be that charitable.
Mr. OWEN. It is merely being just to other men.
Mr. MCKEOUGH. YOU sa}r that when these sagacious gentlemen
know that the prices of stocks, based on the value of money, are too
high, and that it is time to sell, by reason of their ability to sell in
large volume, they can bring the price structure down on the New York
Stock Exchange?
Mr. OWEN. That naturally obtains, when that advice is taken.
Mr. MCKEOUGH. Right. Having done that, it is obvious that the
price level of the Stock Exchange has to fall.
Mr. OWEN. Yes.
Mr. MCKEOUGH.

Then, when in the judgment of the sagacious
gentlemen to whom you have referred, I will say. in charity, it is felt




124

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

that the prices have been reduced to a level that, in the judgment of
those sagacious gentlemen, represents a good buying point based on
money values converted into stock prices, they buy the stocks?
Mr. OWEN. Yes; or buy real estate or other things.
Mr. MCKEOUGH. What I would like to have from you is this:
What would you suggest that the Congress now do to better control
that operation, with its resultant ups and downs in industrial activity,
other than to adopt the. provisions of the Patman bill, with such
amendments as are necessary to insure, at least to a small degree,
control of that activity on the part of these so-called sagacious gentlemen, and I share your view that they are sagacious?
Mr. OWEN. I think that all that is necessary to be done is to have
a mandate drawn in such a manner as to completely meet the need
which has been pointed out, that the members of the Reserve Board
should be required to give some assurance to the Congress that they
believe in the policy of Congress, and that they will undertake to
carry it out. I think that they should take an obligation to do that,
or else they should get off the Federal Reserve Board, and I think the
law should require them to get off unless they are in sympathy with
Congress.
Mr. MCKEOUGH. Senator
Mr. OWEN. There is one thing in connection with that form of a
mandate, and that is that the taking over of the Reserve banks will
have the effect of making that agency free from the interference of
those who haye a different point of view and who follow the point of
view of the distinguished gentlemen who sent out their circular letter
this morning, 160 of them, or whatever the number was
Mr. PATMAN. Ninety of them.
Mr. OWEN. One hundred and ninety? It would not make any
difference if there were 190,000 of them.
Mr. PATMAN. Just 90 of them.
Mr. MCKEOUGH. May I finish this line of questioning?
I take it, then, Senator, from your contributions and observations,
that if such action as you now suggest were taken, the present slump
in industrial activity would immediately shift into a beginning of
activity?
Mr. OWEN. This depression could be ended inside of 30 days, absolutely. Of that I have not the slightest doubt.
Mr. MCKEOUGH. I share your conclusion.
Mr. OWEN. I have not the slightest doubt. Other countries have
demonstrated it. We have demonstrated it in our own experience
in the instance that I have cited to you, where Theodore Roosevelt
stopped the panic of 1907 with $100,000,000 of clearing-house certificates, where we stopped the panic of 1914 with $300,000,000 of cash,
where we abated and prevented a collapse in 1933 by issuing two thousand millions of Federal Reserve notes.
We have the power. The responsibility under the Constitution of
the United States to create money and regulate the value of it is on
this committee and is on the Congress of the United States, and I
come here merely as a citizen of the United States deeply concerned in
the welfare of the little people of this country, who have served me all
my life, who when I came into the world as a tender child received me
and fed me and clothed me and sheltered me, and if I should desert
them now I would regard myself as a traitor.
Mr. Chairman and gentlemen of the committee, I have finished.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. FORD. Might I ask just one question with respect to the
situation in England regarding the low interest rate?
Is it a fair observation to say that the low interest rate granted in
England by the banking facilities at the instigation of the exchequer
is in a measure a sort of a subsidy to their industries, because England
happens to be an exporting nation, and with a low interest rate they
can produce goods cheaper and therefore sell them in the world
markets cheaper?
Is that a fair observation?
Mr. OWEN. I think so, but I think Abraham Lincoln's observation
is still fairer when he said that the power to create money is the
greatest creative opportunity of the Government of the United States.
Mr. FORD. Pardon me, but I think that is a little aside from my
observation. But there is another thing that I would like to ask you
a question about. It has been pointed out by you and other witnesses
who have come before the committee that Britain has been prosperous
for the last couple of years, and I am wondering whether the tremendous naval program that Britain inaugurated about 2 years ago has
anything to do with that, and if that is not something special to
England and not comparable to or attributable to any situation
existing in the United States?
Mr. OWEN. It employed a certain additional number of men in
naval construction who otherwise might have been idle. Britain has
been prosperous for over 5 years.
Mr. FORD. It is a factor?
Mr. OWEN. Yes.
Mr. TRANSTJE. Senator

Owen, I would like to ask you a few questions, and one is this, about the buying of bonds that you have described. The mechanics of that are not clear in my mind. What is
necessary to be done to start things going again? You say the buying of bonds, and I would like to have you go over that again for me,
have you describe the operation for me a little more in detail.
Mr. OWEN. The Federal Reserve banks, in buying bonds, buy them
through member banks, and wheki a citizen wishes to sell bonds that
he has, this is what happens: Supposing that a citizen has $10,000 of
Government bonds that he wishes to sell to the Government. He
would take them to the Riggs Bank in Washington and say, "I have
$10,000 of these bonds which I wish to sell to the Reserve bank at
Richmond; please sell them for me and credit my account with the
proceeds." Thereupon he gets a deposit account with the Riggs
Bank to the value of the bonds, subject to his check. The Riggs
Bank transmits the bonds to the Federal Reserve bank at Richmond,
and the bank at Richmond credits the Riggs Bank on its books with
the value of the bonds, and then places the bonds in its vaults as a
security, as an asset against the liability of the additional bank deposit, subject to the check of the Riggs Bank.
That is the transaction, and if you multiply it a million times, you
do not change it.
Mr. TRANSUE. NOW, does that affect unemployment? How does
that relieve unemployment?
Mr. OWEN. It relieves unemployment in this manner, as it has been
demonstrated by the table to which I referred in my previous remarks,
and with your consent I will now put that in as an exhibit to this
evidence, if you wish it done.
Mr. GOLDSBOROUGH. Without objection, it may be done.
69972—38——9




126

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

(The table referred to is as follows:)
Prices
1920:
154.4.
153.9.
156.0
161.9.
165.0.
160. 7.
159. 4.
153. 9.
150.0.
140. 6.
130. 0.
118.7.
1921:
112.4.
106.0.
102. 9.
99.0.
96.3.
93.8.
93.3.
93.8.
93.8.
93.8.
93.2.
92.6.
1922:
91.6.
93.6.
95.5.
95.6.
98.8.
99.0.
102. 5.
102. 6.
101. 2.
102.0.
103.0.
10.34.
1923:
103.1.
103.8.
105.0.
105. 0.
103.5.
101. 7.
99.8.
99.4.
101.8.
101.4.
100. 7.
100.0.
1924:
100.0.
100.5.
99.3.
98.3.
97.3.
95.7.
97.3.
99.1.
98.5.
100. 6.
101.1.
103.9.
1925:
106. 0.
106.4.
106.6.
103. 4.
102.6.
104. 2.
106. 3.
106. 5.
105.8.
104.3.
104.4.
103.4.




Employment

Pay roll

114.9
113.7
116.0
114.5
112.0
111.1
108.5
108.8
107.5
103.7
97.4
89.7

117.2
115.5
123.7
120.9
122.4
124.2
119.3
121.6
119.8
115.8
107.0
98.0

81.0
82.6
83.2
82.1
81.9
81.0
79.8
81.2
83.4
84.1
84.2
83.3

82.8
81.3
81.7
79.0
77.3
75.4
71.7
73.9
73.4
72.6
71.7
73.3

82.5
84.6
85.9
85.8
87.9
89.8
88.2
91.4
94.5
97.0
99.0
100.5

72.4
74.9
73.8
77.2
80.5
78.5
83.0
87.0
89.5
93.4
95.7

100.7
102.5
104.6
105.0
105.3
106.0
104. 9
105.2
105.7
104.5
103.2
101.4

94.6
97.9
102.5
103.8
107.3
107.5
103.3
103.8
104.3
106.6
104.5
102.9

100.2
101.5
101.7
99.9
96.8
93.8
91.0
92.1
94.4
95.3
94.8
96.1

104.1
104.1
101.8
97.5
92.4
85.7
89.3
92.5
95.1
93.7
97.6

96.3
98.1
98.8
98.7
98.1
98.0
97.8
99.5
101.5
102.2
101.8
101.5

95.4
100.8
102.4
100.0
100.7
98.7
96.8
99.3
98.8
104.6
104.6
105.2

Prices
1926:
103.2.
102. 5.
100. 5.
100.0.
100. 5
100.8.
99.7.
98.7.
99.6.
99.1.
98.0.
97.4.
1927:
96.6.
95.9.
94.5.
93.7.
93.7.
93.8.
94.1.
95.2.
96.5.
97.0.
96.7.
96.8.
1928:
96.3.
96.4.
96.0.
97.4.
98.6.
97.6.
98.3.
98.9.
100.1.
97.8.
96.7.
96.7.
1929:
97.2.
96.7.
97.5.
96.8.
95.8.
96.4.
98.0.
97.7.
97.5.
96.3.
94.4.
94.2.
1930:
92.5..
91.4..
90.2..
90.0..
88.8..
86.8..
84.4..
84.3..
84.4..
83.0..
91.3..
79.6..
1931:
78.2..
76.8..
76.0..
78.4..
73. 2..
72'. 1..
72.0..
72.1..
71.2..
70.3..
70.2..

EmployPay roll
ment

100.5
101.5
102.1
101.4
100.4
100.3
99.4
101.4
103.4
103.1
101.4
100.0
98.2
99.7
100.2
99.6
99.1
99.1
98.1
99.3
100.5
99.6
97.4
96.1
95.0
96.5
97.6
97.1
97.0
97.8
97.7
100.1
102.2
102.6
101.7
101.2
100.8
102.9
104.1
105.3
105.3
105.6
106.1
107.9
109.0
107.7
103.6
99.8
97.3
97.3
96.9
96.3
94.8
92.9
89.5
87.7
84.6
82.3
79.6
80.3
80.7
80.7
80.1
78.4
77.0
77.1
77.4
74.4
71.8
71.0

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKfe 5
Employ- Pay roil
ment

Prices
1932:
67.3
66.3
66 0
65.5
64.4
63.9
64. 5
65.2
__
65.3
64.4
.
63.9
62.6
1933:
62.0
59.8
60.2..
.
60 4
62.7 .
65.0
68.9
69.5
70.8
71.2
71.1
70.8

.

-

_

.

-..
_.-

. . .

68.7
69.5
68.4
66.1
63.4
61.2
58.9
60.1
63.3
64.4
63.4
62.1

53.5
54.6
53.1
49.5
46.8
43.4
39.8
40.6
42.9
44.7
42.9
41.5

60.2
61.1
58.8
59.9
62.6
66.9
71.5
76.4
80.0
79.6
76.2
74.4

39.5
40.2
37.1
38.8
42.7
47.2
50.8
56.8
59.1
59.4
55.5
54.5

Employment

Prices
1934:
72.2
73.6
73.7
73. 3 .
73.7
74.6
74 8
76.4
77 6
76 5
76.5
76.9
1935:
78 8
79 5
79.4
80 1
80.2
79.8
79 4
80.5
80 7
80.5
80.6
80.9
1936:
80.6
80.6 .
79.6

127
Pay roll

.

_

.

...

64.1
69 1
70 8
70.7
68 5
66 5
65.3

83.5
85 3
84.8
84.6

.

54.0
60 6
64 8
67.3
67 1
64 9
60.4
62 3
59.1
61 0
59 5
63 2

78.6
81 2
82 4
82.4
81 1
79.7
79.5

.

73.3
77.7
80 8
82.3
82 4
81.1
78.6
79 4
75.8
78 4
76 8
78.1

72.1
75 1
74.5
72.2

83.1
83.2
84.2

72.2
72.3
75.7

Mr. OWEN. YOU will observe that just in degree as the all-commodity
index rises, factory employment and factory wages also increase, and
invariably employment and wages go up with a rising index and go
down with a falling index. The all-commodity index merely reflects
the quantity of money in circulation in the purchase of 784 commodities annually or monthly.
Mr. TRANSUE. Senator, will you tell me why that is so?
Mr. OWEN. That is so because the all-commodity index represents a
standard. Taking 1926 as a standard, it took 54.7 billions of dollars
of money to buy all the commodities made in the United States by
labor, sold through the wholesale markets. That was taken as the
standard, 100. It was 100 representing the all-commodity index;
it was 100 representing the purchasing power of money, and it took
54.7 billions of dollars to buy all the products sold through the wholesale-commodity markets of the United States for the year 1926.
It was assumed that if in the next year the people produced the
same substantial amount of products, and that is a reasonable estimate to make, that it would take the same amount of money, but if
you increased that money without increasing the commodities, you
would cheapen the money and the commodities would go up. If you
contracted the money, the commodities would go down in exchange
for money, and if you cut that money down to one-half it would go
down to one-half, as it was in 1932, when we had contracted our
money supply and our demand bank deposits by nearly half and the
commodity index went down to about 60, and when
Mr. TRANSUE. Senator
.
Mr. OWEN. All right.
Mr. TRANSUE. It seems to me that this money must go out into
the hands of consumers to buy consumers' goods in order to raise the
commodity index. Just how does the buying of bonds and the consequent getting of credit in the hands of individuals who are now
hoarding do that?




128

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. OWEN. Money flows like water to the ends of the countryseeking profit, and when you increase the money supply, that money
seeking profit will flow into all sorts of operations where the property
is exchanging hands from one set of people to another set of people.
'That is just like the case that Mr. Cameron, Ford's manager, referred
to some time ago in his radio address, when he was making a review
l
of the $270,000,000 that they paid out, and he said that he found it
'W^nt to over 6,000 different manufacturing and distributing concerns
in 46 States, going out from the city of Detroit. The same thing
takes place everywhere, and you need not concern yourself with
exactly the detail as to how money finds its way into the hands of
the individual citizen. It does do it, and when you raise employment, you then give to each individual who is employed the power to
buy, because he will be getting his wages or salary and will be able
to buy things with those wages and salaries received, and when you
observe systematically through the years, month by month, that
employment rises and falls with the all-commodity Index, and that
the all-commodity index rises and falls with the supply of money,
you have the problem that employment and wages rise and fall with
the volume of money.
Now, if you go beyond the point where you have all the people who
are willing to work and able to work employed, you cannot profitably
expand money beyond that point. If you do, you would then be
guilty of inflation, which is a harmful experience, almost as harmful as
the violent contraction of credit which throws people out of employment.
Mr. TRANSUE. Senator, there are now vast sums of idle funds in
the banks—is that correct or not?
Mr. OWEN.

Yes.

Air. TRANSUE. Why are those funds not used in private enterprise
to give employment?
M L OWEN. I explained that a few minutes ago by saying that when
you made it profitable for such deposits to be invested in property
such as real estate, such as commodity values, such as in various
enterprises that might be engaged in, such as in the buying of stocks
and bonds in the stock market, when they know that the value of
money is not going to increase by hoarding, they will then have the
profit motive to induce them to employ that money in exchange for
property which other citizens have.
Mr. TRANSUE. Then the process that you describe is known as
managing our currency? Is that right?
Mr. OWEN. Some people use the words "managed currency/'
Mr. TRANSUE. All right. As you understand
Mr. OWEN. I do not approve of the use of the words "managed
currency." I prefer to use the terms of the Constitution of the
United States, which will be the regulation of the value of money, a
tdtfty which is imposed upon the Congress.
MT. TRANSUE. In England, are they regulating the value of their
money at the present time?
M T . OWEN. Yes.
MT. TTIANSUE. Are

the authorities in the United States, with the
power that is vested in them, regulating the value of our money at
the present time?
MT. ©WET*. Most emphatically not. Everything else but that.




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129

Mr. TRANSUE. Then, and I am probably going over old ground here,
but I would like to have you state to me and to the committee what it
is necessary for us to do to regulate the value of money or to regulate
our currency and thus increase employment and relieve this depression.
Mr. OWEN. Finish the perfecting of the Federal Reserve Act by
adding to the law as it now is the authority in the Reserve Board to
do the things you instruct them to do. Then instruct them in a
manner that cannot be misunderstood, and require them to come
before the Clerk of the House of Representatives and take an oath
that they will obey your law.
Mr. TRANSUE. Senator, have they the power to do the things you
would require them to do at the present time?
Mr. OWEN. They could if they had the will, in my opinion, to do
it, but they can also plead an alibi, and I would not leave them any
alibi to plead.
Mr. SPENCE. YOU are in favor of charging the agencies of Government with administrative instead of with legislative duties? Isn't
that true?
Mr. OWEN. Why, certainly. I do not think that Congress has any
right, constitutionally speaking, to vest vast powers in the Federal
Reserve Board without any instruction to the Federal Reserve Board
how to use those powers, which is in effect leaving the legislative function in the hands of persons you do not know.
Mr. SPENCE. I have always thought that, that it was an abandoning
of our duty and a delegation of legislative power.
Mr. OWEN. I read a speech that you once delivered that I thought
was absolutely conclusive on that point.
Mr. SPENCE. AS a practical matter, how would you draft that mandate so that you would only delegate administrative powers?
Mr. OWEN. I would lay down the policy, the objectives, the manner
in which the objectives could be achieved, and I would direct the
Board to carry out that policy according to the methods laid down in
the law for achieving those objectives, and I would require them to
take an oath that they would obey the law.
Mr. SPENCE. The Board ought to have some discretion as to how
the objectives would be attained, don't you think?
Mr. OWEN. Not outside of the instruction of Congress; within the.
instruction, yes, but they should not have the power to legislate on
this vital matter. This is the most important power that can be exercised by mortal man. Upon it hinges life and death in this country.
Upon this issue bolshevism was born in Russia. It was when theRomanoff family accumulated 60 billions of property and did not know
how to use their power that finally their people overthrew them.
I want to see the capitalist system preserved in this country, and
I am doing my utmost to preserve the capitalist system now, without
apology for it, either.
Mr. TRANSUE. Will you yield, Mr. Spence?
Mr. SPENCE. Yes.
Mr. TRANSUE. In your

testimony the other day, you spoke of using
the credit of the country in production, for productive use.
Mr.

OWEN.

Yes.

Mr. TRANSUE. What use of credit or money would you eliminate
when you made your prescription?
Mr. OWEN. I was eliminating the expansion of credit through the
agencies of the United States for the purpose of speculation or




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

gambling, either in stock-exchange values or in real estate or in any
other well-known means of gambling. As I told the committee on
March 4, when I first came into the Congress on the 25th of February
1908, I introduced a bill forbidding the banks to lend money for the
purpose of speculating in stocks on the stock exchanges.
Mr. TRANSUE. HOW would you do that? How would you prohibit
them from lending money for that purpose?
Mr. OWEN. I would prohibit it by law. They are within the control of Congress, and not only are the national banks within the
control of Congress, receiving their charters from the Congress of the
United States, but under the decision of the Supreme Court in the
Associated Press case, all banks transacting an interstate business are
within the authority of Congress in relation to the question of money
and the creation of money by the member banks or by banks that are
not members.
Mr. TRANSUE. IS it always clear what is speculation and what is
production?
Mr. OWEN. I think it is clear enough, but I think that at present,
with the important amendments which have been provided, you
won't have to be troubled with that question. You will practically
solve the question of stability in this country when you stabilize the
purchasing power of money, because when you stabilize the purchasing
power of money the opportunities for creating a boom and for creating
a depression will cease, and therefore the gambling which is based
upon the expansion or boom or the contraction or degression will be
absent.
Mr. TRANSUE. But then, Senator Owen, to describe the 1929
situation, the credit and money of this country was being to a great
extent used for a speculative purpose, and the values of stocks on
the stock exchange had little bearing on their actual investment
values.
Mr. OWEN. Yes, that is true; the stocks had been skyrocketed in
market prices to such a point that many of them would not pay any
interest on the amount invested in the purchase of the stocks.
Mr. TRANSUE. And that money, under your theory, should have
been permitted to be used by persons using their credit for production
pr investment, instead of
Mr. OWEN. The available credits of the country should be employed
in production, transportation, merchandising, in the vital affairs of
life, not in gambling and speculation. Those who have idle money,
who want to speculate and to buy stocks, hoping that they will rise for
other reasons than booms and depressions, would still be at complete
liberty and ought to be at complete liberty to do so, and I think there
ought to be a free market; I think the stock exchange of New York is a
very valuable agency, and for which I have the highest respect.
Mr. TRANSUE. But not in jeopardizing values?
Mr. OWEN. But the buying and selling of stocks should depend
upon the excellence of management, upon faith in the capacity of the
corporation and its opportunity to earn money by creating values, and
the buying and sellingjof stocks on that basis is altogether commendable.
There is no reason to criticize that. It is only where men are gambling
in a true sense that I think the public power should not be used in
supporting such a process.
Mr. MEEKS. Are you through?
Mr. TRANSUE.




Yes,

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. MEEKS. Senator Owen, I would like to ask a question or two.
Part of the time I have not attended the hearings, I regret to say.
My first question is, Have you explained here about the ownership
of the Bank of England and its functions? If you have, I will get it
out of the record. I do not ask you to repeat.
Mr. OWEN. I have been fully occupied with the affairs of the United
States. I have not had any opportunity of going into the Bank of
England. What I did do was to put into the record a report by Sir
Reginald McKenna, former Chancellor of the British Exchequer, who
is the chairman of the board of the Midland Bank, a report to his
stockholders, in which he pointed out the manner in which they had
been managing credit in the last 6 years.
Mr. MEEKS. The Bank of England has been mentioned, and some
of its affairs.
Mr. OWEN. Yes.
Mr. MEEKS. What

I would like to ask briefly is, who owns the
Bank of England?
Mr. OWEN. Private stockholders.
Mr. MEEKS. The banks are not in the owning class?
Mr. OWEN. They could, if they chose to do so, but it is all private
owners, and the ownership of that stock has been refused to the
public. I suppose you know that, do you not?
Mr. MEEKS. Well, I have been so informed.
Mr. OWEN. And there is a reason.
Mr. MEEKS. Will you give the reason?
Mr. OWEN. I haven't it in my command; otherwise I would answer
it.
Mr. MEEKS. When you put in this report of Sir Reginald McKenna,
will you go into that, please, a little?
Mr. OWEN. Sir Reginald McKenna reported that under the system
existing previously to their managed currency of 6 years ago, when
England went off the gold standard in September 1931, that they
were suffering very severely from unemployment, and that under the
new system they had increased the number of employed 2,100,000,
and that they had increased the index of physical production 50
percent in the last 5 and a fraction years, and that they had furnished
their business people an interest rate of 2 percent per annum which
had been unbroken during that period of time, the longest time they
had had an unbroken money rate in Great Britain.
Mr. MEEKS. NOW, in your view, as to the proper functions of the
Federal Reserve System, do their activities parallel those of the Bank
of England, or are they^ similar to them?
Mr. OWEN. In my view the Federal Reserve Act properly amended
as I have suggested would set a standard of stability in the debtpaying purchasing power of money. That would be a standard for
the whole world to follow, and it would be an act so magnificent
that there are hardly any persons living who could realize at this
time its very important consequences of stabilizing property throughout the w^orld, stabilizing the value oi labor throughout the world,
stabilizing the importance of production and consumption throughout the world, and thereby bring a peace to the whole world through
giving mankind an abundance of the necessities, luxuries, enjoyment,
and leisure in life.
Mr. MEEKS. YOU have covered the ground that I desired covered
in connection with my question. I have no further questions.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. OWEN. I thank you.
Mr. Chairman and gentlemen, if there be no further questions
Mr. GOLDSBOROUGH. I think Mr. Williams wanted ask you some
questions.
Mr. WILLIAMS. NO; I think not.
I will ask you this, Senator, if you would care to be more specific,
at least from my standpoint and my understanding of what you
suggest as to what the mandate of Congress should be to the Federal
Reserve Board.
Mr. OWEN. It should instruct the Federal Reserve Board to regulate
the value of money in such a way as to provide, first, an amount of
money sufficient to fully meet the exchange of products and services
of all of the people willing to work in the United States, and when they
have achieved that point, they should maintain the purchasing power
of money at that point through the processes of expanding and contracting credit through reserve banks to be owned exclusively and
controlled exclusively by the United States.
Mr. WILLIAMS. Would you say anything about the general level
of commodity prices?
Mr. OWEN. Yes; I would regard it as desirable to take the level of
1926, because that appears to be the average of the years 1914 to 1930,
and it appears to be the same average as that of the years 1921 to 1929,
inclusive, and it is under the level which would be obtained by taking
the lowest point of May 1920, and the highest point of the purchasing
power of money of February 1933. If you took the difference between
those two, it would be about 113.
Mr. WILLIAMS. From your knowledge and observation and association with the members of the Board since that institution has
been established, have they ever believed that they could, by control
of credit policies, fix the general commodity price level? Have we
ever had a Board that believed that? I am not talking only about the
present one.
Mr. OWEN. Yes; you had such a Board prior to the time when
Mr. Paul Warburg records in his book on the Federal Reserve Act
that he and the conservative elements got control of the Federal
Reserve Board. He tells about it, and I put that in the book which
I sent you; I put his words in there that you might read them so as to
see exactly what happened.
Mr. WILLIAMS. Has the Bank of England, going back to that again,
any fixed standard, or has it been left entirely to the judgment and
discretion of the management of the bank? Have they had any legal
mandate to control their action?
Mr. OWEN. NO ; they have only had the legal mandate that I have
referred to. At present they are practically being advised by the
Treasury Department of Great Britain, and they are cooperating
sympathetically with it, because it is comparatively easy to achieve
that end since there are only a dozen or so men who control the five
great banking chain systems of Great Britain.
Mr. WILLIAMS. Am I right in reading in the Federal Reserve bulletin that they have had no greater success in Great Britain in regulating, fixing, and maintaining the commodity price level than the
Federal Reserve Board has had here during the last 6 years?
Mr. OWEN. I do not know what you are reading from.
Mr. WILLIAMS. The Federal Reserve bulletin. It is my understanding from their figures that in the last 6 years the fluctuation in




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

133

commodity prices in England has been as great as it has been in this
country.
Mr. OWEN. It is a favorite theme1 of those who are opposed to the
public control of money to show that commodity prices continually
fluctuate, and in order to prove that they deal with the individual
commodities, which of course fluctuate according to climatic conditions and other conditions, but when you speak of the all-commodity
index, it is an entirely different thing
Mr. WILLIAMS. Yes, I understand that.
Mr. OWEN (continuing). From the prices of cotton, wheat, or
tobacco.
Mr. WILLIAMS. I understand that, Senator. That is not what I
am talking about, and, as I understand it, that is not what they are
talking about. They are taking the wholesale commodity price
index, the Bureau of Labor statistics index of 784 commodities, I
believe it is, and if I am mistaken about the way I read their bulletin,
I would like to know it.
Mr. OWEN. I should have to read the bulletin in order to intelligently comment upon what they have been saying.
Mr. WILLIAMS. In the very last issue, this month, according to the
figures that they give in their bulletin, as I understand it, the general
commodity price in England during the last 6 years has fluctuated as
much or more in some cases than it has in this country.
I want to call that to your attention, and if I am not correct in that,
I would like to be corrected.
Mr. OWEN. I do not know what the facts are with regard to that.
Mr. WILLIAMS. If that is true, I was just wondering whether they
have had any more success in controlling the price of commodities
than we have.
Mr. OWEN. Their success has been demonstrated by the prosperity
which is now prevalent in England, and it is a question of prosperity
rather than cold figures that you might consider there.
Mr. WILLIAMS. Well, I think that that is correct, but that raises
the question in my mind whether there is not something else outside
of the general commodity price level involved in it.
Mr. OWEN. Yes; there is. The employment of the people of a
country, and the full employment of all of the people who are able
and willing to work, the maximum employment, and their being
engaged in productive industry, is the great factor to be achieved
regardless of the index, but the index is important because it is a
standard by which maximum employment can be achieved, and when
I speak of maximum employment, I do not mean to say the employment of every person in the United States, because there are some who
are sick, and there are some who are blind, and there are some who
would not be able to work and some who are unwilling to work; I am
only referring to those who are employable and willing to work when
I speak of a maximum employment.
Mr. WILLIAMS. I think that that is all for the present. I have many
more questions, but it is getting late.
Mr. CRAWFORD. Will Senator Owen be back tomorrow?
Mr. OWEN. It would not be convenient for me to be here tomorrow.
I will be glad to come back, if the committee should ever want me,
and do anything that I can to be of service to you and of service to
the country.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

I hope that my intensity at times will not be misinterpreted,
because I feel very strongly about this matter.
Mr. GOLDSBOROUGH. Would you care to come back on Thursday?
Mr. OWEN. I do not think that I will be able to do so. I have some
private matters that require my attention.
Mr. CRAWFORD. I had several questions to ask you, but I do not
want to keep the committee here now; it is 12:25. But there are two
or three short ones that I will ask you, if you think you can answer
them briefly.
Mr. OWEN. I will answer them with such brevity as I can.
Mr. CRAWFORD. Though I think I ought to let the committee go.
When you referred to a commodity index, did you have in mind the
550 or the 784 commodities?
Mr. OWEN. Seven hundred and eighty-four is the present number.
I think that that is not very material one way or the other, whether
it is 500 or whether it is 784 or whether it is composed of the basic
commodities. Any index that is substantial would serve the purpose.
But the real thing which I desire is to have maximum production,
and the real thing desired is stability in the medium of exchange
so as to stop all merchandising in the medium of exchange which takes
the form of speculative manias and which have been so harmful in
interfering with the steady employment of labor.
Mr. CRAWFORD. DO you think H. R. 7230—•—•
Mr. OWEN. I do not know these bills by number.
Mr. CRAWFORD. That is the Patman bill that is before us. Do you
think that it carries provisions which give this mandate that you feel
is so necessary?
Mr. OWEN. NO; I do not think it does. I think that the declaration
of policy, as I remember it, is not the same as a positive instruction,
and I think that in dealing with this matter you will have to be very
plain and very direct and give the instruction in a manner that it
cannot be misinterpreted and cannot be disobeyed with impunity.
Mr. GOLDSBOROUGH. There is not any declaration of policy in the
bill itself.
Mr. OWEN. NO ; it is only a declaration of policy.
Mr. GOLDSBOROUGH. But is there even a declaration of policy in
the bill?
Mr. OWEN. But I am not advocating any particular bill. I am
merely talking about fundamental principles here, and the Patman
bill certainly takes over the Reserve banks, and I think that is very
important, and it does declare its objectives, and I think that that can
be amended so as to cover that point, but I think it is up to the committee to take this matter under the most careful scrutiny and perfect
a bill that shall represent the views of the committee, and not just
accept some bill that may be brought in by a member that may or
may not be completely acceptable.
Mr. GOLDSBOROUGH. But the question that the Congress and the
country are interested in is whether or not there is anything in the
bill outside of the preamble which has any legislative force whatever,
which declares a policy or expresses a direction to the Federal Reserve
Board or any other body to stabilize the currency or the price level.
Mr. PATMAN. Mr. Chairman
Mr. GOLDSBOROUGH. Wait a minute. Let Senator Owen answer
that question.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

135

Mr. OWEN. I think that what the country is interested in is in
perfecting this system, and that Mr. Patman's bill, if it does not meet
that objective, if it is going to be used as a basis, should be made to
meet it.
I agree with what the chairman says, that a declaration of a policy
in the preamble is not sufficient.
Mr. PATMAN. Mr. Chairman
Mr. CRAWFORD. May I ask one more question there?
Mr. PATMAN. Yes.
Mr. CRAWFORD. Senator

Owen, in going over your testimony, I am
impressed with the statement you made with reference to either the
House or the Senate having the power to emit a resolution calling for
the removal of these officers who fail to carry out a mandate, if one
has been provided.
Do you feel that the Patman bill carries such provisions and would
enable the House and Senate to so remove such an officer?
Mr. OWEN. I do not remember anything in it that would accomplish
that end.
Mr. CRAWFORD. YOU do feel that that is very vital and necessary?
Mr. OWEN. I think that it is very necessary and vital, and that we
have proved that after 25 years. We have been relying on these gentlemen for 25 years to give us stability, and look what we have today—
1921,1929-32,1937—how much more do you want of that?
Mr. CRAWFORD. Personally I do not want any more, but I do want
to have a clear understanding of just how far you want to go with them.
Mr. OWEN. I want to go the whole way, so that the people of the
United States shall have stability and peace, and that the world shall
have peace, and the way to end war in the world is to have commercial
stability and peace built upon wisdom and knowledge and the actual
labor of the people who are willing to work and who are secure in their
opportunity to work by a stabilized government and a dollar of uniform debt-paying purchasing power.
Mr. CRAWFORD. In other words, you do not feel that the appointment of these commissioners, we will call them, by the President and
their confirmation by the Senate would at all suffice?
Mr. OWEN. It is not enough. They should be subject to recall by a
simple resolution of no confidence, either of the House or of the Senate
in my opinion. Then they would behave themselves.
Mr. CRAWFORD. And without the House or Senate having to
explain?
Mr. OWEN. Yes; without any explanation whatever except that
you prefer somebody else.
Mr. PATMAN. One suggestion about this price level business.
Here is a statement in opposition to the Patman bill, signed by 71
members of the Economists' National Committee on Monetary
Policy, Educational Building, 70 Fifth Avenue, New York City, and
the names are given. They think that this bill has a mandate in it,
for the last clause in that statement says
Furthermore, the bill would charge this Government-owned banking agency
with a responsibility for maintaining a stable average of prices which in all probability could not be fulfilled.

So they think it is in there, but the object is to put it in, and if the
gentleman wants to sponsor it as he has favored heretofore, it will
meet with my approval.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. GOLDSBOROUGH. The interesting question is this, that this bill
has been publicized throughout the country and the Members of
Congress have been importuned to vote for this measure as being
a very beneficial measure, and it is very necessary that the Congress
and the country should understand what the measure was when it
was presented to the Congress and whether or not it carries the virtues
which its proponents contended it carried at the time the Congress
and the country were asked to adopt it.
Mr. PATMAN. Its opponents think so, but if the proponents feel
that it is not sufficient, they can quickly change it.
Mr. GOLDSBOROUGH. Anything that was put in this bill wilich
would amount to a mandate to the Federal Reserve System to stabilize
the price level would be subject to a point of order, because it is not
in the nature of a perfecting amendment.
Mr. PATMAN. Let the gentleman introduce the bill.
Mr. GOLDSBOROUGH. That is not the question, but whether there is
here before the Congress a bill to do exactly the thing that Senator
Owen has been talking about, and the Congress and the country are
entitled to know what this particular bill contained which the gentleman has said on the floor of the House the chairman refused a hearing
on and which he has been urging the country to adopt as a beneficial
measure ever since last June. They are entitled to know what is in
this bill.
Mr. PATMAN. That is all right. When the bill comes up for consideration under the 5-minute rule in committee, we will discuss that,
but I do not think it is germane now. If the bill is not sufficient, we
will make it sufficient.
Mr. GOLDSBOROUGH. YOU undertook to say what the opponents of
the bill contend the bill contains.
Mr. PATMAN. They admit this.
Mr. GOLDSBOROUGH. Naturally the opponents of the bill are going
to say that the bill contains everything that they do not want.
Mr. PATMAN. Senator Owen, as one of the authors of our bill, I
appreciate your appearing here to testify. I have never known a
time in this House, and I have been here almost 10 years, when there
was more interest manifested in anyone's testimony than has been
mainifested in your testimony. Yesterday not only did we have 15
members of the committee here, which is very unusual, but we had at
least 30 or 40 Members of the House at different times listening to
your testimony, and as many comments on Capitol Hill about the
value of it, and I personally appreciate very much the great service
you have rendered the public.
Mr. CRAWFORD. Mr. Chairman, I want to submit a unanimous
request, and put it that way, so that anyone can object to it if they
want to.
I have very carefully reviewed all of the testimony of Senator Owen,
back to 1932, and this 10-point memorandum which he referred to I
have read with great interest and found it is so fitting as compared to
the conditions today that, if the Senator is agreeable, I should like to
ask unanimous consent that that memorandum of May 27, 1929, be
put in his testimony now, in such manner as he might desire, but, if
the Senator has any objection to it, let us leave it out.
Mr. OWEN. I do not understand what memorandum you refer to.
Mr. CRAWFORD. The memorandum of May 27, 1929, is the memorandum which you submitted at that time to the administration.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

137

Mr. OWEN. TO Mr. Hoover, you mean?
Mr. CRAWFORD. Yes; and it is covered in your 1932 testimony.
Of course, if you do not feel that it should go in at this time, I certainly would not want to make that request.
Mr. OWEN. I do not believe I have a copy of it. I gave a copy of
it to the Chairman of the Committee some years ago.
Mr. CRAWFORD. I will furnish you with a copy of it out of an official
document, if you care to put it in.
Mr. OWEN. Out of an official document?
Mr. CRAWFORD. Yes,

sir.

Mr. OWEN. I did not know it was printed.
Mr. CRAWFORD. It was printed in the hearings.
Mr. OWEN. I did not know it.
Mr. CRAWFORD. In 1932, under your testimony.
Mr. OWEN. Yes; I have no objection to it going in.
Mr. GOLDSBOROUGH. Is there objection?
(There was none, and the memorandum referred to is attached as
an appendix to the testimony of Senator Owen.)
(1) By refusing or failing to replace the $500,000,000 of gold released to Europe
in 1927 by substituting therefor Federal Reserve notes as Gov. Roy A. Young
very honestly stated on March 16 last at Cincinnati, Ohio.
(2) By selling Government securities and thus withholding money from the
open market where it would be normally used for commerce, as Governor Young
also stated.
(3) By ceasing to buy open-market paper and thus absorbing money from the
market by allowing these bills to be paid to the bank without reinvesting, as
Governor Young also stated.
(4) By passing out gold certificates as a circulating medium in lieu of Federal
Reserve notes and thus diminishing their own powers of emission of Reserve notes
(money).
(5) It retired $214,000,000 of Reserve bank notes issued against bonds.
(6) It is now interfering with the rights of commerce and business to sell corporate stocks as a means of getting money and doing this by obstructing the
credits required by members of the stock exchange for the orderly selling of stocks
and bonds.
(7) They raised the rate of interest on rediscounts in 1928 three separate times,
knowing that raising such rates of interest would exercise, did exercise, and does
exercise a dominating influence on acceptance rates, on prime commercial paper,
on time collateral loans and on call rates to the serious injury of business throughout the country, compelling businessmen to pay artificial rates without cause,
and submit to very excessive reorganization charges and commissions.
(8) By a 5-percent rate for rediscounts, they well know that banks borrowing
at 5 percent have an overhead charge of $1.35 per $100 for handling loans, and
that banks lending money at the legal rate of 6 percent must suffer loss and are
thus denied the accommodation the law intended.
(9) They are freezing national credit by a vast publicity of the unsound claim
of a great stringency of credit, when there is no stringency.
We are actually extending foreign credits to the extent of $2,000,000,000 per
annum, while the Reserve Board makes this unreasonable claim.
The Reserve banks having nearly three billions of gold, could expand their gold
holdings 600 millions in a few months by the simple process of exchanging
Reserve notes for gold certificates passed over their counters and against three and
one-half billions of gold they could emit Reserve notes to the extent of two and
one-half times, without going below the 40-percent gold reserve, thus creating an
available primary credit of over eight billions, and a secondary credit based on
such currency very much larger. The fiction of the sellers of credit that thereis a credit stringency in this enormously rich country, and with a banking system
capable of extending all the credit commerce could possibly require, should deceive
nobody.
(10) The Reserve banks are browbeating the member banks and interfering
with their right to make call loans or time loans on New York stock collateral
which is a usurpation of power not authorized by the Reserve act.




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Mr. OWEN. I would like to make this observation that anybody
in giving testimony through a period of years will sometimes meet
himself coming where he thought he was going, and I wish it to be
clearly understood that I do not claim any credit for omniscience, but
I have tried to understand this matter, and I have tried to be useful
to the committees as occasion required, and have sometimes given
testimony that was not perhaps entirely accurate, but it has had at
least the value of good will and a desire to serve the country.
Mr. GOLDSBOROUGH. Senator Owen, through a long period of years,
40 years at least, of congressional service, and service since you left
Congress, you have been enlightening the people of this country on
a matter which of course concerns the very life blood of every individual in it, a question which, as you have indicated, is the most
important question that people can obtain knowledge upon. In
doing that you have naturally incurred the displeasure of powerful
interests. You have never wavered in the slightest degree.
Nobody can appreciate that service that you rendered more than
I do, or the service that you rendered during these hearings, and as
acting chairman of the committee, on behalf of all the members of
the committee, I wish to thank you very sincerely for having given
us the benefit of the information and knowledge here imparted to us.
Mr. Luce saw me last night in the Mayflower Hotel, and asked me
to tell you that he had a subcommittee hearing, in the Committee
on Patents, this morning, and for that reason he could not attend,
and he expressed his great regret at not being able to attend.
The committee will adjourn.
Mr. MCKEOUGH. Before we adjourn, do I understand that Mr.
Crawford will have that testimony of 1932 introduced Into the hearing
here?
Mr. GOLDSBOROUGH. That is my understanding.
Mr. PATMAN. I presume that it would not be objectionable, since
this testimony has been finished, to insert it into the Congressional
Record
Mr. OWEN. That is the testimony I gave before this committee?
Mr. CRAWFORD In 1932.
Mr. GOLDSBOROUGH. I would

rather that you took that up with
the chairman. He will be here tomorrow.
Mr. PATMAN. We will meet tomorrow morning?
Mr. GOLDSBOROUGH. At half past 10; that is, unless there is some
reason why you do not want to meet tomorrow.
Mr. OWEN. I have no objection to the matter going in at all.
I wish to state that I appreciate the kindness of the committee in
listening to my discourse in this matter.
Mr. GOLDSBOROUGH. It has been a great pleasure, sir.
(Thereupon, at 12:40 p. m., an adjournment was taken until
Wednesday morning, March 16, 1938, at 10:30 o'clock.)




GOVERNMENT OWNERSHIP OF THE 12 FEDERAL
RESERVE BANKS
WEDNESDAY, MARCH 16, 1938
HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. 0.
The committee resumed hearings on H. It. 7230 at 11 a. m., Hon.
Henry B. Steagall (chairman) presiding.
Other members of the committee present:
Mr. Goldsborough, Mr. Keilly, Mr. Spence, Mr. Farley, Mr. Ford,
Mr. Brown, Mr. Patman, Mr. McKeough, Mr. Transue, Mr. Gifford,
and Mr. Crawford.
The CHAIRMAN. The committee will come to order.
Mr. PATMAN. Mr. Chairman, Mr. Binderup wanted to be heard
first this morning.
The CHAIRMAN. All right.
Mr. PATMAN. Mr. Binderup is one of the authors of this bill H. R.
7230, and he assisted in the organization of the steering committee
which later approved this bill. He is one of the proponents of the
bill, of course. He is a Member of Congress from Nebraska, and
would like to be heard now.
STATEMENT OF HON. CHARLES G. BINDERUP, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF NEBRASKA
Mr. BINDEKITP. Mr. Chairman and members of the committee, I
was greatly disappointed, of course, when I found I was not able
to include my bill, H. R. 9800, under the Patman bill, as an amendment to the Patman bill, because I had always thought that that was
the proper procedure.
The CHAIRMAN. Mr. Binderup
Mr. BINDERUP. But, of course
The CHAIRMAN. All right; you may proceed.
Mr. BINDERUP. Being now made familiar with the fact that that
would not be acceptable to the committee, and also for the reason
that I realize so well that to sell an idea, or to sell a plan, or to convey an idea to a committee, it is first necessary that that committee
is of an acceptable mood, and feeling that if I should try to force
my way in here under the Patman bill, as I had intended to do,
frankly speaking—that is exactly what I had intended to do—you
would have discovered what I was doing, and if I should come in in
that way, unfavorable to the committee, I realize the impossibility
of succeeding in the righteous cause to which I have devoted a lifetime and spent a great deal of money.




139

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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

I want to add, however, that my surprise even exceeds my disappointment. Having spent years in the study of this monetary question, and traveled considerably over the United States to contact
writers of books and students on the monetary question, to invite
their criticism, in order that I could be able to build a structure that
is worth while for your consideration, and then, not even satisfied
with traveling over the United States and visiting these writers and
students, I decided to spend my own money to go to Europe in order
to contact the great students of the monetary question in Europe, as
well as the big bankers in Europe, that I might get their reflex action
so that I might be able to come to you as an able man, so that I might
be able to explain the principles involved, that I might be able to
bring something to you that is constructive.
So I say that my surprise in being denied the privilege of coming
before you in 3 years exceeds my disappointment.
Mr. PATMAN. Will the gentleman yield?
Mr. BINDERUP. Yes,

sir.

Mr. BINDERUP. NOW, Mr. Chairman, through reading the Congressional Record, I knew you men long before I came here, because of
your great work in this monetary program. You were privileged to
study this question under the dome of the Nation's Capitol; I had to
study it under another dome; I w^as under the dome of God Almighty's
blue sky, in the great outdoors of the West, where I studied with you,
and I benefited from your remarks. The two schools of thought were
far apart, and under different conditions, but if I should bring you
the views that I developed out there, I believe—I know that they
would be helpful. I know definitely that I am going to bring information before this committee that will be acceptable—not alone
that it is going to show the disastrous conditions, not alone the history of the 25 panics we have had in the United States, and not
alone dwelling briefly on that to show definitely what causes panics,
but my program is built on the fundamental principle of cause and
effect, and the cure, but the cure especially.
I said to President Roosevelt in our conference about 3 weeks ago,
when he asked me a certain question: "You and I have long since
gotten tired of listening to men. Surely certain men do understand
the situation, and they make wonderful statements, but when we ask
them what their plan is, what their procedure is, how are we going
to get out of this depression that we are in, they shake their heads
and say that they do not know, that they are still studying the situation."
For thousands of years, and this Nation for 150 years, this thing
has been studied, and they are still studying it wThen our Nation is
on the brink of a precipice, tottering and trembling at the present
time, because we have not brought about the solution.
Now, with these few preliminary remarks, if you will let me go on,
and if I do get away from the Patman bill
Mr. MCKEOTJGH. GO ahead.
Mr. PATMAN. Wait until the question is raised.
Mr. BINDERUP. I would like to go ahead, but I am hardly in a
position to do so this morning. My charts are not arranged. Would
it be agreeable to have somebody else go on, and let me go on tomorrow morning?
Mr. MCKEOUGH. I think it would save the time of this committee
if we got this out of the way. Certainly we do not want to take an




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

attitude of an arbitrary nature against Mr. Binderup. Apparently
he suffered some misunderstanding. He is not prepared to proceed
today.
I presume that you could finish in a day or so ?
Mr. BINDERUP. NO ; I could not.
Mr. MCKEOUGH. HOW long?
Mr. BINDERUP. I think it will take a long time, because I expect you
men to ask me a lot of those questions that you asked other people,
and I expect to have the proof, so as to give you a conclusive and definite answer, and I think it will take much time—I hope it will. I
hope that we wTillTget into all of these things in detail, and that we
will have, when w e get through, not a bill that is just merely a suggestion, that is just merely a policy, but that we will have a bill with
mandatory legislation in it, that will say to the agencies of government, to the Federal Eeserve Board or the Federal Reserve banks,
definitely—
Here is your plan. We, as Members of Congress, have set out this plan in
detail, and we ask you, as agents and servants of the United States Government,
to fulfill it.

So when you suggest a day or so, it would be just impossible.
Mr. TRANSUE. Where are your charts ?
Mr. BINDERUP. They are here.
Mr. TRANSUE. Can they not be arranged now ?
Mr. BINDERUP. If I might, I would prefer to begin later. This is
a climax in my life. I would prefer to go through this in my own
way, fundamentally, from the bottom up, go back to the Constitution
and show why this Government ought to get out of the banking
business, and why the banks ought to get out of the money creating
business. Let the banks run the banking business and let the Government control the velocity of money.
The CHAIRMAN. Can't you discuss what you want today on the
Patman bill ?
Mr. BINDERUP. Oh, no. Many men
The CHAIRMAN. Mr. Patman has a question.
Mr. PATMAN. May I make a suggestion ?
I do not think it will take me over 3 or 4 days to finish, and after we
have finished, I do wTant the bill to be taken up under the 5-minute
rule, which should not take long, and then I would like to see you give
Mr. Binderup a hearing. He was led to believe, I understand from
him, that he would not be permitted to testify this morning:
Is that right?
Mr. BINDERUP. That is correct.
Mr. PATMAN. And he did not prepare himself to testify this morning. He was led to believe by a member of this committee that he
would not be permitted to testify.
The CHAIRMAN. Of course, we cannot make him proceed now, if
he does not see fit to do so, and I am sure that nobody wants to make
him proceed.
Mr. PATMAN. What do you think about letting us finish on our
bill, H. E. 7230, and then having either the whole committee or a
subcommittee take up his bill, and give him a complete and full hearing ?
The CHAIRMAN. I do not care to deal with that at just this moment.
69972—38

10




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. FORD. Mr. Binderup, may I ask you a question?
Perhaps while we were off of the record, you touched on a subject
that I am deeply interested in, and that is the 100 percent reserve.
Couldn't you take that up as an isolated subject and discuss it this
morning in the half hour that we have ?
Mr. BINDERUP. There is no greater subject; that is the fundamental
thing. Without a 100 percent reserve back of demand deposits the
whole plan is a failure, and consequently it is woven into my whole
program, on which I spent hours, in order to weave a chain of
thought so that you might understand it constructively, and in that
chain of thought comes a method of creating a 100-percent reserve,
without the slightest disturbance to our monetary and banking system, which is very essential, and for that reason, Congressman Ford,
I would like very much to go at this in my own way and not in a
piecemeal way, to go at it fundamentally from the bottom up, and
show the history and the causes of depressions, briefly, and the effect,
and then the remedy for the prevention of panics.
I want to mention one more thing before I go, because it is constructive and to the point. When I was called to speak before the
Secretary of the Treasury, Mr. Morgenthau, and his economists,
there was a little remark that was of importance. It was Mr. Morgenthau who said to me "You haven't got anything new in your bill.
This price level, this 100-percent reserve back of demand deposits,
are old," and he said, "Your principles are old to us," and I said,
"Truly, the plan and the thought of monetary control are old, but
the plan I have got, of the easy, practical way of doing this, without
building up new bureaus, without additional government, and weaving it into our present situation, is a new thing."
And then Mr. White, one of his economists, spoke up and he said,
"Mr. Binderup has something new in his bill. He has part of the
Goldsborough bill"—he did not say that, but I am saying it, that he
said that I had that fundamental principle in my bill that you cannot control the monetary situation at the top.
Mr. PATMAN. YOU referred to the Goldsborough bill. Do you
mean this 15-percent bill ?
Mr. BINDERUP. I mean this part of the Goldsborough bill that plans
for creating a purchasing and consuming power, and he said, "He
has got that, for one thing; that is new."
Mr. GOLDSBOROUGH. Mr. Patman referred to the 15-percent reserve
in the Goldsborough bill.
Mr. PATMAN. NO; discount.
Mr. GOLDSBOROUGH. YOU said "reserve."
Mr. BINDERUP. I understand your bill very well.
Mr. GOLDSBOROUGH. I want to get the record straight. There is
nothing in the Goldsborough bill about a 15-percent reserve.
Mr. PATMAN. But there is a discount.
Mr. GOLDSBOROUGH. That is a very different matter.
Mr. PATMAN. I appreciate your calling that to my attention.
Mr. GOLDSBOROUGH. It should be, because the record will be printed.
Mr. BINDERUP. The only thing newT about my bill is a constructive
plan for discontinuing that absolutely impossible theory of controlling the price level and the monetary supply by your open-market
operations, where they are at the present time standing on their heads,
for we are selling bonds to put money into circulation, where the plan




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

J43

was to sell bonds to take it out of circulation. We have it standing
upside down. It is an impossibility, and the increased reserves back
of demand bank deposits in the plan which has been pursued is absolutely disastrous.
My banker said to me when I left home, "For heaven's sake, when
you get back, don't authorize the Federal Reserve any more to raise
the reserves back of demand bank deposits," and he said, "Your 100percent reserve is right, because that establishes the 100-percent reserve by the Government itself, and that makes it easy for the banks."
Well, now, you know, I did not expect to discuss my bill before you
now, for I realize that we are going into that feature of the bill, and
now I will ask you again for the privilege, if I may have it granted,
that Congressman Patman suggested, that he go on with his bill, and
then let me come in with my bill tomorrow, or whenever it is convenient for you, so that I can go at it in a constructive, acceptable, understandable way.
Mr. GOLDSBOROUGH. That question ought to be raised when the
chairman comes back.
Mr. TRANSUE. Some of the members of the committee would like to
hear what you have to say in connection with what we are trying to
do here now, and if you can do that, I would be very pleased to have
you go ahead and do it, and I am sure that if you have something
of interest to the committee, the other members would like to hear it.
Mr. GOLDSBOROUGH. Mr. Binderup, the Patman bill permits the
Federal Reserve Board to raise and lower the bank reserves, and therefore any discussion on the 100-percent reserve would certainly be relevant to the Patman bill, and the committee, I am certain, would be
glad to hear you on that subject if you care to discuss it.
Mr. PATMAN. I personally would like to have information on that.
I do not entirely agree with you, Mr. Binderup, but I would be glad
to be sold.
Mr. TRANSUE. I think that you should go ahead and begin your discussion, because the committee wants to hear what you have to say.
Mr. BINDERUP. I must only say this
Mr. GOLDSBOROUGH. I would like to say this, that there has been
some discussion here this morning about some member of the committee telling you that you could not proceed on anything else except
H. R. 7230. You came to my office yesterday afternoon, and I endeavored to advise in the most kindly manner on what I would do if
I were in your place. I told you that the chairman of the committee
would be here this morning. I was not unkind to you in any way
whatever. I did say this to you yesterday, that I would no more go
before a standing committee of the House which was considering a
bill and ask them to break in and hear my bill than I would think of
jumping off the top of this building.
I said that to you, didn't I ?
Mr. BINDERUP. Yes; you

did.

Mr. GOLDSBOROUGH. And I advised you against it ?
Mr. BINDERUP. Yes; you

did.

Mr. GOLDSBOROUGH. But whatever you do is your own business and
not mine.
Mr. BINDERUP. NO ; but let me say this, that I appreciate your advice. That is the reason that this morning I did not want to testify,
because I recognized the fact that if I went before your committee in




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

a way which was not acceptable to the committee, and in an irregular
manner, that I would be creating some kind of animosity against
myself before I started, and that I wanted an honest, open-minded
committee, where we could cooperate.
Mr. GOLDSBOROUGH. I do not think there is anything in the world in
this committee except the kindliest feeling toward you. I am sure
that there is not.
Mr. BINDERUP. And since that is the situation, and since this matter
is of such intense value to me, then let me be diplomatic, let me be
considerate, and not destroy the most essential thing for me, an
acceptable mind on the part of the members of the committee. That
is the most important thing in the world for me, and that is one reason why I am going to ask you, if you please, to let me go on in my
own way, coming from a different school than you men came from,
for I noticed sometimes when I looked you up in the Congressional
Directory that some of you had a lot of letters back of your names, and
I have not any back of mine. We went to different schools. Let me
go on in my own simple way. Senator Owen called it "the kindergarten way," and that is the only way that I can address you on; so
let me go on in my own way, if you will, starting tomorrow morning,
but not today, because I want to start from the bottom in a constructive way and have everything rightly arranged.
This is an important time for me, and, I believe, for the Nation,
and I do not want to even make any disturbance in the line or chain
of thought that I have prepared in my program, which was broken
into just a little bit this morning.
Mr. GOLDSBOROUGH. I said to you also yesterday, Mr. Binderup,
which was true, that I had pending before this committee bills on
group, chain, and branch banking since 1931, and I have had a stabilization planr which has been reintroduced for years and years, and
another bill w hich I do not remember right now which I have been
trying to get hearings on. So your position is no different from the
position of members of this committee.
Mr. BINDERUP. Then there is something wrong; that is all.
Mr. GOLDSBOROUGH. Not at all.

Mr. BINDERUP. That does not justify the situation.
Mr. GOLDSBOROUGH. I do not say there is anything wrong, but I do
say that there are members of this committee, and I am one of them,
who have been trying to get hearings on bills
Mr. BINDERUP. What is that strange, peculiar, hidden power that
prevents you from getting a hearing on a righteous bill and prevents me?
Mr. GOLDSBOROUGH. I want to add this: Take this question of chain
and branch banking; session after session I have been visited and
communicated with by advocates of branch banking and I have
brought this bill out and said, "If you undertake to pursue any such
course as that, or introduce the bill, or have a bill introduced extending
branch banking in the United States, I will immediately bring this
bill of mine up in the committee, whether the chairman likes it or not,
and ask for a hearing." I believe in that way I have stopped the
increase of branch banking in the United States for years and years,
but insofar as being able to have hearings before this committee is
concerned, you are in no different position than the members of this
committee.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

145

Mr. BINDERUP. Is it possible, may I ask my dear Congressman—is
it possible that the only thing that is holding back that disastrous
thing of branch banking is your life and yourself; that it depends on
you?
Mr. GOLDSBOROUGH. I do not say that.
Mr. BINDERUP. And if you thought your prestige as a Congressman has been able to hold back that disastrous thing, isn't there something more powerful that can hold back such a thing as branch banking in this Nation? For in all these years you tell me—and it discourages me—that you have been trying to get a hearing. A Member
of Congress and a member of the committee has been trying to get
a hearing on a righteous bill, and you have been denied that hearing;
and then I will say to you once more, to a man that has been here for
16 years, what is that hidden, peculiar power that stops you from
coming in with a righteous bill ?
Mr. BROWN. I want to say that we have met every day this year,
which I think is too much, because we have something else to do. I
have always maintained that if we met every other day it would be
sufficient. We meet more regularly than any other committee in
Congress.
Mr. GIFFORD. May I suggest something there ?
I want to say to Mr. Binderup that I am the ranking man on the
Committee on Expenditures of the Government, which is supposed
to be a very important committee, and I have been unable to get the
committee to meet one single day this year, although I have constantly
urged a meeting. I cannot even get a meeting.
Now, what unseen, hidden power is there there ?
Mr. BINDERUP. Your question answers my question entirely, wThen
you tell me these things that you have told me. I asked openly and
not in criticism, "What is that strange, peculiar power that prevents
us from getting a righteous bill before Congress?" and you answer
the question by saying that it was because of the busy life in many
committees.
Mr. GIFFORD. Not in my case.
Mr. BINDERUP. It is in the case of this committee, because you have
met every day, and that is the reason why, I am told, this happens.
That answers the question.
Mr. GIFFORD. YOU said that you wanted several days. You have
sent us a great deal of material, and I have read quite a little bit of
it. Have you an array of economists back of you that need to be
heard ?
Mr. BINDERUP. NO. I have a few. I have four that want to be
heard.
Mr. GIFFORD. Might I ask you still further—you mentioned Senator
Owen. Have you gone over it with him ?
Mr. BINDERUP. Have I what ?
Mr. GIFFORD. Has he approved your bill ?
Mr. BINDERUP. Yes; he has. He approved it by saying that it was
the greatest bill that has ever been introduced in the Congress. That
is the letter that he wrote to me before I knew Senator Owen very
well. I had only met him once or twice.
Mr. PATMAN. If I understand it right, in our meeting of the steering committee we had, you had a bill and I had a bill, and the com-




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

mittee decided after discussion that it would be best to present this
bill—H. R. 7230—the one that is pending before the committee now.
Mr. BINDERUP. Yes,

sir.

Mr. PATMAN. And it was the understanding that you would go
along with it, but you did reserve the right to offer an amendment
for a 100-percent reserve—that was the reservation, and then when
the question came up about a hearing, Mr. Steagall correctly stated
our understanding, and at that time I told you that when this bill
came up, if I were permitted to testify you would be permitted to
testify, because this bill contains what you are in favor of. There
is only one thing you want to add to it; you want to go further and
have a 100-percent reserve, and under this bill that is germane.
Therefore you will get in your discussion, everything that you want
to get in you will get, and so, since you have everything you want>
and the chairman says go ahead, why, then, go ahead on it.
Mr. BINDERUP. That suits me all right; only I want to go ahead
tomorrow morning or Monday morning.
Mr. PATMAN. But you discuss this bill, with the 100-percent
reserve.
Mr. BINDERUP. And the price level?
Mr. PATMAN. Surely. That is part of the bill.
The CHAIRMAN. I suppose that this discussion has led us to the
point where we are ready to adjourn.
Mr. PATMAN. Yes, sir; and let him be heard on those points, and
let it be understood that the 100-percent reserve applies to this bill.
Mr. CRAWFORD. I may have to attend to some other matters, but
do I understand that tomorrow morning we will start hearings on
the Binderup bill?
The CHAIRMAN. NO ; on the Patman bill.
Mr. REILLY. On the two points of it ?
Mr. PATMAN. Three points; Federal Reserve, price level, and 100percent reserve, and I am anxious to hear Mr. Binderup on the
100-percent reserve. I am not with him now, but I am willing to be
sold on it.
The CHAIRMAN. All right. We will meet tomorrow morning.
(Thereupon, at 12 noon, an adjournment was taken until Thursday morning, March 17, 1938, at 10:30 o'clock.)




GOVEBNMENT OWNEESHIP OF THE 12 FEDEKAL
EE8EEVE BAMS
THURSDAY, MARCH 17, 1938
HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.
Hearings on H. E. 7230 were resumed at 11 a. m., Hon. Henry B.
Steagall (chairman) presiding.
Other members of the committee present: Mr. Goldsborough, Mr.
Reilly, Mr. Spenee, Mr. Meeks, Mr. Ford, Mr. Brown, Mr. Patman,
Mr. McKeough, Mr. Evans, Mr. Transue, and Mr. Crawford.
The CHAIRMAN. The committee will come to order, please.
Mr. PATMAN. Mr. Chairman, as I understand it, Mr. Binderup
wants to make his statement without being interrupted, and I suggest
that he be allowed to finish his statement before being interrogated.
Mr. Binderup, suppose that you fix a time that you would like to
proceed, say 30 minutes; would that be all right?
STATEMENT OF HON. CHARLES G. BINDERUP—Resumed
Mr. BINDERUP. Yes; that is perfectly all right. Of course, I welcome questions; I do like questions very much. However, right in
the middle of a program or an explanation I would like to wait until
I finish at some place, when I would be glad to stop when there is
anyone who desires to ask anything to clarify the subject on which I
have been speaking.
My hope and object in coming before you is to make the subject
matter clear, and I know that on a subject like this a man is liable to
skip something, so I will be under obligation to those who ask
questions.
(At this point there was an informal discussion off of the record
as to how much time Mr. Binderup would require.)
The CHAIRMAN. Before you proceed, Mr. Binderup, just one question, and that is—this is to be a discussion of the Patman bill?
Mr. BINDERUP. Yes, sir; I understand.
The CHAIRMAN. All right; proceed.
Mr. BINDERUP. And. in the discussion of the Patman bill, or any
other bill, gentlemen, it would, of course, be presumptive on my part
if I should presume to be able to tell you something that is entirely
new to all of you on the plan of monetary control. There is no
question in my mind but what in discussing this subject some of you
will become a little impatient at times, because you probably have
known it for years, but I have to go through a regular program, and
I trust you will bear with me.
147




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. TRANSUE. Let us get started.
Mr. BiNDERUP. The principles of the whole set-up are naturally
for monetary control, the thing that we have been striving for for
a great many years. There are three outstanding principles in the
bill. The most emphatic one is one that reverses the whole program
of the entire Nation and the world, and that provides for creating a
consuming and a purchasing power at the bottom by expanding your
money supply at the bottom, so that it expands in the same proportion
and in the same degree
Mr. GOLDSBOROUGH. Do you mean that that is in the Patman bill?
Mr. BINDERUP. Yes; that is part of the Patman bill.
Mr. PATMAN. I do not think that 3^011 ought to interrupt him.
Mr. BINDERUP. There are three principles on which I am speaking
Mr. GOLDSBOROUGH. I do not know why that is not a proper question.
Mr. BINDERUP. The whole monetary theory is involved in this bill.
It is changing the system
Mr. GOLDSBOROUGH (to Mr. Patman). There is nothing in your
hill on that.
Mr. PATMAN. I do not think that you should be technical.
Mr. GOLDSBOROUGH. That is not technical. I am asking if there is
anything in the Patman bill which involves feeding money in at the
bottom.
Mr- BINDERUP. Yes; there is this where it is germane to the Patman bill, and to your bill, and to any other bill
Mr. GOLDSBOROUGH. That is in my bill.
Mr. BINDERUP (continuing). In that it provides for a price level;
it is attaining a price level by expansion from the bottom instead of
the top. It comes under the category of price level.
I do not know of any committee where I have been more discouraged than here, to come before a group of men where it seems to
me there is so much friction. How could we ever hope to sell this
proposition unless we can get some cooperation.
But let me go on with my program.
Mr. GOLDSBOROUGH. One minute.
Mr. Binderup, any friction that may exist in this committee is in
your imagination as far as that is concerned, but if it did exist, it
would be the business of the committee and not of an outsider, and
as far as I am concerned, I am not presiding this morning and you
can talk about what you please. It is up to the chairman. But in
my opinion you should discuss the bill that is before us, and that was
understood yesterday afternoon.
Mr. BINDERUP. I thank you for the suggestion.
Mr. GOLDSBOROUGH. I am not going to make any more suggestions.
Just go ahead and talk all you please.
Mr. BINDERUP. I know, but for 5 days you have talked about the
12 Federal Reserve banks, and while my bill goes in with the Patman
bill, it takes over the 12 Federal Reserve banks and starts in earlier
and stops later, but it also includes a price level as well as the Patman
bill, that protects the rich as well as the poor. The soul of every
monetary bill is the price level, and I was trying to tell you how to
attain it, by, in place of inflating it at the top by selling bonds to
the big banks, maintaining that price level and controlling it by
expanding your money supply at the bottom, and creating a consum-




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

ing power and a purchasing power at the bottom. That, in time,
will raise the price level to the 1926 level.
The second principle of that bill is the 100-percent reserve. That
is absolutely necessary.
Mr. GOLDSBOROUGH. Which bill are you talking about?
Mr. BINDERUP. The Patman bill, and that does provide for raising
and lowering the reserves back of demand deposits. I go the limit—
not advocating the fractional reserves, but I go to the entire 100-percent reserve that is established by the Government in this plan, by
taking over bonds as reserves now held by the banks, plus the cash
that the banks have, plus the assistance of the Government in either
taking slow paper off the bank's hands or perhaps by preferred stock
in the bank, and there is very little necessary; the banks are at this
time almost able themselves to stabilize 100-percent reserves back of
demand deposits, if we include the Government bonds that they are
holding in the commercial banks.
The third thing was the price level that I have referred to, controlling it from the bottom, and the 100-percent reserves. That takes
the banks out of the money-creating business, and it takes the Government out of the banking business, as was the original intention
when the Constitution was written, that Congress should control the
volume and velocity of money, and that the banks should do the lending, but we have reversed the situation until at the present time the
banks do the creating of money and the Government is doing the
lending.
So I say the basic principle of the bill is that it makes that feature
straight cut, that the Government creates all of the money, and that
the banks do the lending of the money.
The CHAIRMAN. Will you let me interrupt you for just one
moment ?
(At this point there was a conference at the bench off the record.)
Mr. BINDERUP. If I may continue in a low voice, and improve the
valuable time that we have here
The CHAIRMAN. We will give you sufficient time, as far as that is
concerned.
Mr. Goldsborough hesitates to preside during the brief time when
I am compelled to be away from the committee, but I think that he
should preside, because it is the custom and the practice.
Mr. GOLDSBOROUGH. I just do not know how to preside in this situation; that is the trouble; and I do not want to do so, unless you
want me to.
The CHAIRMAN. I want you to do just what I have indicated, to
have Mr. Binderup discuss the bill.
Mr. PATMAN. With the understanding that it includes the price
level and the 100-percent reserves.
Mr. GOLDSBOROUGH. It does not make a particle of difference what
he discusses, just so the Chairman tells me what he wants me to do.
He can discuss the North Pole as far as I am concerned, if you want
him to do that.
The CHAIRMAN. NO ; I have indicated very clearly that this discussion shall be confined to the Patman bill, because that
Mr. PATMAN. Or anything germane to it.
The CHAIRMAN. Why, certainly; or involved in the bill, because
that is what this hearing is on. As I explained to you yesterday,
there was an agreement about what this hearing is on, which is on




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

the Patman bill, and I have no hesitancy in making the statement
that Mr. Binderup's remarks should be confined to the Patman bill,
and shall so rule if I am called upon to do it.
I will be back in just a few minutes.
(At this point Mr. Goldsborough became the presiding* member.)
Mr. GOLDSBOROUGH. Proceed.
Mr. BINDERUP. I would like to stop at this point here and say that
on my trips to Europe, with these three principles incorporated
definitely and mandatorily for the control of the monetary situation, I visited a number of men who are students and authorities on
this question, and I want to stop just a minute on each one of them
and tell you what they said. The bill had been sent to them earlier.
I was a guest first in the home of Dr. CasseL, of Stockholm,
Sweden. I want to tell you a few words about the recitation I had
with him. When I shook hands with him, he said, i4Mr. Binderup,
so you have come to Europe. You have come from your great
Nation to learn"
Mr. CRAWFORD. Mr. Binderup, pardon me for making this observation. I am a member of this committee, and my district is very much
interested in the Patman bill, and when you say "the bill," when you
refer to someone approving "the bill," will you at all times please be
specific and say whether or not you are referring to the Patman bill
or your bill, and state the number, please, for the record, so that I
will be prepared
Mr. BINDERUP. All right, but might it be agreeable for me to talk
of principles rather than numbers ? There are those three principles
that are outstanding.
Mr. CRAWFORD. I want that to be made clear, because while I am
very friendly to your proposition, I do not propose to have my part
of this committee gummed up by someone referring to two or three
bills and never specifying in the record what the bill is.
I am speaking for my people in the Eighth District of Michigan,
and I have tried to get the chairman to protect me in that, and the
protection has failed to be given so far. So I will appreciate it if,
when you refer to "the bill," you will say whether it is your bill or
the Patman bill.
Mr. BINDERUP. I did not have the Patman bill with me in Europe.
Mr. CRAWFORD. That is all right, just so you say which one it is.
Mr. BINDERUP. It is my bill.
Mr. GOLDSBOROUGH. YOU are discussing bill number what ?
Mr. BINDERUP. NO. 9800.
Mr. GOLDSBOROUGH. And it is the same bill, practically, as the
Cutting bill of 1934, is it not?
Mr. BINDERUP. I am not so familiar with the Cutting bill, but it
is quite, not exactly.
Mr. GOLDSBOROUGH. YOU are discussing bill No. 9800 ?
Mr. BINDERUP. Bill No. 9800.
Mr. GOLDSBOROUGH. And not discussing the Patman bill?
Mr. BINDERUP. I am discussing not the number of the bill, but the
principles that are in the bill.
Mr. GOLDSBOROUGH. There is one thing that I am going to do. You
must tell the committee wrhat bill you are discussing.. I am going to
rule that you must tell the committee which bill you are discussing,
and I will tell you the reason for it, that we have all been propagan-




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

J51

dized by our constituents about these bills, and our constituents must
not be misled about the matter that is in the bills, and therefore we
must at least know what bills you are talking about.
Mr. BINDERUP. May I ask, to enlighten myself, if the constituents
at home of whom you speak are familiar with the number of the bill,
or are they interested in the principles of the bill ?
Mr. GOLDSBOROUGH. Mr. Binderup, are you talking about your bill,
or Mr. Patman'sbill?
Mr. BINDERUP. I am talking about the principles of my bill, which
happen to be the same as the principles in Mr. Patman's bill.
Mr. GOLDSBOROTTGH. Unless you are willing to tell the committee
which bill you are discussing, the committee is going to adjourn.
Mr. PATMAN. I want to say a word there.
Mr. Binderup, it is true, has a bill of his own. Let me suggest to
Mr. Binderup that he state how he stands on this bill, and then if he
wants to go further and say that he would like to have certain changes,
on the price level, for instance, and state what the changes are that
he thinks are desirable, he may do so, and then if he wants to go further on the Reserve requirements and state that he would like to go
further than my bill, and then state what the changes are that are
desired by him, I think that that gives the gentleman all the latitude
in the w^orld.
Mr. GOLDSBOROUGH. No.
Mr. PATMAN. Just because

he technically refers to a number of a
bill does not, in my opinion, disqualify him as a witness before this
committee at this time.
Mr. GOLDSBOROUGH. NO ; that does not touch the point that I have
in mind. There are 127,000,000 people in this country interested in
this monetary question, and they have been told by somebody what the
Patman bill contains. The issue ought to be clear before this committee as to what is being discussed before the committee, for the
protection of 127,000,000 people, to whom this monetary question is
vastly more important than anything else that is being done on the
Hill.
This committee, while I preside, is not going to be made a circus,
and I must know from Mr. Binderup whether he is discussing the
Binderup bill or the Patman bill before he proceeds.
Mr. PATMAN. He has told you repeatedly.
Mr. GOLDSBOROUGH. I am asking Mr. Binderup which bill he is discussing, and I expect him in good faith to tell me what bill he is
discussing.
Mr. TRANSUE. Mr. Binderup is trying to testify here, it seems to
me, under the very adverse circumstances of this discussion here. He
has indicated that he is trying to discuss the Patman bill.
Mr. GOLDSBOROUGH. NO. The last thing he said was that he wTas
discussing bill No. 9800.
Mr. PATMAN. At that particular point, showing the difference
between them.
Mr. TRANSUE. He was making comparisons between the principles
that he advocates and the principles in this bill. It seems to me that
that is permissible, in testifying with regard to a bill. If he thinks
it does not meet the situation and it should be amplified, he can say
so in his testimony.
Mr. BINDERUP. May I just




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. TRANSUE. That is all that he is trying to do.
Mr. BINDERUP. I naturally do not know all the rules of this committee, but I spent considerable time—and I say this with moderation—in the hope that something might be done to harmonize the
unpleasantness
Mr. GOLDSBQROUGH. There is no disharmony here.
Mr. BINDERUP. That is all right
.
Mr. GOLDSBOROUGH. YOU are out of order.
Mr. BINDERUP. I said that I am not familiar with the rules, so
probably this is another thing that I am not familiar with.
Mr. GOLDSBOROUGH. YOU are absolutely out of order, and you have
no right when you come here to tell this committee that there is disharmony in this committee. There is no disharmony in this committee. This is an important matter for us and the country, to know
what is going on.
Mr. PATMAN. Let me appeal to you to give this gentleman an
opportunity to be heard, for this reason, that we have had a hearing
on Mr. Goldsborough's bill, and Tom Cromwell discussed his own
bill—no doubt about that—and Major Angas hardly touched Mr.
Goldsborough's bill.
Mr. GOLDSBOROUGH. He talked all the time about it.
Mr. PATMAN. And Mr. Goldsborough himself did not talk about
his own bill, but just wandered all over the lot about the monetary
problem, and I think since so much latitude has been given previously,
if this gentleman warus to mention his proposal, although I do not
agree with him, he is entitled to do it, but I just hope that the chairman w^ill be lenient with him.
Mr. GOLDSBOROUGH. It is not a question of leniency, and, so far as
my bill is concerned, I will leave it to the committee if there was a
a question asked by me or a statement made by me when I was on the
stand that did not bear directly on my bill.
Mr. BROWN. I think he has a perfect right to come in and tell w^hat
his reasons are for being for the principles of the Patman bill, and I
think that he was leading up to that. I think that calling that number was a mistake. I think that he and any other witness has a right
to give a history of why he is for a bill. I think he did not go farenough.
Mr. CRAWFORD. May I make another observation, so that you will
see what I mean ?
The chairman has repeatedly held that the committee is sitting in
connection with the hearing on the Patman bill, and the witness in
going along has been referring to "the bill." The record will show
that the remarks that he has been making are not on the Patman bill,,
and the only request that I make, and I think that I am entitled to it,
is that when you say that so-and-so approved the bill, you make it
specific which bill they approved, so that when I go home my people
will not say that Mr. So-and-So in Europe approved the Patman bill
when something else was meant.
I am entitled to that protection, and I will insist upon it.
Mr. MCKEOUGH. May I suggest that the record be all stricken out
from the beginning and let us proceed.
Mr. GOLDSBOROUGH. Mr. McKeough, I think that there is a misunderstanding in the committee about this situation. Just as Mr.
Crawford suggests, Mr. Binderup said that Professor Cassel, of
Sweden, had approved "the bill"




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

153

Mr. MCKEOUGH. Wipe all of that out, and I suggest that we start
anew.
Mr. GOLDSBOROUGH. And Mr. Crawford takes the position that his
constituents have a right to know whether Professor Cassel approved
the Binderup bill or t%e Patman bill, and I think he is entitled to that
protection, and I think that I am also.
Mr. MCKEOUGH. I think so, and that is why I suggest that we strike
out everything and proceed from here. I think that Mr. Binderup
understands what the attitude of the committee is now.
Mr. GOLDSBOROUGH. NO. Mr. Binderup has said specifically that
he did not have the Patman bill in Europe. He was talking about
his own bill; and that is the reason, gentlemen, why I told Mr.
Steagall that I did not want to preside, because just as sure as we
are all living this sort of discussion is going to cause confusion
among our constituents. A great many of our constituents, not as
many in my district as in others, have importuned us to vote for the
Patman bill on the theory that it contained the principle of the
Government issuance of money, that it contained the principle of the
100-percent reserve, and the issue ought to be clear as to what the
bill contains. For that reason that bill has been publicized all over
the United States.
Mr. FORD. Might I make an observation ?
Mr. GOLDSBOROUGH. Certainly.
Mr. FORD. We all know that Mr. Binderup has been to Europe.
We all know that he has given this matter long and careful study.
Will he kindly proceed and discuss the three elements in the Patman
bill on which he wants to talk ? The background we all know. Let
us get down to cases. We have spent 20 minutes, and we have not
gotten one step toward a discussion of the bill.
Mr. PATMAN. I do not think we should be technical with him.
Mr. GOLDSBOROUGH. We are not technical, Mr. Patman, and you
ought to be willing to defend your own bill.
Mr. PATMAN. Certainly I am willing.
Mr. GOLDSBOROUGH. And not something else altogether different
from it.
Mr. PATMAN. I am defending Members of Congress, too, and I
think that they are entitled to a square deal.
Mr. GOLDSBOROUGH. I know. I cannot understand your statement.
Your bill has been publicized all over the United States, and we have
had to write to constituents and tell them what the bill was.
Mr. PATMAN. The Goldsborough bill was publicized, and they
talked about everything else.
Mr. GOLDSBOROUGH. They did not do anything of the kind. There
was not a statement made by me in the 7 or 8 days when I was a
witness, nor a question asked by me, that did not bear directly on
the bill; and, furthermore, there was no amendment suggested, except
a perfecting amendment, and I will leave it to the members of the
committee if I have not made a correct statement.
Mr. TRANSUE. It seems to me that if we could have an understanding and get it in the record that Mr. Binderup has a bill which is
on some points similar to the Patman bill, and in other ways takes
on a different philosophy, attempts to do other things, that no one
will be misled by Mr. Binderup's testimony, and I can see that it is
pretty hard for a man to testify if he wonders whether this is per-




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

missible or that is admissible; but, with that general understanding,
it seems to me that there are some members of this committee who
would like to hear what he has to say.
Mr. GOLDSBOROUGH. This is not as embarrassing to any other member of the committee as it is to me. This is the most embarrassing
position I have ever been placed in in my life. The whole situation
has been explained to Mr. Binderup time and time again, but he is
over here evidently discussing his own bill and not the Patman bilL
That is perfectly evident; and if that is done, it will confuse the
public mind as to what is involved in the bill that we are supposed
to be having a hearing on today.
Mr. CRAWFORD. That is particularly true in view of the statement
made by the chairman of the committee a few minutes ago, when he
left, and I had hoped that we would have a full hearing on the
Binderup bill, and I am not so sure but that I will support either
one that is voted out of this committee, but at the same time we are
entitled to know when a specific remark is made with reference to a
given bill, which bill is being referred to, and that is the only point
that I was making. It is entirely agreeable to me for him to talk on
either bill, but the record should show which bill he is talking on
when he makes a specific remark with reference to an approval of
the bill.
Mr. MCKEOTJGH. May I suggest that if that situation develops, any
member of the committee can interrupt him and keep the record
straight. Let us proceed and hear from Mr. Binderup.
Mr. CRAWFORD. The reason I made that remark is because there
was an understanding that he was not to be interrupted by a question.
Mr. MCKEOUGH. YOU could still clarify that when he had finished.
Mr. BROWN. I move that he be allowed to proceed for 30 minutes,
and if he talks about some other bill, that will be stricken from
the record.
Mr. MCKEOUGH. I second that.
Mr. GOLDSBOROUGH. HOW can we decide whether it is relevant?
You cannot put it up to any one man.
Mr. PATMAN. After it is over, you can decide.
Mr. MCKEOUGH. Question.
Mr. PATMAN. Question.
Mr. GOLDSBOROUGH. Mr. Patman, a motion of that kind is too
general in its terms.
Mr. PATMAN. TOO general? When you say that he can proceed
for 30 minutes without interruption, that is not general. That is
specific. Then, when it is over, if the committee decides that he has
said something that should not be in the record, it can be stricken
out.
Mr. BROWN. I will modify my motion, and move that he be allowed
to proceed for 30 minutes under the bill.
Mr. FORD. I second that,
Mr. CRAWFORD. Does that mean that he can refer to these bills
without making any designation of what bill it is ?
Mr. TRANSUE. Let him say whatever he wants to say.
Mr. MCKEOUGH. Question.
Mr. GOLDSBOROUGH. If some of the members want to discuss it, I
will wait until they get through.
Mr. REILLY. Mr. Binderup, may I ask a question?




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

155

How long will it take to finish your case ?
Mr. BINDERUP. Two days.
Mr. REILLY. YOU do not want us to stop in the midst of the Patman bill and give you 2 days to consider another bill? Your bill
does not touch the Patman bill at all ?
Mr. BINDERUP. I agree with you; I think I agree with you. You
have already listened 5 days to taking over the 12 Federal Reserve
banks, and if that is all the committee wants to hear, I cannot add
anything to what Senator Owen has said for 3 days and what Mr.
Patman has said for 2 days, if all that you want to talk about is
taking over the 12 Federal Reserve banks; and I am absolutely
through now, if that is all you want.
Mr. GOLDSBOROTJGH. You were told yesterday by the chairman,
before you left, that you could only discuss the Patman bill.
Mr. PATMAN. But the price level and the 100-percent reserves were
admissible, because they are germane; and I insist that this gentleman be allowed the privileges of a Member of the House.
Mr. GOLDSBOROUGH. He has not been refused the privileges.
Mr. PATMAN. A motion has been made and seconded.
Mr. GOLDSBOROTJGH. That is all right. The question will be put.
Mr. MCKEOUGH. Let us have it.
Mr. GOLDSBOROUGH. Just one minute. Mr. Reilly is not through.
Mr. PATMAN. He is asking something else, that is not germane to
the motion.
Mr. GOLDSBOROUGH. It has been moved and seconded that Mr.
Binderup be allowed to proceed in his own way, without interruption,
for 30 minutes. All in favor of the motion will say aye.
(There were a number of ayes.)
Mr. GOLDSBOROUGH. The motion is carried.
Mr. BINDERUP. That was a privilege, wasn't it? That was supposed to be a privilege?
Mr. TRANSUE. Let us get down to business.
Mr. GOLDSBOROUGH. YOU are doing the very thing that you moved
should not be done. You voted to let this man proceed for 30
minutes, and you stop him the moment he opens his mouth.
Mr. CRAWFORD. Absolutely.
Mr. BINDERUP. Gentlemen, I am much obliged to you for the kindness you have extended to me, and for the motion you just passed.
It was supposed to be a privilege, but I cannot accept the privilege.
I do not want the privilege. I understand just exactly what this most
important subject means. The Nation is tottering today because of
this very thing. I could not sell a plan, or an idea, or a thought to a
committee that has the dissention among themselves, and I wanted to
say that gently, that there is in this committee.
Then there is another thing
Mr. GOLDSBOROUGH. YOU are out of order.
Mr. PATMAN. The chairman is out of order. He is supposed to
proceed 30 minutes uninterruptedly.
Mr. GOLDSBOROUGH. NO ; he is not proceeding in order when he says
that, because there is no dissention in the committee that I know
anything about.
Mr. BINDERUP. There is no dissention? Well, there is a little disagreement, and perhaps I am the cause of it. I cannot contribute
anything, my good friends, to you under those conditions.




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Mr. FORD. There are several members of the committee that would
like to hear you. For God's sake proceed.
Mr. BINDERUP. If I can be heard in my own way
Mr. FORD. That is what you have been given the privilege of doing.
Mr. BINDERUP. Yes; for 30 minutes.
Mr. PATMAN. Then we will ask you questions.
(Several Members of Congress in the audience.) Go ahead.
Mr. PATMAN. YOU will be given plenty of time, I am sure. You
have the unanimous vote of the committee to proceed 30 minutes in
your own way, and then we can ask you questions.
Mr. BINDERUP. Frankly speaking, I don't know how to proceed. I
don't know how to proceed. If I mention my own bill, I can see
where it is not
Mr. GOLDSBOROUGH. The committee has voted that you can proceed in your own way for 30 minutes, and the 30 minutes have not
begun. The 30 minutes begin now. You have a full 30 minutes! to
proceed in your own wTay, and you can say anything that you please,
except that you cannot insult the committee. If you do that, you
are out of order, of course.
Mr. LEAVY of Washington. Go right ahead.
Mr. BINDERUP. I want to say that there is not anything new about
the bill that I am presenting here to you this morning. It is merely
catching up with the Constitution of the United States, and that is
all it is, which says that the Congress shall coin its own money and
regulate the value thereof.
I wanted to mention the relation it has to the Patman bill; that is
part of my program at this particular place; but it does contain
those three things of the Patman bill, as I mentioned a while ago,
the 100 percent reserve, the price level, and the creation of money and
creating consuming power and purchasing power at the bottom,
which perhaps resembles the Goldsborough bill, because you cannot
have a bill unless it has part of the Goldsborough bill in it, because
we must create a consuming power and a purchasing power at the
bottom, like the Goldsborough bill, except that Mr. Goldsborough
wanted to give it to all of them, to every citizen of the United States,
but my bill provides that it go to the lower-income group, to that
class of people that President Roosevelt speaks of as the ill-fed, illhoused, and ill-clothed, and he referred to that class as one-third of
the people, whereas he might have said two-thirds.
I want to read the preamble to my bill, and I understand now
that while the preamble in my bill does not include the same principles entirely as the Patman bill, I do not know whether I am allowed
to read that.
Mr. GOLDSBOROUGH. YOU are allowed to say anything for 30
minutes.
Mr. PATMAN. Anything you wTant to say, except to insult the
committee.
Mr. BINDERUP. This is the preamble to my bill:
Whereas there has developed in the method of conducting commercial banks
in the United States the custom of lending the private credit of such institutions under the pretense of lending money; and
Whereas such credit transferable from one depositor to another upon the
books of the bank or through clearing houses or otherwise to books of other
banks upon the check or order of the borrower or subsequent depositor is now
generally accepted in payment of private debts the said practice in fact provides an uncontrolled and privately created circulating medium of exchange




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

157

which performs substantially every monetary function in violation of and
practical nullification of article I, section 8, of the Constitution of the United
States, which vests in Congress the sole power to issue the money of the
Nation and regulate its value; and
Whereas this practice places in private hands, and deprives Congress of, the
monetary control of the Nation, and confers upon certain individuals an unfair advantage over their fellow men, through which they may and do acquire
unearned wealth to the end that the product of labor and genius is consecutively concentrated in the hands of the few who have this unfair advantage, in
violation of the fundamental principles upon which this Nation is founded; and
Whereas in effect there is no difference between the issue of this uncontrolled credit and the unsound and thoroughly discredited wildcat bank notes
of our earlier history; and
Whereas the uncontrolled alternate expansion and contraction of this synthetic medium of exchange induces recurrent periods of uncontrolled and disorganizing inflation, invariably followed by disastrous periods of equally uncontrolled contraction, bankruptcy, and distress:
Now, therefore, in order to restore to Congress the sole power to issue money
and to regulate its value, and to promote and control the economic welfare of
the Nation to the end that unemployment and poverty may forever be controlled,
and full and profitable employment and production, and continued and uninterrupted prosperity be restored to the people of these United States.

Then I want to read briefly the fundamental principles of this bill.
It amplifies the velocity of our money—and that is an important
thing, when you stop to think how today our money is lying dormant,
for we know that in 1929 the clearing houses of the United States
cleared 1,230,000,000,000 worth of dollar checks, and we know that in
1933 it went down to 400,000,000,000, and we know that it has gone
back again to 600,000,000,000. We know that the velocity of money
is so very essential that any bill that will answer this purpose must
do two things. It must provide for volume, but it must create the
velocity of the money already in existence.
This bill amplifies the velocity of our money supply by creating a
purchasing and consuming power at the bottom, among the ill-fed,
ill-clad, and ill-housed portion of our population, in exactly the same
proportion and in the same degree as money expansion takes place,
thus avoiding any possible inflation.
It establishes the plan whereby banks become merely the custodian
of demand bank deposits, thereby preventing the banks from minting
and unminting our money supply; thus avoiding booms and depressions, bankers' inflation and deflation. It reestablishes the constitutional provision that "Congress shall have power to coin (issue) all
money and regulate the value thereof."
It establishes, for the first time in the history of civilization, a measure of value that measures all values for the purpose of equitable
exchange, the same yesterday, today, and tomorrow; a dollar with
the same purchasing and debt-paying power a year ago or a generation hence that it has today; that definitely protects the creditor as well
as the debtor.
It creates a lasting prosperity by reestablishing and maintaining the
great American market for American goods and American services.
It provides for the increase of our national income to $108,000,000,000 in the first 18 months of its operation by increasing the purchasing
and consuming power in and among the lower-income group and
thereafter an annual increase of national income of from 8 to 12 percent (governed by the ceiling of prices—based on the average of 1926—
at 100 percent) to keep pace with the physical increase of all commodities, increased business, and new industries (based on 25 years'
69972—38

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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

statistics), including increased population—1,000,000 yearly average—
increased prices to 1926 level, money exported to foreign countries,
money lost or used in the arts.
It recognizes that our needed yearly increase in money supply—
and here let me say this, that we have 15,000 little mints, banks, in
our country. They talked about tinkering with the money supply.
These banks tinker with our money system from the time they open
their doors in the morning until they close the bank in the evening,
by expanding credit and contracting credit. Through our existing
banking system, we have 15,000 tinkerers with the monetary system,
and this bill prevents positively a continuation of that uncontrollable
method of money control.
This bill recognizes that our needed yearly increase in money supply must be earned and forced in circulation from the bottom and
up, rather than being bribed or coaxed into circulation from the top
and down through mortgages and interest charges on a people who
have been depleted of equities by money monopoly and man-made
booms and depressions. It positively prohibits a ransom being extracted from the people for the creation of their own money.
Here I want to pause a moment. In the chart that Mr. Patman
provided us the other day, it seems to me that he overlooked one important fact when he showed how those 24 banks controlled billions
of dollars in these various industries. He did not stop to tell how
these large corporations own and control all of those industries. I
want to dwell just a moment on that issue.
I know about how that system works, and let me cite one case
to you, to show exactly how it works.
In 1929 I signed a contract with a large chain-store company involving the leasing of a building to be erected in Minden, Nebr., for
a consideration of $75,000 annually, for 20 years. That was in the
early part of 1929. I signed the preliminary specifications covering
the building, and then I signed the lease contract, but things happened and in the final specifications they put in additional material
and provisions that raised the price of the building to almost twice
the original cost. A little later I thought it wise to get a financial
report on this company, and when I went to the bank I was assured
that this company's contract was as good as a United States Government bond, just as secure; but, this being a big investment for me
to make, I determined to get that financial report and finally got it,
and took it to the bank and wanted them to analyze it, but they
could not do it. Then I took it to experts in Omaha, and they could
not figure it out. In the meantime, a man I knew in South Dakota,
who had been a credit manager for that company for many years,
told me a lot of inside information and he said that in New York
they had taken that lease, that promise to pay me $75,000 in 20 years,
and that they had reappraised it according to the usual method,
deposited it in their bank, that they own themselves, and decided thai
the appraisal showed the lease was worth $50,000 more than I received, and they called this difference an asset of the company, and
on the credit side of their ledger for that particular store they had
credited the Minden store with $50,000 more, against which they could
draw up checks, a sufficient amount to buy all fixtures and stock; in
other words, their bank created an asset there of $50,000, against
which they drew checks. They created their own money, competing




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

159

against privately owned stores that had to earn or borrow their own
capital.
This bill provides for liquidation of the entire national debt without taxing the people and without the issuing of a dollar by the
Government or the creation of a single bankers' printing-press dollar,
but by a simple switching of credits, exactly the same plan used by
the big banks when they bought our Uncle Sam's bonds.
It takes away from the trusts their greatest instrument of monopoly, that of allowing them through their banks to create their
own money. There is a question whether the banks own the trusts
or whether the trusts own the banks, but it takes away from the
banks the right to create money, and that is on the principle under
which those 24 banks are operating today; they buy these interests
in these large corporations and create their own money in order to
buy these interests in those big concerns.
It makes the smallest bank as safe as the largest bank, eliminating
entirely any argument for the dangerous chain-banking system.
It prevents bank failures by automatically insuring demand deposits, 100 percnt, free of charge to the banks and free of expense to
the Government, leaving only the slight risk on time deposits for the
Federal Deposit Insurance Corporation.
It balances the Budget automatically; it makes Uncle Sam a creditor in place of a debtor; a lender in place of a borrower; a master
of finance in place of a servant; the guardian of his own soul; the
captain of his destiny.
That is what the bill does, and I challenge the world. Now let
me explain the plan, and show you how simple and easy the plan
is all the way through, but it is impossible to giv you a very comprehensive understanding in the short time allotted me. Having deyloped a chain of thought in my own mind, asking me to develop
it in this short time is just as though someone were to come to you
and say, "I wish you would put chapter 10 ahead of chapter 5 in
your book." You would destroy your book, and if, in connection
with my entire plan, you ask me to jump in and give you a little of
it here and there, it is an utter impossibility and I should not start
to do it.
I want to mention, too, because it is important, that this is not a
partisan issue. I wish sometimes that I could say that this is a great
Democratic issue, because I have always been Democratic, but when I
read of the other noble men that have lived, both Republicans and
Democrats, who have consecrated their lives to this important monetary question, I realize that it is not a partisan issue.
I was once asked by the members of a Democratic central committee: "Are you a Democrat or a Republican?" And I said: "I do
not know. I have been studying that matter myself." The other day
I read the history of Thomas Jefferson's political life, and afterward
I felt that I was a good Democrat, as I agreed so thoroughly with
his political philosophy. Then I read Abraham Lincoln, and said
to myself: "No; surely I must be a Republican." Take Jackson—
Jackson was a wonderful man, a Democrat; but then there was James
A. Garfield; no man was clearer in his analysis of the monetary
situation of the United States than Garfield, and he was a good Republican. I want to read just a few words of his. He said:
Whoever controls the volume of money in any country is absolute master of
industry and commerce.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

No man could have made a stronger statement than that—"Whoever owns the monetary control in any country is absolute master of
industry and commerce."
Then I want to read a striking statement that Abraham Lincoln
made at one time, which was [reading] :
If the people or a government contracted a debt with a. certain amount of
money in circulation and they reduced the money volume before the debt was
paid, it would be the most heinous crime a government could commit against
its people.

And the chart shows that 26 times we have done that very thing
that Lincoln condemned. Debts were created, and then we contracted
our monetary supply and bankrupted our Nation 26 times, and we are
today doing it the twenty-seventh time.
But I am getting a little ahead of my story. On the floor of the
House I have several times given information that I received from a
certain banker in Chicago, who is a personal friend of mine. In his
letter of recent date he writes me as follows :
Last month the heads of the 12 Federal Reserve banks met in secret conclave
during the American Bankers Association convention in Boston, where they
plotted another depression, not too big to arouse the ire of the people, but big
enough to discredit the administration in the eyes of the people and make them
more willing to trust the private bankers with the management of their money
supply.
Mr. Binder up, banking action will bear watching; so will the bankers' legislation.

Every panic there ever was, every depression there ever was, was
created by private monetary control, and I challenge the world or any
man to deny that statement, and I will verify it by statistics and history, that these panics are all man-made, made usually by the contraction of money—but not always. No; sometimes it is a little bit different. Sometimes they forget this part of our program right in here
[referring to a chart], covering 50 years of statistics, showing that
Uncle Sam grows 4 percent in population and in new industries, and
sometimes when our Nation was growing very fast, as in the eighties,
the panic was caused because we did not keep up with the money
supply.
Now, if our Nation grows 4 percent every year—and England in the
last 5 years has grown 10 percent annually—with this increase in
physical commodities and this growth, sometimes panics are caused
because we do not create sufficient money or circulating medium, and
turn the money into the veins and arteries of trade and commerce,
which is necessary to support Uncle Sam's growth. Our Nation
should grow in money volume, which is the lifeblood of trade and
commerce, the same as we grow physically. I find that in 1927 we
should have added $1,013,213,000 to our money supply, and each
year we should have added a little more. It would mean that in 1927
every individual in the United States would have to spend 2.3 cents
more per day, and that could not possibly be inflation, especially if
you put it into circulation from the bottom. By 1936 we should have
added to our money supply $1,552,000,000 in order to keep up with
the average growth of Uncle Sam, of 4 percent.
In place of doing that we went back. We decreased our money supply. In the last 60 days we have decreased the money supply of the
United States, bank credit or demand bank deposits, $1,114,000,000,
and during the year 1937 over 2 billion dollars.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

There was an interesting thing that happened a few days ago.
When I was talking with someone quite important in our Government I said: "You have always been so favorable to the Democratic
Party reviving an industry, the liquor traffic, that has been dead for
16 years, and so I took pains the other day, before I sought this interview with you, to find out what the liquor traffic has done. It has
actually created transactions in the last year, 1937, amounting to between four and five billions," and he said, "Isn't that wonderful?
That is fine." I said, "That is a calamity. Why? Because we did
not supply additional money for this revived industry in an amount
sufficient to maintain this vast turn-over. And when we turned
loose this industry, we robbed that four or five billion dollars from
other industries in order to maintain this new one; and so, whenever a
new industry starts, it is not a blessing but a curse, unless you supply
the necessary amount of money to maintain it."
Last summer, while I was in Europe, I had a conference with some
bankers, and one of the three executives of one of the banks told me
how wonderful the development had been in Denmark, that they
were increasing the number of new industries all the time, and he
asked me what I thought about it. I only said that we have so much
in America to take care of that I hesitate to say what should be done
in Denmark, but I did say: "Isn't there some way to stop your nation
from starting new industries? Isn't there some provision in your
constitution that could prevent this catastrophe?" The bankers
looked at me in surprise and wondered what I really meant until
I explained: "Because you have linked your money to gold. You
have gone the limit. You tell me you cannot issue another krone;
consequently every industry that comes into Denmark is robbing
other industries, and that is the reason your farmers are starving to
death. That is the reason you are destroying the greatest agricultural country in the wTorld. By increasing industry and refusing
to issue more money you are robbing the farmers so that they cannot
live—until they now have three or four mortgages on every farm,
and are paying as high as 7-percent interest."
They told me it was so wonderful the way industry was increasing
in Denmark, wThen it was a calamity. They have blanket mortgages
on their farms, and at the price that they are selling their products,
and with their processing tax, they are squeezing production down,
down, down. I said: "I can easily see that with your processing
tax continually reducing the number of hogs, and adding more tax,
reducing consumption, with higher prices and fewer hogs, you are
trying the impossible plan of creating prosperity by scarcity."
A cousin of mine had just received word that he had to reduce his
cowherd. He used to have 50 cows, and was commanded by his government to reduce to 33 cows, and now again to reduce 5 cows. He
used to have 126 fat hogs per year, but they have been reduced to
43. I said to him: "With this situation, and with these processing
credit cards, the time will soon come when you will have only one
single hog in Denmark, because of the plan of contraction in place
of expansion. It is just as easy to balance production with millions
of commodities and more billions of money, as with one commodity
and less money. And one means misery and the other starvation."
I want to read from just three more of those outstanding quotations from our great statesmen.. I wish they could be with us today.
They are with us, my friends, in spirit.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

I want to read what Andrew Jackson said about the question with
which we are today confronted:
Now the battle is to be fought between the aristocracy of the few and the
democracy of numbers. The question is whether the people are to continue
the sovereign power in their own hands, or whether we shall be # governed by
the combined money power of the aristocracy through their own paper banking
system. All who wish to hand down to their children that happy system bequeathed to them by their Revolutionary fathers must now take their stand
against this consolidated, corrupting money power and put it down, or their
children will become hewers of wood and drawers of water to this aristocratic
oligarchy through the corrupting power of the modern banking swindling
system.

He was a man with great foresight, who saw exactly how it would
destroy our great Nation, this control of money in private hands.
And then there are those words that you have heard so often, and
we ought to read them every day, because there was no greater statesman than Thomas Jefferson:
If the American people ever allow private banks to control the issue of their
money, first by inflation and then by deflation, the banks and the corporations
that will grow up around them will deprive the people of their prosperity
until their children will wake up homeless on the continent their fathers conquered.

That reminds me of a letter I received from my district, a very fine
district, in Nebraska. Mr. Keifer, one of our prominent men, sent in
a report on three agricultural districts, from three counties. I live in
a district that used be very prosperous, but in 1937., in one county, .10
percent of the farms were foreclosed; in another county, 14 percent,
and in the third, 22 percent; and Thomas Jefferson's statement that
"your children will wake up homeless" is absolutely taking place at
this time in my district, and in every district of the United States.
Then he went on and said:
The issuing power should be taken from the banks and restored to the
Government and the people, to whom it rightfully belongs.

The fundamentals of my bill I would love to explain to you in a
constructive manner, rather than rambling as I have today, but that is
impossible in so short a time as 30 minutes.
The Government must get out of the banking business, lending
money, and the banks must get out of the Government business,
creating money, or there will never be any success. The Nation will
never live. It is threatened today. Every nation that ever was
and is no more died of exactly the same malady that is affecting and
threatening the United States today. It is not our foreign enemies,
my good friends, that will destroy our Nation. Nations rot at the
core. They rot inside, through the centralization of wealth, that
destroys the people. And whenever the people are destroyed the
Nation is destroyed. It develops one class in luxury and overabundance, and another class in misery and starvation, and a nation
thus divided cannot live.
It was the great statesman James G. Blaine who said:
The money question should be approached in no spirit of partisan bitterness.
Firmly attached to one political party myself, firmly believing that parties in
free government are as healthful as they are inevitable, I still think there are
questions about which parties should agree never to disagree, and of these are
the essential nature and value of the circulating medium of exchange.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

J63

Yes; it was James G. Blaine who said that. And so the great men
who have gone before us, whether they were Bepublicans or Democrats, have all agreed about the importance of the monetary system.
President Wilson said: "The tyrannies of business lie within the
field of credit."
He was in a more modern time. He was speaking in a time when
bankers' credit, check-book money, was beginning to function as
money, and he recognized that—
The tyrannies of business lie within the field of credit. Hence it is imperative
that we should give to business a banking system by means of which they can
make use of freedom of enterprise, and the control of the system must be
public, not private, so that the banks may be the instruments, not the masters,
of individual initiative.

That is one fundamental principle which is as real as sunlight,
which is as true as the law of gravity, and that is the basis on which
this bill is constituted and built up. It is the quantitative theory or
the quantitative philosophy of money.
It was Adam Smith—they call him the father of political economy—who said, in his simple words, in his primer or kindergarten
book, that—
money measures things, and things measure money; each measures the other
according to its own abundance. If you retard or reduce the supply of money
in circulation, you lower the price structure, and by lowering the price of
everything you double your debt, because your debt is a fixed charge, and it
will consequently take twice as much of labor and of the commodities of labor
to pay the same debt.

Adam Smith went on to say, like Jefferson, Jackson, Blaine, Garfield, and all the rest of these great statesmen, that money is the lifeblood of trade and industry, a circulating medium of exchange that
measures value by and according to its own supply and demand as
compared with the supply and demand of commodities going into
exchange or consumption, that it—money—must flow freely and unmolested through the veins and artieries of trade and commerce, and
if at any time it is hindered in its flow or reduced in its volume, it
coagulates in the money channels of the Nation and the wheels of
industry are retarded and the factories are closed down, and when the
factories are closed down, labor loses its employment and consequently loses its purchasing and consuming power, and that reflects
immediately on agriculture, the largest industry we have. Why?
Because agriculture is one industry that has no trust protection whatever. It responds immediately to the law of supply and demand,
and when labor discontinues buying from the farmer, the prices of
farm commodities come down below the cost of production, and then
you have sacrificed the farm purchasing power, together with the
farmer; then you have crucified the American market for goods—
you have crucified labor's 31 percent and agriculture's 50 or 55 percent demand for goods, because you stopped the flow of money and
because you did not see to it that the flow of money was ample to
take care of industry and agriculture.
There are many others who have spoken on this question, but that
is enough. The bill and the charts I have were builded on that irrevocable foundation of all analysis, the history and the cause and
effect of depressions, and the cure and prevention of further depressions. I will not take the time of the committee to go into the history




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

of the causes of these depressions, but I will take the one of 1920
and give you some startling information as to how the panic of 1920
happened, and show you the men who caused that panic, and what
those men said that caused that panic, and step by step show you
how the Nation was destroyed because 52 men (bankers) met in
secret conclave and decided to take money out of circulation, because
they were interested in money being scarce, in order to get more
interest; and they met for that purpose.
I suppose I have taken up my half hour in rambling to you—
rambling to you in reference to this very important matter because
I could not have the privilege of going through my program and
showing you step by step how these things have developed in our
Nation, in a wTay that would crystallize in the minds of everyone
just what happened. And when I read this to a group of Congressmen lately, one of them said, "Bead that again. That reads to me
like a crime. Where did you get that?" I said. "Carter Glass."
"Here are the minutes of the meeting that they had at that particular
time."
I also read it to our good Speaker, Mr. Bankhead, and to Mr. Rayburn, and when I had the privilege of reading it to them, it was Mr.
Kayburn who said to me, "Read that over again. Where did you get
that information?"
It was the minutes of the meeting they held on the 18th day of
May 1920, the crime of 1920. The 1929 panic was absolutely and
definitely the result of the panic of 1920. It started at 9 o'clock in
the morning, on the 18th day of May 1920, and I challenge the world
to deny it, because I hold in my hand the minutes of the meeting,
the records of which were held back for 3 years, and (according to
my banker friend in Chicago) a great deal of the incriminating testimony deleted. But there is plenty left.
When W. P. G. Harding held this meeting, what happened? He
started the meeting off with these words, "It is a fortunate thing
that when there is anything wrong with the monetary system, the
banks can get together and settle it." He did not stop to consider
that there were 135 million people that suffered untold misery as
the result of what these bankers did. He evidently forgot that the
Constitution provides that the people should settle the matters pertaining to money. In his opening statement, continuing, he said,
"The fact must be recognized that, however desirable on general
principles continued prosperity, expansion of trade and industry
may be, such developments must accommodate themselves to the
actual supply of capital and credit made available by the banks.
Again let us pause and consider the words of James A. Garfield,
"Whoever controls the money supply of a country is absolute master
of all trade and industry." Could you imagine anything that is a
more clear-cut declaration of the usurpation of power, deliberately
planning a panic or depression just so their interest and dollars
could buy more? No matter how much you love prosperity, a continuance of the prosperity that we had at that time, such things
must adapt themselves to the will of the bankers. It is a most
astounding statement, and I want to read it again to you, and then
I will close:
The fact must be recognized that, however desirable on general principles
continued prosperity, expansion of trade and industry may be, such develop-




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS
merits must accommodate themselves to the actual supply of capital and credit
made available by the banks.

That is the history of every one of our panics. It was because
the banks were interested in having money made scarce, because of
the interest feature. They wanted money scarce so that interest
would have a greater purchasing power. We had had a great war
and in this war the price level of all commodities had been raised
very high, in 1917-20, but there was one thing that had not raised,
and that was interest." They had billions of dollars invested in securities and they knew that they could not change that interest rate.
But Adam Smith told them how to do it. He told them about the
quantitative theory of money, that if they wanted 4 percent to equal
12 percent, all they had to do was to make money scarce, and then
they could make 4 percent interest have a purchasing power of 12,
15, or 20 percent, as high as they wanted it, by reducing the amount
of money in circulation.
Mr. CRAWFORD. Was this the bill wThich you took to Europe, No.
7627?
Mr. BINDERUP. Yes; it was. I wTish to add, however, that at the
close of the second of the 2 days, when I was a house guest of Dr.
Cassell, he said, "You have one little weakness in your bill. You are
trying to stabilize all United States bonds; that is an unnecessary
burden to place in your bill; you are trying to do too much. In case
of war, you might fail, and if you failed in your bill, in your great
America, posterity will have to wait 100 years until we have another
chance." And Professor Fisher had suggested the same thing.
Therefore I did change that part of the bill, but I merely changed
that one part only.
Mr. CRAWFORD. And the preamble that you read was from H. E.
7627?
Mr. BINDERUP. Yes, sir. That has never been changed.
Mr. CRAWFORD. And it is to H. R. 8585 that you directed your
remarks ?
Mr. BINDERUP. I had H. R. 7627 at first, and then I reintroduced
it under the new number, H. R. 8585. Later I again changed the
wording of this bill; I eliminated the part that pertained to the stabilization fund, providing for stabilizing the price of the pound
sterling and the franc. I wanted my bill to be more simplified, to
merely take the banks out of the money-creating business and to
take the Government out of the banking system. So I introduced
the same bill again, eliminating this provision. This is the present
bill, H. R. 9800.
Mr. CRAWFORD. Then the preamble which you read was from H. R.
9800?
Mr. BINDERUP. The preamble w^as never changed.
The CHAIRMAN. We will have to answer the roll call.
(Thereupon, at 12:15 p. m., an adjournment was taken until Friday morning, March 18, 1938, at 10: 30.)




GOVERNMENT OWNERSHIP OF THE 12 FEDERAL RESERVE
BANKS
MONDAY, MARCH 21, 1938
HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.
Hearings were resumed on H. R. 7230 at 11:55 a. m., Hon. T. Alan
Goldsborough presiding.
Other members of the committee present:
Mr. Keilly, Mr. Williams, Mr. Spencer, Mr. Farley, Mr. Meeks, Mr.
Ford, Mr. Brown, Mr. Patman, Mr. McKeough, Mr. Transue, Mr,
Gifford, Mr. Luce, and Mr. Crawford.
Mr. GOLDSBOROUGH. The committee will be in order.
Gentlemen of the committee, if it is satisfactory to Mr. Patman,
any hearings that we have after today will begin at half past 10,
whether there is anybody here but the chairman or not.
That is the only way I know of to start at half past 10.
Mr. PATMAN. That is the way I would like to do it.
Mr. GOLDSBOROUGH. If it meets with your approval, the hearing
will begin tomorrow morning at half past 10.
Mr. PATMAN. I certainly commend the chairman for taking this
step. I believe, though, that it wTill be Thursday before I will be able
to have another hearing, and I expect to finish then; and, as far as
I am concerned, I expect to finish in a few minutes, and after I
finish I want Senator Owen to explain one or two proposals to the
committee, and then finish up this week, and I think that on Thursday
we will be able toi finish it, and then I expect the committee to bear
with us in reading the bill under the 5-minute rule.
Mr. GOLDSBOROUGH. I understand that Mr. Steagall called up on
Saturday and requested that the bill be not read7 until he got back.
Mr. PATMAN. That is right. He said that w hen he got back it
would be all right to take it up under the 5-minute rule.
Mr. GOLDSBOROUGH. I do not know when he is coming back.
Mr. PATMAN. I think it depends on the political situation down
there, and I join in expressing the hope that he will take care of it
first, if it is serious for him.
Mr. GOLDSBOROUGH. Very well; you may proceed, Mr. Patman.
STATEMENT OF HON. WRIGHT PATMAN—Resumed
Mr. PATMAN. Over the week end, Mr. McKeough of Illinois, Mr.
Crawford of Michigan, and myself, members of the Banking and
Currency Committee, considered all the objections that were urged
against H. It. 7230, a bill providing for the Government ownership
of the 12 Federal Eeserve banks, and agreed upon amendments which
167




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

we expect to propose to the bill to meet those objections. We considered the suggestions made by Mr. Transue although he could not be
present at the meeting.
We recognized, of course, that the objection that the chairman of
the committee urged, that the declaration of policy was not sufficient, was not only a proper objection, but a serious objection, and we
concede, and the friends of the measure concede, that we must have
a mandate that is sufficient and one that can be enforced.
PROPOSED AMENDMENTS

So, having those objections in mind, we tried to work out an
amendment that we expect to propose when the bill is read under the
5-minute rule that will meet that particular objection. The amendment is as follows:
It shall be the duty of the Federal Reserve Board to raise the all-commodity
index, or the so-called price level, until full employment of all persons able and
willing to work shall have been achieved, and until the price level shall at least
reach the all-commodity index of 100 as established by the Department of Labor
for the year of 1926, which is the same as the average for the years 1914-30,
inclusive.
Mr. GOLDSBOROUGH. Is a fair interpretation of that that the all-

commodity price index shall be raised indefinitely until there is full
employment, but that in any event it shall be raised to the 1926 100 ?
Mr. PATMAN. That is right.
Continuing with the amendment:
Thenceforth such price level shall be standardized and maintained at a variation not to exceed 2 percent above or below the standard reached as aforesaid.
It shall be the duty of the Federal Reserve Board in accomplishing these ends
to expand demand bank deposits by the purchase of United States bonds and
notes, or bonds secured by the United States, or bonds of States and subdivisions
thereof, or other sound bankable assets; and to contract demand bank deposits
by the sale of the securities aforesaid.

Second, in order to make sure that Congress may have charge of
regulating the value of money at all times provided in the Constitution, the following amendment is proposed
Mr. WILLIAMS. Will the gentleman yield?
Mr. PATMAN. I yield to the gentleman.
Mr. WILLIAMS. In connection with their duties there, in expanding
and contracting the currency, is that giving them any powers additional to what they have now?
Mr. PATMAN. Well, I think that under the present laws they could
do this, but they will not do it, and we want to place a mandate in
here that they should do it, make it their duty to do it, and then in
the next amendment we have a way to compel them to do it.
Mr. WILLIAMS. All right.
Mr. PATMAN. That is this amendment—let me read it.
The Board of Governors of the Federal Reserve System is hereby declared
to be the agency of the Congress to create money and regulate the value thereof
as authorized by the Constitution of the United States and the individual members of such Board shall hold office subject to the will of the Congress of the
United States; and either the Senate or the House by resolution may authorize
and request the President of the United States to nominate a successor to a
member of the Board from any Federal Reserve district regardless of the term
for which he was appointed, whereupon, the office of such member upon the
passage of such resolution shall be vacated.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

169

You see, the first is establishing a duty that the Board must
perform, and the next is providing a way that the Board can be
dealt with in the event of a failure of the Board to carry out that
duty, a failure either of the Board or of any member of the Board.
It seems to me that is placing the power in Congress where the Constitution says that power should be placed. It keeps Congress in
charge of the Board, and that Board is delegated the power to carry
out the wall of Congress in regulating the value of money.
Mr. WILLIAMS. That Board is still to be appointed by the President?
* .
Mr. PATMAN. It may be, but any member or all may be removed
by either house of Congress if they do not carry out the mandate
that the Congress gives to them.
Mr. WILLIAMS. Have you considered the possibility of running into
a conflict between the legislative and the executive branches of the
Government there?
Mr. PATMAN. NO, because the Constitution says Congress shall
regulate the value of money, and Congress has not done it. This
bill is to carry out the constitutional mandate, and we are establishing, as an agency of the Congress, the Board of Governors of the
Federal Eeserve banks, to carry out that mandate.
Mr. WILLIAMS. AS I see it, Congress has done what your bill
provides for; Congress has, upon the adoption of this bill, given
them the power to do that very thing.
Mr. PATMAN. Yes, but we have less control over them; we have
no control over them in the world. The law has been changed and
amended.
Mr. WILLIAMS. DO you think it is purely a matter of administration?
Mr. PATMAN. I think it is; yes, sir.
Mr. WILLIAMS. And they do not need any additional powers?
Mr. PATMAN. Well, of course, if additional powers are needed—
yes; they need some additional powders.
Mr. WILLIAMS. Have you any suggestion along that line?
Mr. PATMAN. Yes, sir; it is in the bill.
Next we suggest
Mr. GIFFORD. Do you want any questions?
Mr. PATMAN. Let me finish, and I wTill be glad to answer questions, or, if it is on this particular point, all right.
Mr. GIFFORD. Your remarks seem to indicate that the Congress is
omniscient in its judgment.
Mr. PATMAN. NO ; but Congress has the duly elected representatives
of the people, whereas the bankers are selfishly interested, and I think
it is in the interest of the general welfare for the representatives of
the people to be trustees, rather than the bankers who are selfishly
interested.
Mr. GIFFORD. I remember that we passed the Neutrality Act.
Mr. PATMAN. I do not think that this has anything to do with
that.
Mr. GIFFORD. Congress spoke violently and forcibly and to the
point in the Neutrality Act.
Mr. PATMAN. This places a mandate, and the way to deal with
the people who refuse to carry out that mandate.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. GOLDSBOROUGH. Mr. Patman, as I remember it, in the last
amendment you read, it was provided that Congress can request the
President to replace the incumbent. Did you use the word "request"?
Mr. PATMAN. Well, it means this, that a resolution passed by
either body may create a vacancy on the Board, and then the President will be, of course, expected to suggest and name someone to fill
that vacancy.
Mr. GIFFORD. May I ask some questions here ?
Mr. FORD. YOU would have the Senate passing a resolution, when
the House had nothing to do with it ?
. '
Mr. PATMAN. Yes; either body.
Mr. FORD. I do not know about that. Those two bodies are too
far apart.
Mr. PATMAN. That is something that we could consider in the way
of an amendment, but, as we have it here, either House, if it passes
a resolution, can vacate one of those places. And why should not
either House have that much power? Its Members are from all of
the States.
Mr. WILLIAMS. DO you consider this Board now a legislative or
an executive branch of the Government ?
Mr. PATMAN. Well, now, I guess it is quasi-legislative. It is intended, I presume, to carry out the constitutional mandate on Congress to regulate the value of money. Yet Congress, because of
the laws and the amendments to the laws that it has passed, has very
little power over that Board. Congress has given up most of its
power, and, as you suggest, it has placed more in the powTer of the
Executive than in Congress. If that is true, it should be taken
away from the Executive and brought back to Congress. There is
no constitutional grant of power to the President to control that
Board.
Mr. WILLIAMS. YOU would not have the members of that Board
appointed by Congress, would you?
Mr. PATMAN. NO. I would have the President recommend them,
regardless of who the President was. I think that the President
should recommend them and appoint them, but that they should be
appointed subject to this law.
Mr. WILLIAMS. DO you consider that under your bill and the
amendments which you have proposed, their functions would be
largely legislative?
Mr. PATMAN. Well, it would be an agency of Congress, but I guess
it would be more administrative, to carry out the will of Congress.
We would do the legislating, and they would do what we want done.
We have done that before.
Mr. Goldsborough's bill passed one House and told them what to
do, and of course they have ignored it, which they had a right to do.
Here we give them a mandate very similar to that in Mr. Goldborough's bill of 1932, and then we fix a way so that, if they do not
carry it out, we can deal with that; we can make them do it. Now
we do not have that power.
Mr. WILLIAMS. I am thinking more about the manner if the appointment and the removal of the members of the Board.
Mr. PATMAN. I think that the Executive now has power that Congress should have, because Congress has power over the Board that
regulates the value of money.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. WILLIAMS. I S that true of any other board, or bureau, or department here?
Mr. PATMAN. It happens that this is the only Board that we are
dealing with now that really comes under a specific provision of the
Constitution. You know, we are dealing primarily with a grant of
power by the Constitution of the United States, and that grant of
power is that Congress shall coin money and regulate the value
thereof.
Mr. WILLIAMS. There are dozens of powers given to Congress that
are delegated and passed on to other executive departments, and an
immense number of them.
Mr. PATMAN. I suspect that you are right about that. You take
the Interstate Commerce Commission
Mr. WILLIAMS. Practically all of them.
Mr. PATMAN. Yes; but I think that this is of greater importance
than the others, because this involves the economic life of this Nation. As Senator Owen so ably stated here, the value of any commodity, and after all, values are determined on whether or not this
country is prosperous or whether we are in a depression—the value
of any commodity depends upon the supply of money, upon the demand for money, upon the supply of the comomdity, and upon the
demand for the commodity. So this reaches the economic life of our
entire Nation. It is more than dealing with just the railroads, or the
radio stations, or business through the Federal Trade Commission.
It is dealing with the economic life of our entire Nation.
Mr. WILLIAMS. IS it your idea and your thought that this Board,
whatever we call it and however it is appointed, can regulate and
control the general commodity price level?
Mr. PATMAN. It is based upon that theory; yes, sir.
Mr. WILLIAMS. I suppose you recognize that there are many other
factors that enter into that?
Mr. PATMAN. Yes, there are other factors, but I think that the
Board can determine it when there is the least danger of inflation,
and when there is not the Board admits that they can pass on it—
they brag about stopping the inflation last year. If they can brag
about stopping inflations, why can't they do something to stop deflations and brag about that ?
Mr. WILLIAMS Have we ever had a board that has expressed the
idea that they could control the commodity price level ?
Mr. PATMAN. I did not not hear your question.
Mr. WILLIAMS. Have we ever had a Federal Eeserve Board that
has had the idea that they could do that?
Mr. PATMAN. I think the governor of the Federal Reserve Bank
of New York which practically controlled the System then back in
1921-28, I believe it was, Mr. Strong—demonstrated much ability
along this line.
Mr. WILLIAMS. Not at all.

Mr. GoLDSBORouGH. That is Mr. Benjamin Strong that you are
talking about, who was president of the New York Federal Eeserve
Bank.
Mr. PATMAN. But he had that idea, and he sold it to his associates,
did he not?
Mr. GOLDSBOROTJGH. I do not know.
Mr. PATMAN. I know it was advocated through him




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. WILLIAMS. Oh, no. If you will read the hearings of 1926—
and I was not here, but I read the hearings—you will find a positive
declaration running through all those hearings, that he thought it
could not be done.
Mr. PATMAN. Whether he thought it or did not, and whether any
member of the Board thought it at any time in the past or did not,
I am not concerned with.
Mr. WILLIAMS, Well, of course, I make that statement for the reason that I thought those men who had charge of this agency through
all these years had opinions about the operation of this matter that
would be worthy of consideration in this connection, and that would
be worth at least as much as the ordinary man's opinion.
Mr. PATMAN. Regardless of expressed opinions, if they entertained the view that you suggest, their acts contradict their expressed
views, because every time there is the least danger of inflation of the
bond market, they go into action immediately, and all that we are
trying to get them to do is to get into action on the commodity side.
Mr. WILLIAMS. I do not think that anyone would contend, and I
certainly would not, that they do not have some influence on it; I
do not mean to be understood as saying that they cannot do anything
on that Board, because I think they can, but there are so many other
factors, according to my view of it, that they cannot absolutely,
control the situation through the price level alone.
Mr. GIFFORD. May I have some time?
Mr. GOLDSBOROUGH. May I make an observation ? I have been here
a good many years, and what happened was this: Mr. Strong had a
tremendous influence with the whole Federal Reserve System, and he
endeavored, through his influence, and succeeded reasonably well, in
maintaining a stable average price level. But the difficulty was that
while various industrial prices were above the 1926 level, agriculture
was below, and the buying power of agriculture was so affected that
it brought the house of cards down in 1929. After May 20, 1920, as
far as my opinion goes, agriculture has had no sort of prosperity.
It was the lack of agricultural prosperity which brought the panic
of 1929, and so while the general price level was kept stable, the uniform price level of agricultural commodities was not up to where it
should have been by any means.
Mr. PATMAN. That is my understanding. I know that cotton was
low in 1926, but I am not afraid of the 1926 level, because the 1926
level does not deal with one commodity; it deals with all the commodities, of course; and in dealing with all the commodities, if they
are brought back, cotton will be brought back in line with them.
Mr. GOLDSBOROUGH. I think I stated the other day the reason the
bill was so framed in 1932, where we took the level between 1921 and
1929 instead of the 1926 level, was because we realized that cotton
was low in 1926.
Mr. PATMAN. I considered that at the time, but I did not consider
that an objection, because we are not dealing only with cotton, or with
wheat
Mr. GOLDSBOROUGH. But there we were dealing wTith a practical
situation.
Mr. PATMAN. Of course, it is a nice stump speech, but it is a distinction without a difference, as I see it. I think the price level from
1921 to 1929 is exactly the same, and it is the same as the level from
1914 to 1930.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

173

Mr. GOLDSBOROTJGH. I expect that if we had vised 1926 in the 1932
bill, the Members of Congress from cotton constituencies would have
hesitated a long time.
Mr. PATMAN. I would not, because I considered it at the time, and
if we were dealing with one commodity, that would be different, but
we are not.
Mr. GOLDSBOROTIGH. Of course, you are right; but I am talking
about what the voters back home would think.
Mr. PATMAN. I know; but I am willing to take a chance on the
voters back home, and I feel that they will get the right information
and not object to it.
Mr. WILLIAMS. What will the voters back home think if we pass a
bill that places in the hands of a board the absolute authority to fix
prices ?
Mr. PATMAN. It is not to fix prices as such. It is to fix the price
level. Like it is now, the private bankers have considerable power
over fixing the price.
Mr. WILLIAMS. From the standpoint of the voters, do you not think
there is some small danger about that ?
Mr. PATMAN. NO; I am not afraid of it. I think that the voters
will come nearer condemning you if you do not do something along
this line.
Mr. WILLIAMS. YOU favor giving the board the power to fix prices i
Mr. PATMAN. Yes; I do, in preference to those who have been
fixing prices.
Mr. GOLDSBOROUGH. This bill does not do that; it does not give them
the right to fix prices. It tells them what the price level should be,
and directs them to bend their efforts to reach that particular level.
Mr. PATMAN. That is right. I thought that I made that plain.
Mr. WILLIAMS. But, after all, that is the result?
Mr. PATMAN. The price level; yes.
As between the two, I showed the gentlemen of this committee here
that 24 banks already control one-fourth of the country's resources;
they have more to do with the price level today than any other group
in America.
So the gentlemen's constituents w^ould probably ask him, which
do you want, the fixing of the price level by fellows who are selfishly
interested, or by Government representatives?
Mr. WILLIAMS. NO; because they do not believe that, and neither
do I, that they have that power. I do not think the? Board has that
power, and I hope they have not.
Mr. PATMAN. Which board?
Mr. WILLIAMS. The Board of Governors of the Federal Reserve
System.
Mr. PATMAN. YOU mean now ?
Mr. WILLIAMS. Yes.
Mr. PATMAN. YOU will

notice that if there is the least sign of inflation, they say they have the power to stop it, and if the bond market
goes down a little bit, they will stop it. They can always do something that is deflationary, but they never seem to do anything to
increase the money supply when it is needed.
Mr. WILLIAMS. What have they done that is deflationary ?
Mr. PATMAN. They doubled the reserve requirements of the banks,
plowing under billions of dollars of potential credit.
69972-




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

That was one thing. Another thing possibly the Treasury was
more responsible for was sterilizing the gold in the Treasury. That
was deflationary.
Those two things
Mr. WILLIAMS. Let me ask you this. Do you think that they made
a mistake in raising the reserve requirements?
Mr. PATMAN. I certainly do; because there was no reason in the
world why they should be raised.
Mr. WILLIAMS. What effect did that have ?
Mr. PATMAN. It caused a lot of banks that did not have the reserves needed to sell bonds in order to get the required reserves.
Mr. WILLIAMS. There was not very much of that.
Mr. PATMAN. Considerable of it. Then it made many of these
bankers watch out, watch their reserves, for when they went down
close to the border line, they knew that they had better be carefuL
about making loans.
Mr. GOLDSBOROUGH. I have perspired a lot over this question, and
I have given it considerable consideration. I agree with your conclusion that what they did caused this present recession^ this tail
spin, but I think it was more because business became frightened
than anything else.
Mr. PATMAN. Statements were made that were calculated to
frighten business.
Mr. GOLDSBOROUGH. I think that the banks still had adequate reserves to take care of the business even after the reserve requirements
were raised, and I think that at a time when there is a considerable
percentage of our people who want employment and are not employed it is a mistake to call conditions like that inflation or inflationary. I do not believe inflation exists while you have a considerable
portion of your people who are willing to work and who have not got
employment.
That is my opinion about it.
Mr. FORD. Might I make an observation there ?
I think that one of the confusing points that the monetary students
or experts make is that they tie up the stock markets with the commodity markets. They tied up the situation in 1929, when the stock
market was way up in the blue sky and when the commodity markets
for the most part were down in the dumps, and changing the reserve
requirements of the bank had no influence at all on stopping the stock
boom. They tried that in 1928 and 1929, and it did not have a particle of effect on it. The presumption is, however, that it did affect
commerce and business, because it made it harder for them to get
money, and the banks were not lending money to commerce and business at 5 and 6 percent when they could go to the stock market and
get from 14 to 20 percent; and that was the fly in the ointment.
Mr. PATMAN. That was in 1929.
Mr. FORD. Yes. When you increase the required reserves you
naturally contract credit, don't you ?
Mr. PATMAN. Necessarily, yes; potential credit, at least.
Mr. FORD. YOU do contract credit when you do that, and that always
makes me wonder, and I hope somebody before this committee will explain it, how in the world we could do any business on 100-percent
reserves.




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175

Mr. PATMAN. If you gentlemen will bear with me for a moment,
I only have two or three short amendments to suggest, and I would
like to finish reading them to you. Then I have talked to Senator
Owen about these amendments, and he agreed to answer some questions if the committee desired to ask him questions about these
amendments.
OTHER PROPOSED AMENDMENTS TO THE BILL

Third, we also suggest that the directors of the 12 banks be appointed by the Board of Governors of the Federal Reserve banks and
subject to removal at will by this Board.
Fourth, in this bill it is proposed that we will have 15 members, 1
from each Federal Reserve district and the Comptroller of the Currency, the Secretary of the Treasury, and the Chairman of the Federal Deposit Insurance Corporation. We propose to leave the Secretary of the Treasury, the Comptroller of the Currency, and the Chairman of the Federal Deposit Insurance Corporation off; just make it
12 members of the bank, but require them to coordinate their activities and efforts with the Board of Governors.
Next we propose that these 12 institutions with the 25 branches
should be conducted as one institution. This will prevent much overlapping of bookkeeping and clerical work and will cause the System
to be operated more efficiently and at much less expense.
Those are the amendments that we propose and that we will ask
the committee to consider when they read the bill under the 5-minute
rule.
Now, Senator Owen does not agree with me on the raising of the
reserve requirements. I heard his statement here the other day, and
I have so much confidence in Senator Owen that I am not going
to take issue with him about it, because of his knowledge of the subject, and because he knows this Federal Reserve law. He had more
to do with it, I think, than any other one man in America, and I
think that this committee is very fortunate indeed in having the
privilege of asking questions of a man who possesses the knowledge,
the ability, and the background of Senator Owen, and I just wonder
if the members of the committee would like to interrogate him on
these points that I have raised here, especially on the price level
and removing the Board of Governors if they fail to carry out the
mandate of Congress.
Mr. FORD. Just one more question, and this bill worries me: Can the
House or the Senate alone assume the authority of removing somebody from a board, without joint action? Isn't it something that
affects the national problem, and, therefore, should it not be a joint
thing, between the House and the Senate?
Mr. PATMAN. With your permission and Senator Owen's permission, I will ask Senator Owen if he will answer that question.
Mr. OWEN. Does the committee wish that I should reply to that?
Mr. GoLDSBOROUGH. Of course.
Mr. OWEN. If the act passed as proposed, it would be the joint
action of the House and Senate. That gives to the House, and gives
to the Senate, the right to pass a resolution either of the House or
the Senate which would cause a vacancy in office, and the suggestion,
I take it, is made because Caesar's wife should be above suspicion.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. SPENCE. Mr. Patman, the power in the Constitution to regulate the value of money is a legislative power, is it not ?
Mr. PATMAN. Well, yes; it is a legislative power. I would consider it so.
Mr. SPENCE. NOW, if you delegate that power without any limitation, or without any definition, or without any objectives, that is
delegating the legislative power, is it not ?
Mr. PATMAN. I would think so; yes, sir.
Mr. SPENCE. But if you defined that power when you delegated it
to a specific thing, then you are delegating an administrative power ?
Mr. PATMAN. That is right; a specific power, to administer only,
and that is what we have attempted to do in this amendment, to
specify the power and the duty, and then a way to deal with people
who refuse to carry out that duty.
Mr. SPENCE. In other words, would not the Federal Reserve Board
have very much greater power when legislative power of Congress
is delegated to them without any definition or without any objective,
then if you put a definition or objective into the power, when that
is all that you delegate, whereas if you have no limitation on the
power you delegate, you delegate the power that is vested in the
Congress of the United States, and you certainly delegate to the
Federal Reserve Board a legislative power.
Mr. PATMAN. That is more like it is now.
Mr. SPENCE. Yes.
Mr. PATMAN. Whereas

this bill, compared with the present set-up,
is more a restriction of power than it is the granting of power,
comparing it with the present set-up.
Mr. SPENCE. YOU say that you do not give them any additional
powers, that they can do everything which you have directed them
to do in your bill, if they should desire to do it nowT?
Mr. PATMAN. I think so.
Mr. SPENCE. There is no limitation on how they can exercise that
power at all, then ?
Mr. PATMAN. But my point is that they never exercised it in the
direction of placing a sufficient money supply in the country. They
always exercise it the other way. They always get into action immediately on the other side, but they never do anything to expand
when I believe expansion is necessary.
Mr. WiLiiiAMS. Do you think that raising of the reserve requirements by the Board during the latter part of 1936 and the first part
of 1937 had anything to do with the stock market ?
Mr. PATMAN. Of course, it necessarily affected the stock market, I
think, but many people better informed on the subject than I am
believe that the deflationary statements that were made by people in
power had more to do with this depression than raising the reserve
requirements. Possibly they are right, but I do not think so.
Mr. WILLIAMS. After the reserve requirements were raised, there
still was, and is now, about 1,400,000,000 in excess reserves.
Mr. PATMAN. In charge of certain banks, yes; but many banks do
not have much in the form of excess reserves.
Mr. WILLIAMS. Well, there are excess reserves all over the country.
Mr. PATMAN. AS to how well scattered they are, I do not know. I
have not checked up enough to determine that.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

177

Mr. WILLIAMS. And still there does not seem to be any demand for
that credit.
Mr. PATMAN. YOU did not have 1,400,000,000 when the reserve requirements were raised. That reduced it down to about, I know,
700,000,000 or less.
Mr. WILLIAMS. All right; and there is no demand for that.
Mr. PATMAN. Well, we do not know. I do not know what banks
these reserves were in. If it was in certain localities, banks might
have had an opportunity to make loans but they did not have any
excess reserves in their banks.
Mr. WILLIAMS. But you believe, of course, in the power to raise
excess reserves?
Mr. PATMAN. Oh, yes; I believe in it if you have a mandate. I
would not be in favor of their having any more power; in fact, I
would take power away from them, if I could, to raise the reserve
requirements that we gave them in the 1935 act, but we cannot now.
I would give them unlimited power if we impose upon them a specific
duty like we propose to do here, and then have the power to remove
them if they do not carry out that duty.
Mr. GOLDSBOROUGH. As I remember it, your bill provides that they
can raise and lower the reserve requirements.
Mr. PATMAN.

Yes.

Mr. GOLDSBOROUGH. I understood you a minute ago to say that you
did not approve what had been done in order to give them that
power.
Mr. PATMAN. I mean without at the same time attempting to give
them a specific mandate. I do not think the power given them in the
original bill was what it should be, and that is the reason why we
are trying to make it specific. I thought it was, but after hearing the
chairman of the committee and others I am convinced that it is not
sufficient, and that is the reason why we should make it sufficient.
I have never seen a bill of major importance come before this or
any other committee in perfect form; they just do not come out that
way, and it is customary to consider a bill, receive the amendments,
and then introduce a clean bill; and in this case I think that we
should consider these amendments, and I have consulted with Members of Congress who are working with me on this, and we have
agreed that if the chairman of this committee would introduce the
bill, either Mr. Steagall or Mr. Goldsborough, who has had much
to do with wTork of this nature and who has been identified with this
cause, that it will be perfectly all right with us to have that done, and
we would recommend it, because what we want to do is to get something through that will give the Board of Governors a mandate in
specific language that they cannot avoid, that they cannot ignore,
and then the power to do something to them or do something with
them if they fail to carry out their duty.
Mr. GOLDSBOROUGH. I have never felt myself at any time in my
legislative experience that the tremendous power now in the hands
of the Federal Reserve Board should be lodged in any individual or
set of individuals. They have in their immediate control the economic life and death of every individual in the United States—there
is no question about it whatever—and they are fallible, they are
human, and it is ridiculous to give anybody that kind of power. So,
while I do not object to their having the power to raise and lower




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

reserve requirements, for various reasons which are not necessary
now to discuss, I think that that power, if it is given to them without a mandate as to how they should use the power and what should
be their objective as declared by the representatives of the people, is
too dangerous to have.
Mr. PATMAN. I agree with you, and that is the reason why we are
trying to fix it up so it will meet that objection.
Mr. LUCE. Mr. Patman, you said that statements by persons in
power were chiefly responsible for the present situation. Does it
follow that it would be well to remove them ?
Mr. PATMAN. Who?
Mr. LUCE, The persons who made those statements that you
refer to.
Mr. PATMAN. It is a difference of opinion existing among very
honest men. I think that they are wrong. They think I am wrong.
They are honest in their views, and I am honest in my views, and the
gentleman from Massachusetts is honest in his views.
Mr. LUCE. AS far as I have gathered the trend of your argument—
and I am very sorry that work on another committee made it impossible for me to be here last week—but what I have heard this
morning leads me to think that you are trying to get a wiser set of
men than we have now.
Mr. PATMAN. I think that the people that Congress entrusts with
the greatest power in America should be an agency of Congress, as I
believe the Constitution of the United States contemplated, and I
believe that that agency of Congress should be instructed what to
do, and I believe that agency of Congress should be required to carry
out the instructions of Congress, and, further, if that agency fails
or refuses, or one member of that agency or all of them fail or refuse
to carry out what Congress has told them to do, Congress, either
House, then has a right to remove them for failure to perform a
duty.
Mr. LUCE. DO you think that the power of removal could be exercised by Congress when it is not in session ?
Mr. PATMAN. NO; I doubt that. But I think that question is a
minor one, compared to the general objective.
Mr. LUCE, YOU are raising a very novel suggestion.
Mr. PATMAN. I think conditions at this time justify considering
novel suggestions.
Mr. LUCE. Yes; but the general principle of your plan is that Congress should pass judgment upon the work of administrative officials.
Mr. PATMAN. That is, Congress' administrative! officials; these
people are administrative officials of this Congress, and we are going
to pass judgment upon their acts.
Mr. LUCE. All administrative officials are in the same position;
they are enforcing the laws that Congress enacts, and I want to make
one thing very clear, because it was a pretty serious charge, Mr.
Patman
Mr. PATMAN. What is that?
Mr. LUCE. The charge that this depression, with all of its widespread suffering, with 10,000.000 people out of work and disaster on
every hand, is due to the bad judgment of an administrative board.
Mr. PATMAN. I say that the Board of Governors of the Federal
Reserve banks could have stopped it.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

179

Mr. GOLDSBOROUGH. You do not agree that they are just an administrative board, anyhow?
Mr. PATMAN. What is that?
Mr. GOLDSBOROUGH. Under the law, they are more than an administrative board, anyhow.
Mr. PATMAN. Oh, yes; they have almost unlimited power, and
they are interfered with, I am apprehensive, by the people who are
selfishly interested. On the open-market committee, up until the
time of this last appointment was made, the banks had five members
and the Government five members, and how could the Government
do much against the selfish interests of the banks ?
I am not condemning banks as such; I am not condemning bankers
as such. There are just as many honest people in the banking business as in any other profession or business, and I believe that banks
should be able to make money. I believe that they should be able
to prosper, but I am not in favor of entrusting anyone with promoting the general welfare who is charged with the duty of working
for private individuals and private capital. In other words, I want
the people who do this to represent all the people, to be under obligation to represent all the people, and not under obligations to
private interests in any way whatsoever.
Mr. LUCE. But you miss my point, Mr. Patman.
Mr. PATMAN. I am sorry I did.
Mr. LUCE. In the course of advocating a remedy, you have made
what seems to be a very serious charge, that officials of the present administration, by unwise statements, precipitated a terrible depression.
Do you want that to stand ?
Mr. PATMAN. Don't put words in my mouth, my dear sir. I told
you that I thought that the two greatest contributing causes were
doubling the reserve requirements of the banks and sterilizing gold.
I said that there are others whose information and knowledge on the
subject were much greater than my own who contend that it is not
true. Now, the gentleman turns it around and is trying to contend
that I said that, and if he will refer to the notes of the reporter, he
will find that I am absolutely correct.
Mr. LUCE. I did not so understand you.
Mr. PATMAN. And I specifically referred to Senator Owen. I said
that Senator Owen takes issue with me on doubling the reserve requirements. He says he thinks it was all right to double the reserve
requirements, and other people think that, but I do lay the greatest
blame for this depression on the Board of Governors of the Federal
Reserve banks. Possibly if you could talk to them confidentially
and privately, they would tell you how they are obstructed by an
agency that Congress has delegated some power to, and that agency
is the Federal Advisory Board, made up of people who are selfishly
interested in the money supply of this Nation. That is an agency
created by Congress and given certain powers to confer with that
Board and to make certain recommendations and have knowledge of
certain things. They could possibly say how they have been hindered
by that advisory agency that we had caused to be placed around them.
They w^ould probably say, and I do not know whether they would or
not, that Congress has permitted private bankers, who are interested
selfishly, like you or I would be, to be on that Open Market Committee and possibly interfering with them in doing what they would
like to do.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

I do not know what is in their minds. I do not know what happens in their meetings, but they would possibly tell us some of those,
things if we could get the information from them, as we would like
to get it. But I do not know whether they would give it to us or not.
Mr. GOLDSBOROUGH. May I make an observation there ?
Mr. PATMAN. Yes.
Mr. GOLDSBOROUGH.

I have personal knowledge that for several
months before the reserve requirements were raised the representatives of several of the largest banks in the country w^ere continually
importuning the Federal Reserve Board to raise reserve requirements, of course their sole purpose being to increase interest rates.
Mr. PATMAN. YOU make money scarce, and as money is made
scarce it is made dear and it is made high, and everything else is made
low in proportion.
Mr. LUCE. But, Mr. Patman, every agency of the Government was
created by Congress.
Mr. PATMAN. Yes, sir.
Mr. LUCE. And all powers of every
Mr. PATMAN. Yes.
Mr. LUCE. And I understood you

agency were given by Congress.

to say that an agency created
by Congress, or the Federal Reserve Board, had certain powers delegated to it, which powers were unwisely administered and that precipitated this greater depresesion.
Mr. PATMAN. Contributed greatly to it, I said.
Mr. LUCE. YOU did, in your previous statement.
Mr. PATMAN. I say they contributed greatly to it.
Mr. LUCE. YOU put that as the most important, however.
Mr. PATMAN. Yes, Congress created the agency, and Congress
turned it loose. You take all of these amendments; you go back to
the 1913 act, and I will give you one example to show you what has
been done by these so-called perfecting amendments.
In 1913 Congress said that as Federal Reserve notes are issued—
and there are over $4,000,000,000 of them outstanding today—that
the Federal Reserve banks receiving these notes should pay an interest
charge fixed by the Federal Reserve Board. Now, the Board of Governors of the Federal Reserve banks met, and they said, "Why should
we fix an interest rate ? All the excess earnings go into the Treasury
any way, and why not just let it accumulate and pile back over into
the Treasury ? There is no occasion for fixing an interest rate," and
they said, "We will have the zero rate," and they kept on trying to get
an amendment to this law. Finally, in 1917, when the war was going
on in Europe and after the war had started, after April 6,1 believe it
was—anyway, about that time—a bill was rushed through Congress
to help the small banks of the country, and in that bill there was
an important provision which said that all banks shall pay an interest
charge only on the difference in the amount of notes held and the
amount of gold or gold certificates deposited to secure those notes.
That made a big difference there. Then, in 1935, in compromising
with Senate, our House conferees had to agree that we would cut off
the excess earnings entirely from going into the Treasury, that they
will go into the Federal Reserve banks.
Mr. GOLDSBOROUGH. That was done for the purpose of getting the
Senate to agree in the conference to the inclusion in the bill of 1935
of Federal-deposit insurance.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. PATMAN. I understand that, and I say our conferees were
compelled to agree to it.
Mr. GOLDSBOROTTGH. For that reason.
Mr. PATMAN. SO we are in this idiotic position there of the law
saying that the Federal Reserve banks should pay an interest charge,
and the interest charge not being demanded because the excess goes
into the Treasury anyway. Now the law is so amended that the excess earnings do not go into the Treasury.
I have a statement here showing that up until a year ago, when
I received this statement, that every Federal Reserve bank in this
Nation has violated that law, and the Board of Governors of the
Federal Reserve banks and the Federal Reserve Board have permitted that law to remain violated every day. As to whether it is
violated now, I have not checked on that, but until a year ago Federal Reserve banks were violating the law.
So that is one illustration of how legislation is made and how it is
perfected and changed, and the first thing we know, we find ourselves in a peculiar position, just like we find ourselves now, where
we gave this Board almost unlimited power over the economic affairs
of our Nation, so that they can determine largely whether the people
are prosperous or whether they shall suffer, and yet we have not
given them any specific mandate, and I repeat, and the gentleman
from Massachusetts can note this if he desires, that I have only noticed activity on their part when the bond market was in jeopardy,
or when they thought there was some little sign of inflation or expansion somewhere. Then they would get into action immediately
to put the. brakes on and to go in the other direction, but they never
seemed to realize their power to expand.
Mr. CRAWFORD. On that point, do you not think the statement of
the advisory council, as embraced in the statement of the Board back
in 1935, was directly in line with the observation that you just made?
I think when you review that you will also find that "that statement
points to a potential fact, that later on the advisory council will demand that the law be fixed so that they can increase these reserve
requirements again.
Mr. PATMAN. I am not familiar with that amendment.
Mr. CRAWFORD. I think that that is all in support of the statement
that you just made.
Mr. PATMAN. I appreciate the suggestion. I will be glad to look
into it.
Now, if the members of the committee, if it is all right with them,
will carry out your suggestion and meet promptly at 10:30, would it
be all right for me to close now, with permission to extend my remarks
in the record and insert certain information that I desire to insert,
and then let the committee interropate Senator Owen tomorrow morning ; and the next day Robert Hemphill will be the witness if he comes.
Mr. WILLIAMS. Will we close these hearings without having any
kind of testimony from the authorities in charge of the monetary
system of this country ?
Mr. GOLDSBOROUGH. I think the chairman of the committee will be
back next week.
Mr. PATMAN. I have just been informed that the Economists'
National Committee, New York, telephoned requesting that Dr.
Spahr be heard in opposition to this bill.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Personally I would be very glad to have Dr. Spahr heard in
opposition to it.
Mr. WILLIAMS. He is not the only one that I have in mind, but I
think the chairman promised him a hearing.
Mr. GOLDSBOROUGH. Not on this bill, but it is perfectly all right.
Mr. WILLIAMS. Oh, it was on your bill.
Mr. PATMAN. Suppose that we ask him to be here in the morning,
after Senator Owen concludes, or if Senator Owen does not finish
in the morning, Dr. Spahr can go on next day.
Will that be all right?
Mr. GOLDSBOROUGH. I t will be all right, but in view of the fact that
he is coming from New York, he ought to be given a definite day.
Mr. PATMAN. Make it Wednesday.
Mr. GOLDSBOROUGH. That is satisfactory to me.
Mr. PATMAN. And Senator Owen tomorrow, and if the chairman
is going to insist on beginning the hearings at 10:30, I believe it will
be a good thing and that the members will be here.
Mr. GOLDSBOROUGH. Gentlemen, I said at the outset, before some of
you were here, that if it is agreeable to Mr. Patman, the hearings
would begin hereafter at half past 10, if there is not anybody here
but the chairman, and he said that it was agreeable to him, so I guess
that that is what is going to happen tomorrow morning.
Mr. WILLIAMS. I understood that in a letter written by the chairman of the Board of Governors of the Federal Reserve System he
said that when this bill was up for hearings, if he was requested to
come, he would be glad to do so, but that he did not care to discuss
it then.
Mr. GOLDSBOROUGH. That is correct. That was in Mr. Eccles' letter.
Mr. PATMAN. Personally I am not going to request any of them to
come. If the committee wants to do so, I shall not object, or if the
chairman wants to call them and tell them that the hearings are
going on
Mr. BROWN. They are affected by this bill, and I think that they
ought to be notified to come.
Mr. GOLDSBOROUGH. What is the will of the committee? Shall we
request them to come, or tell them we will be glad to hear them ?
Mr. EEILLY. We ought to hear them.
Mr. GOLDSBOROUGH. Mr. Weed, will you attend to that ?
Mr. FORD. I have heard repeated statements charging the Federal
Keserve Board with responsibility for the present depression. I
am inclined to believe that there is some foundation for that; but, in
fairness to them, we ought to have their interpretation, their statement, as to why they did these things, and what authority they had
for doing them, and so forth.
Mr. GOLDSBOROUGH. TO be specific, has anyone a motion to make ?
Mr. PATMAN. May I suggest that the chairman be requested to call
up each one
Mr. GOLDSBOROUGH. The clerk can do that.
Mr. PATMAN. Mr. Eccles, the Comptroller of the Currency, the
F. D. I. C. chairman, and say to them that these hearings are going
on and that an opportunity will be afforded to them to be heard on
the bill if they desire to take advantage of that opportunity.
Is that fair?
Mr. EEILLY. I would like to go further, and state that the committee requests them to be here.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

183

Mr. PATMAN. Suppose that they do not want to appear?
Mr. EEILLY. Then it is their privilege to say so.
Mr. PATMAN. That is all right with me, if the committee wants
to do that.
Mr. GOLDSBOROTJGH. Does anybody care to make a motion ?
Mr. FORD. I move that they be requested to appear before the
committee.
Mr. GOLDSBOROUGH. It has been moved that the Secretary of the
Treasury, the Governor of the Federal Reserve Board, and the Chairman of the Federal Deposit Insurance Corporation be requested to
appear before the committee.
Mr. PATMAN. What about the Comptroller of the Currency?
Mr. GOLDSBOROUGH. And the Comptroller of the Currency—is that
a part of the motion ?
Mr. FORD. Yes.
Mr. GOLDSBOROUGH.

That they be requested to appear before the
committee as witnesses in connection with H. E. 7230.
(The question was put and the motion agreed to unanimously.)
Mr. GOLDSBOROUGH. It is so ordered.
The committee will adjourn until half past 10 tomorrow morning.
(Thereupon, at 11:50 a. m., an adjournment was taken until
Tuesday morning, March 22, 1938, at 10: 30 o'clock.)
CURRENCY INSTEAD OF BONDS—PRIVATE BANKERS ISSUE BLANKET MORTGAGES
AGAINST PROPERTY OF PEOPLE FOR OWN BENEFIT AND CHARGE GOVERNMENT FOB
USE OF ITS OWN CREDIT—No MORE TAX-EXEMPT INTEREST-BEARING SECURITIES
SHOULD B E ISSUED—WILL SPECIAL-PRIVILEGED FEW INVEIGLE T H I S COUNTRY
INTO WAR TO DISTRACT ATTENTION FROM MONETARY REFORMS?

[Remarks of Hon. Wright Patman, of Texas, in the House of Representatives, Friday
August 23, 1935]
Mr. PATMAN. Mr. Speaker, one of the greatest problems we have in this country today is the evasion of taxes through the ownership of tax-exempt securities.
Today there are in existence in this country tax-exept securities amounting to
$50,500,000,000. Approximately $30,000,000,000 of these securities have been
issued by the Federal Government and the remainder by the States, counties,
cities, and polical subdivisions. The holders of these securities not only do not
pay a tax on their capital investment, they do not pay a tax on the income from
their investments in these tax-exempt securities.
THE CLASS OWNING WEALTH ESCAPES TAXATION ; OTHER PEOPLE PAY TAXES ON WHAT
TPIEY OWN AND CONSUME

The reason a taxation bill cannot reach the really wealthy people of this country today, those who are the most able to pay, those who have the ability to pay,
those who could pay with the least inconvenience and without depriving themselves and their families of a single comfort or luxury of life, have their money
invested in these securities from which they collect interest annually and pay no
tax whatsoever. It has almost reached the point that we have two classes in
this country:
First. The class that owns the wealth and pays no taxes toward the support
of the Federal, State, county, or city governments, and get the protection of our
laws, the use of the great improvements that have been made through the issuance of tax-exempt securities, the use of the educational institutions of our
country, and all other rights and privileges that our country affords without
paying any tax whatsoever on the tax-exempt securities that they hold.
Second. The other class is composed of those who do not own much of the
country's wealth. In this class you will find those, however, who produce the
country's wealth. They build the country in time of peace and save the country
in time of war. They pay taxes on what they owe, not upon what they own,




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

either through ad valorem taxes on the real and personal property they owe for
or through different forms of sales taxes and other special taxes.
The time is rapidly approaching when we cannot continue to permit the wealthy
of this country to escape taxation like they are without levying a sales tax or a
similar form of obnoxious taxes to take the place of revenue that should be paid
by those who have the ability to pay and do not pay.
MORE NONTAXABLB BONDS ISSUED DAILY

The Government is issuing more tax-exempt securities every day. The States,
counties, and cities are issuing more tax-exempt securities every day. Wealth
is rapidly leaving the channels of production and trade, where it pays its fair
share of the burdens of the Government, and is going into these tax-exempt
interest-bearing securities. This situation cannot continue indefinitely and our
country survive. It is certainly wrong for the people who own the wealth to
escape taxes and compel those who produce the wealth to pay taxes on what
they owe and what they consume in order to support our Governments.
PEOPLE SAVED $11,000,000,000 INTEREST ON SO-CAULED "GREENBACKS"

I read the hearings on the Goldsborough bill, and I noticed a statement put
in there by Mr. Robert Harriss in regard to the United States notes that are
outstanding.
In 1862 there was issued by this Government between four and five hundred
million dollars of United States notes. Not a penny of gold was behind these
notes. The credit of the Nation was behind the notes. This was during the
War between the States, and when General Early, of Southern Confederacy
fame, was about to take Washington and the Union was about to fall, these
notes depreciated in value down to about 35 cents on the dollar. They only
had the credit of the Government behind them, but when the Union was successful, these notes came back 100 cents on the dollar. The Government did put
some gold behind them, but that was not the reason they came back 100 percent. It was because the credit of the Nation was restored. They have remained 100 percent ever since. This money is in circulation today—$346,000,000
of it. The people have been saved more than $11,000,000,000 of interest on that
money on the basis of 5 percent, as this table introduced by Mr. Harriss discloses. If the people can save $11,000,000,000 in interest from 1862 to now on
$346,000,000', how much will the people be able to pay and how much will they
be required to pay on this $30,000,000,000 debt we have? This is a question we
must consider.
POOR, PEOPLE CANNOT CONVENIENTLY PAY PRESENT DEBT

Our present Federal debt is about $30,000,000,000. Let us consider for a
moment what the Nation's probable debt will be 30 years from now and 60
years from now. A Government expert, at the request of Mr. Robert M. Harriss,
of New York City and Dallas, Tex., has compiled the information based upon
the Government's debt of November 30, 1934, when it was $26,760,967,700. The
compound interest at 3 percent on this sum to 1965 is $38,194,924,859.09, making
the debt for this date, 1965, $64,955,892 559. 00. The compound interest on the
same amount of debt to 1905 is $130,904,032,560.32, making a total of $157,665,000,260.32. The average rate of interest paid by the Government is 3.18 percent.
PARASITES AND BLOODSUCKERS

Our Government is responsible for making parasites out of the holders of
these securities. Congress has caused this class of parasites to be created, and
Congress should be held responsible for these bloodsuckers.
DEMOCRATIC PLATFORM OF 1912

In 1912 the people of this country were aroused because of the concentration
of wealth—the unequal distribution of wealth. It was written into the Democratic platform of 1912 at Baltimore, referring to our country's condition.
"A private monopoly is indefensible and intolerable. We, therefore, favor the
vigorous enforcement of the criminal as well as the civil law against trusts
and trust officials, and demand the enactment of such additional legislation




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS
as may be necessary to make it impossible for a private monopoly to exist in
the United States.
"We favor the declaration by law of the conditions upon which corporations
shall be permitted to engage in interstate trade, including, among others, the
prevention of holding companies, of interlocking directors, of stock watering,
of discrimination in price, and the control by any one corporation of so large
a proportion of any industry as to make it a menace to competitive conditions."
The platform further stated that the people needed—
"Protection from control or dominion by what is known as the 'Money Trust';
banks exist for the accommodation of the public and not for the control of
business."
PEOPLE'S MINDS DIVERTED

These liberal provisions were carried forward in the Democratic platform of
1916. President Woodrow Wilson advocated these provisions and would have
carried this platform and policies into effect, which would have destroyed many
of the special privileges that we are having to deal with today, had it not been
for the fact that we were forced into a war with Germany and the attention
of the people immediately diverted from necessary monetary and economic
reforms to winning the war.
PEOPLE NO LONGER FOOLED ON MONEY

The people of this country are again aroused like they were in 1912 and like
they were in 1916. They are no longer fooled by the poll-parrott satellites of
Wall Street who scream out fiat money, printing-press money, "baloney" dollars,
and similar catch phrases that are coined for the purpose of condemning good
causes in the absence of logic and reason to support their arguments. The
people of this country realize it is an idiotic and imbecilic system for the United
States Government to issue a $1,000 bond that is interest bearing and tax
exempt; sell that bond to a private banker and then permit the private banker
to deposit the same bond with the same Government he purchased it from and
receive new money in return for it and continue to collect interest on the Government bond. Thomas A. Edison was right when he said that any government that can issue a dollar bond that is good, can issue a dollar bill that is
just as good. No one can possibly contend that currency is any more inflationary than bonds. The only difference is the people through their Government
pay interest on the bond and do not have to pay interest on the currency.
WILL WAR BE USED TO AGAIN DIVERT MINDS OF PEOPLE?

Since the people of this country are determined to rid the privileged few of
their monopolistic rights and the free use of the Government's credit and other
special privileges, which will release the grip of Wall Street on the people, I
wonder if there will be an effort to involve us in a war in order that the people's
minds might again be diverted and these necessary reforms postponed for
another generation.
THE OWNERS OF A BILLION-DOLLAR FRANCHISE

There are 12 Federal Reserve bank districts in the United States, the Nation
being divided up into 12 areas, with one Federal Reserve bank in each area.
These banks are located in Boston, Mass.; New York, N. Y.; Philadelphia, Pa.;
Cleveland, Ohio; Chicago, 111.; St. Louis, Mo.; Richmond, Va.; Atlanta, Ga.;
Minneapolis, Minn.; Kansas City, Kans.; Dallas, Tex.; San Francisco, Calif.
They are not the same banks or the same system created in 1913. So-called
perfecting amendments have diverted these banks from the course intended
when Congress created them.
All the national banks in the area served by the Dallas, Tex., Federal Reserve Bank belong to the Federal Reserve Banking System. Many State banks
belong to the System, but up to date they have not been compelled to join.
The same situation exists in other areas. The stock in each Federal Reserve
bank is owned by the bankers that are members of the System in that area.
The Government of the United States does not own one penny of the stock.
It is all owned by private corporations, private banks that are owned by their
stockholders.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Most of the money that is in circulation today, paper currency, greenbacks,
or whatever you want to call it, is Federal Reserve notes. If all the people
of this country knew how these Federal Reserve notes get into circulation and
how the private bankers of the country use the Government's credit free, I
doubt that they would enjoy the privilege very much longer. It is certainly
wrong to allow a few the use of the Government's credit free and charge the
other people for its use.
PRIVATELY OWNED BANKS ISSUE BLANKET MORTGAGES ON PEOPLE'S PROPERTY AND
INCOME

All transactions of the Federal Reserve banks are tax-exempt. All the
profits made by a Federal Reserve bank go into the surplus fund of that bank,
and not one penny of its profits go into the Treasury of the United States or
taxed in any way. If the Dallas, Tex., bank needs a million dollars in new
currency, the order is given to the Director of the Bureau of Engraving and
Printing in Washington, D. C, where 4 tons of paper money is printed each day.
Who gives this order? The Federal Reserve agent, who is also chairman of
the board. The chairman of the board is directly responsible to the president of the Dallas bank, who is elected by private bankers.
What does he offer as security for this money? He places in the bank vault
at Dallas, Tex., either Government securities or paper of private banks equal
to the amount of the money ordered printed. These deposited securities or
bank paper are collateral for the issuance of the money, and they are kept in
the possession of the private banker's representative, who orders and obtains
the million dollars in new money.
Who agrees to pay each one of these bills that is printed for this bank? If
you will notice a Federal Reserve note, it says: "The United States of America
will pay to the bearer on demand $—." You will also find on the note or new
bill the signature of the Treasurer of the United States and the signature of
the Secretary of the Treasury of the United States. Therefore this blanket
mortgage upon all the property of all the people of this Nation and this lien
upon the income of all the people in this country is issued for the use of the
private bankers without any charge whatsoever except the cost of printing,
which is about 27 cents a thousand dollars.
EAT THEIR CAKE AND KEEP IT

The 12 Federal Reserve banks now own about $3,000,000,000 of Government
securities. These securities were purchased with the Government credit—a
blanket mortgage that I have described. Ordinarily you would think that when
a Government security is purchased by Government credit that the interest
would cease to run against the Government on the obligation purchased, but
in this case the Federal Reserve banks continue to collect interest on the obligations so purchased. The situation is analogous to that of one who owes
a mortgage on his home for $10,000, giving a neighbor $10,000 to pay the mortgage holder, the neighbor paying the mortgage holder $10,000 and having the
mortgage transferred to him, the neighbor, who holds it and continues to
charge the home owner interest on the mortgage that he has liquidated. If
the home owner continues to pay interest on the mortgage that he has furnished the money to pay he is acting as foolish as the Government.
GOVERNMENT OWNS ENORMOUS GOLD RESERVE

Under present laws, the Government owns 9*4 billion dollars in gold. The
title to this gold is in the Government. None of it belongs to the banks or to the
people. This is sufficient gold for the Government to issue its credit to the
extent of $24,125,000,000, based upon a 40-percent gold reserve. We have 5y2
billion dollars of money in circulation and the Government is paying the Federal Reserve banks an annual bonus to keep a large part of this amount in
circulation. No country has ever required more than a 40-percent gold base
as coverage for its currency, and very few countries have ever had that much.
It occurs to me as unsound for the Government to continue to issue tax-exempt
interest-bearing bonds when it has ample gold that may be used as sufficient
base for the issuance of approximately $20,000,000,000 more in money or credit.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS
GOVERNMENT SHOULD CHANGE IDIOTIC SYSTEM

The private banks owning the stock in the Federal Reserve banking system
have an investment of $146,000,000. It is the Government's credit, and not
this small investment that enables these banks to transact hundreds of billions
of dollars worth of business annually. The Government should do the following :
First. The Federal Reserve banks should be taken over by the Government
and operated in the interest of all the people, banks, industry, agriculture, and
commerce.
Second. No private corporation or corporation owned by private corporations
should have the right to issue money.
Third. The Government should issue currency or credit when in need of
money instead of tax-exempt interest-bearing bonds.
Fourth. Very few of the bankers of the country, even the real good ones,
have ever studied or thought anything about this monetary problem.
Fifth. A billion dollars a year can be used by the Government to a better
advantage than paying it as interest on Government bonds that may be used
as a basis for the issuance of currency.
Sixth. Direct credits should receive the thoughtful consideration of the
people.
Seventh. Opposition to any progressive proposal may be expected from
those who will be deprived of special privileges, the die-hard, orthodox, hardmoney advocates, and the poll-parrot satellites of Wall Street who only repeat
what others say and never think for themselves.
Eighth. We need and must have more money as a circulating medium, but
we should not issue more Government bonds in order to get it.
Ninth. The Government, through the ownership of the Federal Reserve banks,
can gradually but eventually retire every outstanding dollar's worth of Government securities and save the Government a billion dollars a year in interest.
Tenth. The Government, through the use of these great facilities, can refinance the obligations of States, counties, cities, and political subdivisions by
using the people's credit—the Government's credit—at a rate of interest not
exceeding one-half of 1 percent. This rate of interest will protect the Government against loss and save the people who are obliged to pay these obligations
from one-half billion to a billion dollars a year in interest charges alone, which
will result in reducing the tax burden on property in many communities as
much as 50 percent.
Eleventh. The Government, through the Government-owned Federal Reserve
Banking System, could safely make loans to States, counties, cities, townships,
and school districts and educational institutions for public improvement and
education based upon adequate and sound security at one-half of 1 percent
interest.
NO CHANCE OF INFLATION

This change in our banking laws and governmental system can be made
without undue expansion of the currency and without the possibility of inflation by making the changes gradually instead of rapidly and by changing the
reserve requirements of banks at the same time. In other words, under the
present law a bank can issue $10 in credit to every $1 in money. As the
Government pays money into circulation for services or in payment of Government obligations the reserve requirement can be raised to where a bank cannot
issue more than $5 to everyone and then $3 to everyone, until finally the bank
will only be permitted to extend loans to the actual amount of money in its
possession, which will cause a 100-percent reserve requirement.
POWER OF MONEY TRUST OVER CONGRESS

The power of the Money Trust over Congress seems to be irresistible, we
are told; I think the indifference of Congress is the cause. In either case,
Congress is to be blamed for the present Money Trust. The reforms I advocate
have been attempted time and again. No person can possibly defend the idiotic
system that the Government has in effect at this time of issuing and distributing
money for the benefit of a privileged few. As the hidden nests of corruption
are disclosed the people's minds are always distracted in some way to prevent
the proper reforms being made.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS
THE MORGAN OVERDRAFT

Before America entered the war J. P. Morgan's banking house was financing
Great Britain in the war against Germany. Mr. Morgan would sell England's
bonds to American people and purchase goods and supplies and send them to
England in return for her bonds. Just before America entered the war, however, Mr. Morgan had furnished England $400,000,000 more in credit than he
was able to sell England's bonds to cover. This was known as the Morgan
overdraft, and was discussed in official communications between the United
States and England. A clamour for war was commenced on the eastern sea
coast; the few who first desired war probably would never have sold this
country on the theory that we should have entered the war had it not been
for their tremendous power through the indirect and direct means of control
over the newspapers and other means of communication in this country.
However, with these great powers and privileges, and through the use of all
sorts of propaganda, the people of this country were led to believe that they
should enter the World War. The first $400,000,000 of the First Liberty Loan
was loaned to England to pay Mr. Morgan. The House of Morgan was saved but
we were in a war.
GOVERNMENT FARMED OUT GREAT PRIVILEGE TO PRIVATE BANKS

It is in the interest of Wall Street to prevent the issuance of Government
money, if it is possible for them to do so. It is stepping on the toes of the
big bankers and is a step in the direction of Congress doing what they have
succeeded in preventing Congress doing; that is, coining money and regulating
the value thereof as required by the Constitution of the United States. This
great privilege of issuing money has been farmed out to them by our Government, and they do not want anything done that will be in the direction of
denying them this great privilege that is worth billions of dollars and is
probably the greatest racket on earth.
BONUS TO BIG BANKERS

Our Government is paying almost a billion dollars a year interest on its own
credit to holders of Government securities. It is not right for the people to
be compelled to pay a penny of this amount. If our Government were to
borrow money from a foreign country or a foreign bank, it would be right
for our Government to pay interest on the amount borrowed, or if our Government should borrow gold from our own citizens to use in international trade
to promote the interest of our country, our Government should pay our citizens
interest for the use of that gold.
Today, however, our Government does not borrow money from a foreign
country or a foreign bank, neither is it borrowing gold from its own citizens;
therefore, it should not be compelled to pay tribute, interest, bonus, or grauity
to a few big bankers for the privilege of using its own credit. That is exactly
what our Government is doing. It is an imbecilic and idiotic system that has
grown up over a period of years that cannot be charged directly to any one
political party or any one- individual. The people have discovered this idiotic
system. They have finally gotten the truth. The ones who enjoy these special
privileges are making every effort to becloud the issue, deceive and mislead
the people with red herrings, and all kinds of propaganda and down-right
falsehoods disseminated by their hired hands, puppets, and easily misled
citizens.
CONSTITUTION ADVOCATES SILENT ON ONE PARAGRAPH

Article 1, section 8, paragraph 5, of the Constitution of the United States
says that it is the duty of Congress to issue money and regulate the value
thereof. Most of our Constitution advocates never refer to this particular
section of the Constitution. If Congress should do what this section provides,
most of our economic troubles would be solved. Why does the American
Liberty (bond) League remain silent on this paragraph of the Constitution?
It has much to say about the Constitution, but nothing about this particular
paragraph. Why do all the newspapers and hirelings of Wall Street that
have so much to say about Congress violating the Constitution in different
ways, never accuse Congress of failing to carry out this particular paragraph
of the Constitution? If that paragraph is complied with by Congress the depression will be over, and all temporary expedients may be immediately repealed and there will be no doles, bread lines, or made-work relief.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS
WHAT IS MONEY?

One great economist defined money to be "that which passes freely from
hand to hand throughout the community in payment for goods and in full
discharge of debts, being accepted without reference to the character or credit
of the person offering it, and without the intention of the person who receives
it to consume it otherwise than in tendering it to others."
Suppose we did not have money. If you had wheat to spare and needed
shoes, possibly you could trade the wheat for the shoes, but not likely; you
would probably have to trade the wheat for hides and then trade the hides
for shoes. This would be very inconvenient. It is much better that we have
something called money that has a definite value measured in all commodities
in order that anything may be exchanged for money and money may be exchanged for anything. Money is a standard or common denominator of value.
Money itself is of no value; it is a simple tool desired for the purpose of making
exchanges. Money is no mysterious thing, no mystic principles veil or obscure
it; it,is a tool for making exchanges, just as a hammer is a tool for driving
nails.
SCRIP USED IN A THOUSAND CITIES

Different commodities have been used as money; knives were formely used
as money in China; tobacco served the same function in Virginia; some other
commodities that have served this function are wheat, bark, cattle, iron, and
shells. The Department of Commerce recently made a survey and discovered
because of a necessity of money over a thousand cities and groups are using
scrip and barter for money; it was acceptable to the people at these places
in the absence of a suflicient medium of exchange.
HOT CHECK USED AS MONEY
T

Dow n at Farmersville, Tex., not so long ago, a customer bought a dollar's
worth of goods from a merchant. He gave a dollar check in exchange for the
goods. The check was endorsed by the merchant and transferred to 19 other
people. When it reached the bank it had 20 endorsements on it, and the banker
very promptly told the one presenting the check at the window that the maker
did not have sufficient funds to cover that dollar check. Well, instead of each
endorser going back on the other endorsers and collecting the dollar and letting
those $20 in debts remain unpaid, the 20 endorsers got together, each contributed
5 cents apiece and deposited it to the credit of the man who gave the check.
The check was promptly paid, and the $20 worth of debts were paid 95 cents on
the dollar.
In this crisis it seems like people are using wooden money and hot checks to
good advantage when they cannot have a suflicient medium of exchange furnished to them by their Government to do business with.
.STABLE MONEY

It is desirable that we have a stable dollar. Our farmers borrowed money
by voting upon themselves road, school, and other improvement bonds when
wheat was worth $1.50 a bushel and cotton was worth 20 cents a pound. Later
they were called upon to pay these debts when wheat was 40 cents a bushel
and cotton 5 cents a pound. This resulted in the payment of $4, in what the
farmer had to pay with, to every $1 borrowed; instead of being called upon to
pay the 6- or 10-percent interest they contracted to pay, they were called upon
to pay the equivalent or 24- or 40-percent interest in what they had to pay with.
SUPPLY AND DEMAND OF MONEY

Do not be misled into believing that supply and demand of a commodity is
the sole controlling factor in determining the price of the commodity. Just as
much depends on the supply and demand of money and credit. If our cotton
and wheat farmers produce only one-fourth of a normal crop this year and
money and credit are made scarce, high, and dear, cotton and wheat will be
cheap.
Since tbe supply and demand of money, which includes credit, controls the
price of all labor, services, and commodities, our Government should be careful
about who controls this'great privilege. The people are entitled to have some69972—38
13




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

one in charge of that great lever that expands or contracts money and credit
at will who has their general welfare at heart; no one should have charge of this
lever who can manipulate it in a way to make profit for themselves to the detriment of the general welfare. What chance has a producer or wage earner of
this Nation to earn a decent livelihood for himself and family if the value of
his products or labor is fixed by someone who has in mind making a profit for
himself?
CONSTITUTIONAL MANDATE

The framers of the United States Constitution in article I, section 8, very
wisely said:
"Congress shall have the power to coin money and regulate the value thereof.'*
This provision of the Constitution is mandatory. All Members of Congress
are sworn to uphold the Constitution. Why has this provision never been carried out? The answer is simple. In the early days of our national existencethe people were deceived into believing that the subject of money was so mysterious and intricate that only a few of the financiers understood the subject,
and therefore the great privilege of issuing and distributing money should be
farmed out to them. This was done and it has never been changed, except to
give them more power and authority. The strange part of it all is that the ones
who are the beneficiaries of this great privilege are not even charged with the
duty of furnishing the people a sufficient circulating medium.
FIAT-MONEY PARROTS

Do not blame the bankers for this. They are not to blame; they are doing
what Congress has permitted them to do; Congress should be held responsible.
However, when Congress seriously considers printing sufficient money to carry
out this constitutional mandate the holders of this great privilege and their
satellites repeat like parrots such phrases as ''printing-press money," "rag
money," "fiat money," "baloney money/' and "greenbacks." They do not tell you
that it is the same kind of money that is printed for them and that it will be
backed by the same security which is the credit of this Nation. Let me make a
prediction. The people are getting wise to such false, selfish, and greedy propaganda, and will, before very long, compel their Congress to change our idiotic
monetary system by complying with the Constitution. I will admit, it takes a
long time to sell the people of this Nation a good proposal.
GERMANY'S INFLATION

The inflation in Germany is cited as evidence of what will likely happen here
if the power to issue money is taken away from private corporations and restored
to Congress. The German situation is not in point at all. In Germany the
people owed more debts than they could pay. They could not cancel the debts,
but they could print more money to pay them with. In fact, that country deliberately printed money until it was worthless, so their people could use the
money to pay their debts with and get out of debt. They accomplished their
desires.
OUR AIM

We do not desire to and will not destroy our monetary system, but we do
want the people to be allowed the privilege of paying their debts in dollars that
are worth approximately what they were worth when borrowed, and to restore
to Congress its constitutional duty to coin money and regulate its value.
MODERN, UP-TO-DATE PRINTING PLANT

Here in Washington City the Government owns and operates a modern, up-todate printing plant for the purpose of printing paper money and Government
securities. It is the Bureau of Engraving and Printing, employs 5,500 people,
and at one time got behind with its money printing until it had to be operated
24 hours a day. The question is, Who gets this paper money; how do they get
it; and who benefits by its issuance?
ZERO RATE OF INTEREST

Do such banks pay for the privilege of issuing these blanket mortgages on the
property and incomes of the people? The answer is no. The Federal Reserve
Act, section 16, provides that they shall pay an interest charge that may be fixed




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS
by the Federal Reserve Board. The Board fixed the rate at zero. Therefore
these 12 banks have used the people's credit up to the amount of $60,000,000,000'
a year turn-over for 20 years for the zero rate of interest. If they had paid a
reasonable rate of interest, the Government would have collected hundreds of"
millions of dollars.
Practically all the money we have in circulation today is money issued by
these banks. They use the Nation's credit free to issue it, but someone is
paying interest on it every day it is outstanding. The only way the people can
expand their currency under this system is to go into debt deeper and pay more
interest. The people owe $203,000,000,000 in debts now. During the year 1932.
the national income was $40,000,000,000; that year when we had less thaEL
$5,000,000,000 in circulation, the people paid $10,000,000,000 in interest chargesshown.
PEOPLE SHOULD GET MONEY-MINDED

I hope the people get money-minded, money conscious. Look at the paper
money in your possession and do not stop investigating until you know all about
why, how, and for whose benefit it was issued. It is the one big problem; when
it is solved most of all our other problems will sink into insignificance. Congress is the branch of Government charged by the Constitution with solving it
or with submitting to the Executive proposals to that end.
TAKE THE GOVERNMENT OUT OF PRIVATE BUSINESS AND TAKE PRIVATE CORPORATIONS
OUT OF THE GOVERNMENT'S BUSINESS

Our Government, under the leadership of a great President, is making a:
determined effort to restore prosperity to the people. Much has been done
toward helping wage earners, laborers, farmers, home owners, business, industry,
and commerce. Debts have been scaled down, extended, and interest charges
have been reduced. It is almost inconceivable that we can continue this start
on the road to recovery without the Government having control over its own
media of exchange. The issuance and distribution of money is a governmental
function. It never should have been farmed out to private corporations; since
it has been, the Congress should immediately reassume this great privilege and
exercise it in the interest of the people. Our slogan should be: "Get the Government out of private business and get private corporations out of the Government's business." The first step should be for the Government to take over the
12 Federal Reserve banks and coordinate their activities with the Reconstruction Finance Corporation; then the Government's credit can be used for all
banks—national, State, or private—all business, all agriculture, all commerce,
and all people. Interest rates can be substantially reduced and the Government
can obtain considerable revenue by charging a small sum for the use of its
credit; all governmental financing can be handled through the new set-up without charging the Government interest which will eliminate the necessity for the
issuance by the Government of another tax-exempt interest-bearing bond, or to*
increase taxes.
CURRENCY INSTEAD OF BONDS

A few years ago Mr. Thomas A. Edison was inspecting Muscle Shoals. He
remarked that the Government should operate that great project in the interest
of the people. He was asked if he favored the Government borrowing the
$30 000,000 necessary to make repairs. His answer substantially was: "No *r
why should the Government borrow its own credit? If it issues tax-exempt
interest-bearing bonds and sells the bonds to Wall Street bankers to get the
money, by the time the bonds are paid the bankers will have collected as much
in interest as the Government received on the bonds. In other words, the
bankers who will not furnish an ounce of material or a lick of labor will get as
much out of it as the men who do the work and furnish the material." Mr.
Edison also said at the same time: "Any government that can issue a dollar
bond, interest bearing, that is good, can issue a dollar bill, noninterest bearing,
that Is good; the only difference is the bill is easier to redeem because it does
not draw interest." No one can answer Mr. Edison's argument.
HOW MUCH MONEY CAN THE GOVERNMENT ISSUE?

The Government has outstanding today about $30,000,000,000 in bonds and
securities. Others are to be issued soon. The interest this year to be paid by
the Government will amount to almost one thousand million dollars. A program




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

should be considered now that will call for the gradual retirement of all Government bonds upon maturity or when callable with new currency and issue no
more of such obligations. It will be a simple process. We will merely substitute one form of Government obligation for another form of Government obligation. The stock argument against that is that every dollar issued will go into
the banks and upon each dollar as a base the banks may issue 10 credit dollars,
which will cause undue expansion of the currency. That is true, but the argument may be destroyed completely by changing the law allowing the banks to
use 1 dollar to issue 10; as the actual money is increased, require the banks to
use a larger reserve or prevent them from lending money they do not have if
the facts and circumstances should warrant. Many people who are against
issuing a few billion dollars in money are highly in favor of the banks issuing
the same amount in credit, claiming it will serve the same purpose. It will
serve the same purpose, but an enormous amount of interest would have to be
paid on the credit that would not have to be paid on the money, and besides the
toanks could call in the credit, deflate values, and destroy prices as they did in
1920. They could not control the actual money in that manner; therefore, they
are against it.
HOW WILL THE MONEY BE BEDEEMED?

The Treasury has sufficient gold to be used as a reserve for the retirement
of a large part of this money if a gold base is desired. Silver may also be used.
We have and can obtain plenty of it for that purpose, and at the same time help
o u r export trade. Neither gold nor silver is absolutely necessary, as the money
issued will be good for the payment of all debts, taxes, and import duties,
although from an international-trade standpoint it may be desirable to use
silver and gold. It will be redeemable in services rendered by the post offices;
in payment of all kinds of taxes, including income and evcise; in payment of
:all debts, including debts due the Reconstruction Finance Corporation. We will
l)e using cash instead of interest-bearing credit as a medium of exchange.
Money will go into channels of trade and production, instead of into tax-exempt
interest-bearing bonds.
WILL WAGE EARNER BE INJURED?

It is contended that if more money is issued the dollar will become cheaper,
which will be harmful to the farmers and those who live on fixed incomes. We
can get on a currency basis, instead of a credit basis, without changing the
purchasing power of the dollar, but most of us who advocate issuing more
money really desire the return of what may be termed a cheaper dollar. As the
dollar becomes cheaper real estate, common stocks, cotton, wheat, raw materials,
labor, and all goods and services upon which there is no fixed price increase in
value. This will enable the ones in these groups to have additional purchasing
power.
Let us see how much it will affect the wage earner who receives one of these
so-called "cheaper" dollars. He can use it to pay 100 cents on his debts, taxes,
insurance, rent, electricity, gas, water, telephone, railroad freight, and passenger rates, and all other bills, goods and services upon which there is a fixed
and inflexible price. Any adjustment will be in favor of additional purchasing
power which will be in the direction of additional consumption of goods. The
factory employee will probably pay a little more for eggs which will enable
the farmer to buy more of what his factory produces. It will be better for the
wage earner to receive a dollar that will not purchase so much in certain commodities than not to have a job which will enable him to earn a dollar. I
much prefer to bring purchasing power up to the point where our surplus may
he consumed rather than force production down to a very limited buying power.
PROTECT THE FINE JERSEY COW

In other words, they are like the farmer who was purchasing medicine at
•the drug store. The pharmacist was wrapping up the two bottles, which had
lieen filled in accordance with two prescriptions. The farmer said, "Mark plain
them bottles, which is for the wife and which is for the cow. I sure don't want
anything to happen to that fine Jersey cow."
Our critics say, "Be careful about who puts the money into circulation. We
don't want anything to happen to the great and powerful privilege that a few
tmnks now have to use the credit of the Nation freely."




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

193

Although the money that people have to pay with has considerably decreased,
mid the purchasing power of the dollar has gone up considerably, property
values have been destroyed.
TAKE HAND OF GREED FROM THROATS OF PEOPLE

There is only one way to take this impossible and unfair burden off the
American people, ourselves, and our children, and that is to take from the
throats of the American people the hand of privilege and greed.
WORLD'S GREATEST RACKET

The world's greatest racket is the abuse of the United States Government's
credit in the interest of a few.




GOVERNMENT OWNERSHIP OF THE 12 FEDERAL
RESERVE BANKS
TUESDAY, MARCH 22, 1938
HOUSE OF EEPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

W ashing ton, D. C.
Hearings on H. E. 7230 were resumed at 10:30 o'clock a. m., Hon.
T. Alan Goldsborough presiding.
Other members of the committee present: Mr. Eeilly, Mr. Williams,
Mr. Spence, Mr. Meeks, Mr. Ford, Mr. Brown, Mr. Patman, Mr.
Evans, Mr. Transue, Mr. Gifford, Mr. Luce, Mr. Crawford, and Mr.
Gamble.
Mr. GOLDSBOROUGH. The committee will come to order.
Senator Owen, you may proceed.
STATEMENT OF HON. ROBERT L. OWEN—Resumed
Mr. Chairman and gentlemen of the committee, having been present and heard certain proposed amendments to the so-called Patman
bill, H. E. 7230, I broadly concur in a positive, definitive, legislative mandate imposing on the Board of Governors of the Federal
Keserve System the duty of making effective the policy proposed by
the amendments to the so-called Patman bill, H. E. 7230.
In effect, these amendments comprise a new declaration of the
so-called Goldsborough bill which was passed by the House of Eepresentatives on May 2, 1932, with some additional teeth put in it to
make it positively effective.
These amendments are in accord with the views of the President
of the United States, who approved the Goldsborough bill of May
2, 1932. These amendments are in accord with the declaration of
the Democratic national platform of 1932 which declared that the
depression was due to the "indefensible expansion and contraction
of credit." That platform demanded sound currency at all hazards.
These amendments proposed by Mr. Patman and his associates
comprise a guaranty of sound currency at all hazards because they
assure the uniform, debt-paying, purchasing power of currency from
one generation to another. These amendments are in substantial
accord with the Eepublican platform of 1936, which declared again
for sound currency at all hazards, sound currency meaning a currency of uniform, debt-paying, purchasing power from one generation to another. These amendments are in accord with the Eepublican platform of 1936 which proposed to restore to Congress the
constitutional power to regulate the value of money.




195

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

These amendments are in accord with the principles upon which
the Democratic Party and President Roosevelt were elected in 1932.
They are in accord with his historically famous cable to the London
Economic Conference. He declared that the United States desired to
achieve and maintain a dollar which should have the same purchasing
and debt-paying power from one generation to another.
On October 22, 1933, Mr. Roosevelt said to the people of the United
States:
When we have restored the price level, we shall seek to establish and maintain a dollar which will not change its purchasing and debt-paying power during
the succeeding generation. I have said that in my message to the American
delegation last July, and I say it now once more.

He added:
Some people are putting the cart before the horse. They want a permanent
revaluation of the dollar first; it is the Government's policy to restore the price
level first.

On March 14,1938, the President released a statement made by him
on April 19, 1933, which had not been given prior publication. It
said:
* * * • It has got to be a definitely controlled inflation. * * * It has got
to be a controlled price level. * * * We have to raise the price level, but
keep it from going too high.

It is true that those who were his economic and monetary advisers
put the cart before the horse by obtaining legislation to revalue the
gold content of the dollar., but the attitude of the President of the
United States in spite of economic and monetary advisers does not
appear to have been changed, because in his release of February 18,
1938, he put the responsibility upon the Secretary of the Treasury, the
chairman of the Board of Governors of the Federal Reserve System,
the Secretary of Agriculture, and the Secretary of Labor. In Mr.
Roosevelt's letter to Senator Barkley, when he succeeded Mr. Robinson
as leader of the Senate, he stated that the duty of perfecting the
banking system w^as the responsibility of Congress. So that the Chief
Executive appears to be in complete accord with the policy of the
Congress regulating the value of money. Congress can only regulate
the value of money by regulating the volume of money, and these
amendments proposed by Mr. Patman and his associates, it seems to
me, are of the greatest possible importance. They are in accord with
the spirit and purposes of the Goldsborough bill, passed by the House
of Representatives May 2, 1932, by 172 Democrats and 117 Republicans. To me they seem economically and financially wise and politically prudent, because of the 60 Members of the House who voted
against the Goldsborough bill on May 2, 1932, only 12 of such Members were returned to Congress.
I received today a letter from Hon. A. N. McLean, of St. John,
New Brunswick, calling my attention to a new book called Tomorrow's Money. Mr. McLean is the leader of the monetary reform
movement of Canada and has visited me several times.
In his letter he said:
I have just finished reading a book, Tomorrow's Money. It is a summary
of the opinions of the best thinkers in the British Empire along monetary
problems, * * * they all agree that control of the price level is absolutely
essential to any monetary system, and further that all instruments used as
money must be issued by the Federal Government.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

197

In my testimony of March 4 I stated that the annual report of Sir
Reginald McKenna to the stockholders of the London City and Midland Bank, the greatest commercial bank perhaps in the world, with
over $2,000,000,000 of deposits, showed that in less than 6 years under
managed money the index of physical production had increased 50
percent and the businessmen of Great Britain had been furnished
with an unbroken interest rate of 2 percent per annum for over 5
years. The longest unbroken record of an interest rate in Great
Britain. I put into the record this report of Sir Reginald McKenna,
for 25 years in charge of the London City and Midland Bank and
formerly Chancellor of the British Exchequer.
I have been invited to discuss and answer questions on the proposed
amendments to the Patman bill. I therefore request Mr. Patman to
state these proposals in order that I may consecutively comment upon
and answer questions that may be propounded with regard to each.
Mr. PATMAN. Mr. Ford, would you like to ask the Senator some
questions ?
Mr. FORD, Yes.

Senator Owen, my question is predicated on the fact that on two
occasions the statement has been made that one of the reasons for
the present recession is the fact that the Federal Reserve Board took
certain action, that action being an increase in the required legal
reserves.
Now, then, if the increase in reserves that the Board ordered caused
a tightness of money, why would not the sudden increase to 100
percent cause a more intense tightness of money?
Do you get what I am asking ?
Mr. OWEN. Yes. The observations which I made with regard to
the effect of the various acts by the Reserve Board and the Secretary
of the Treasury did not include raising the reserves of the member
banks. In my opinion, raising those reserves in itself was not harmful, because the banks were able to adjust themselves without any
great inconvenience, except some of the smaller banks, perhaps, who
did not have the available bonds wTith which to increase their reserves.
The effect of increasing the reserves to 100 percent, as you suggest, does not appear in the amendments that we were discussing,
but, nevertheless, that subject has been urged by Professor Fisher
and Hon. C. G. Binderup, and by others, and composes a part of
another bill which has been submitted to the committee by the
House, and therefore I make this comment upon it: That if the
reserves are raised to 100 percent, it would diminish in a very serious
manner the powder of the banks unrestrained to expand and contract
credit, and in that event they would require probably the assistance
of the reserve banks in the way of extending credit to them against
their bankable assets in sufficient volume to enable them to meet conveniently the 100-percent reserve, A good many of them could immediately do that. But the point which really was at issue, I think,
in the criticism of the Board for raising the rate at that time, was
because at that time it was already forecast that we were going into
a downward movement, and that there would be a psychological
effect in raising the reserves that would affect the country and those
who were merchandising in money by buying and selling stocks, or,
rather, selling stocks and buying stocks on the stock market with a
view to profiting by the fall in the price of securities and the rise
in the purchasing power of money. It was rather the psychological




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

effect, I think, of the action of the Board at that particular time
that was the subject of criticism.
I do not criticize it because I thought it was unsound to raise the
reserves of the member banks so as to strengthen them in the confidence of their depositors, because even under the old system, in
normal conditions, they stood well with the depositors; but in times
of stress it would be advantageous to have a larger volume of reserves
in order to meet any sudden demand of the demand bank depositors.
Mr. FORD. NOW, Senator, I did not accuse you of making that
statement, but it was made.
Mr. OWEN. NO ; but it was part of the res gestae, and I thought it
well to comment upon it. I was not defending myself.
Mr. FORD. Will you answer this question
Mr. OWEN. I will.
Mr. FORD. Assuming that the banks were put on a 100-percent
reserve, one of two things would have to happen: Either the banking facilities of the country, wTith reference to the extension of credit,
would be greatly curtailed or a great many people would go into the
banking business and operate as money warehouses and furnish
facilities for your deposits.
Wouldn't that be one of the consequences?
Mr. OWEN. I think the consequences of having the reserves raised
to 100 percent would require the cooperation of the Federal Reserve
banks in connection with the member banks, so that if a bank made
a new loan which was required in its neighborhood,, and it required
a 100-percent reserve against that, the Reserve bank should be in
position to say to that bank, "You may segregate the security for
that loan and hold it in trust for this Reserve bank, and we will
credit you 100 percent against that loan."
In that way the Reserve bank would be in a position either to
grant or to deny the power to increase the money supply through
such a loan, and that would be very potent in controlling any speculative behavior that might take place in the wholesale commodity
market, or in real estate, or in the stock market. I think it is the
objective of modern legislation to exercise control over the expansion
and contraction of our money supply, that being of extreme importance in regulating the relationship between debtor and creditor and
in regulating the price lev^l in such a way as to enable businessmen
to make future contracts with dependableT security.
All of the countries in the world are now showing a strong tendency
towTard stabilization of their money supply, or, what is identical with
that, the stabilization of the price level. It should be. remembered
that the price level and the money supply compose the Siamese twins.
The one is just the reverse of the other. When you have the one, you
can find the other by dividing 10,000 by the price level, or dividing
the 10,000 by the dollar index. The one is in inverse ratio to the
other, and the desirable objective is to have each of them approximately at a standard upon which businessmen could rely.
I think, Mr. Ford, that it might be of interest if I should put into
the record at this point the record of the price level in all of the
leading countries of the world, which is published in the monthly
Bulletin of the Federal Reserve Board. Anyone can see it there, but
for the convenience of this committee, perhaps it might be desirable




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

199

to put it in this record at this point, if you would care to have that
done.
Mr. GOLDSBOROTTGH. Without objection, that may be done.
(The table referred to is reproduced below:)
Price movements

Year or month

1926
1927
1928
1929
1930
1931
1932...
1933
1934
1935
1936
1937
1936—December. _.
1937—January

February L.March _.
April
May
June
July

August .
September...
October
November
December. _.
1938—January

in principal countries—Wholesale
[Index numbers]

United
States
(1926=
100)

Canada
(1926 =
100)

100
95
97
95
86
73
65
66
75
80
81
86
84
86
86
88
88
87
87
88
88
87
85
83
82
81

100
98
96
96
87
72
67
67
72
72
75
185
80
81
83
86
86
85
85
88
86
85
85
83
83
84

United
Kingdom
(1930=
100)

100
88
86
86
88
89
94
109
101
103
104
107
109
111
111
112
111
111
111
109
108
108

France
(1913 =
100)

Germany
(1913 =
100)

695
642
645
627
554
502
427
398
376
338
411
i 581
519
538
533
550
552
550
557
582
603
630
628
621
631
637

134
138
140
137
125
111
97
93
98
102
104
106
105
105
106
106
106
106
106
106
107
106
106
106
106
106

prices—All

commodities

Japan Nether- Switzerland
Italy
lands
(1928 = (October (1926-30 (July
1900=
1914=
100)
= 100)
100)
100)

100
95
85
75
70
63
62
68
76
189
79
82
83
85
86
88
90
90
91
92
93
95
96

237
225
226
220
181
153
161
180
178
186
197
i 239
215
233
230
240
248
241
238
239
235
239
237
238
245

106
103
102
100
90
76
65
63
63
62
64
76
71
73
74
76
77
77
76
78
78
77
77
76
76
75

144
142
145
141
126
110
96
91

9a

90
96
111
107
108
111
113
113
113
112
112
111
111
111
110
110

i Preliminary.

Mr. FORD. There is another observation that I wanted to make, and
I do not want to take all of the time, but these two or three things
have been puzzling me very much.
We talk about a 100-percent reserve. Assuming that the banks of
the country were put on a 100-percent reserve basis, what percentage
of them do you presume could go on that reserve without disposing
of a good many of their deposits?
Mr. OWEN. I should say all of them.
Mr. FORD. I do not understand the banking business then; I do not
know just how they could do it.
Mr. OWEN. I tried to explain that, Mr. Ford, in saying that it
would be perfectly easy for the Reserve banks to extend the credit
against the bankable assets of the member bank, leaving the member
bank to hold those assets earmarked for the security of the Reserve
bank.
Mr. FORD. That would then be asset money, would it not ?
Mr. OWEN. It would be assets securing the Reserve bank against
the extension of a credit.
Mr. FORD. Someone in speaking over the radio used the phrase
"asset money," and I was wondering if that was exactly what was
meant.
My own view of the matter is this, that any security against which
a bank will loan a certain amount of money certainly is the equivalent
of that money.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. OWEN. Yes; I think that is correct.
Mr. FORD. And that ought to be permanent money, because there is
a permanent security behind that; but, unfortunately, we have what is
known as the time limitation on loans, and that time limitation is the
thing that robs the asset of its value if the call is made before the
man who owns the asset is in possession of a sufficient amount of
money to repay it.
Isn't that true?
Mr. OWEN. If the money was stable because of the permanence of
these transactions, that would be one thing, but what actually takes
place is that these properties which are put up as security for the
credit issued against it, or the money issued against it, is subject to
violent fluctuation, because of the fear which sweeps the country
when there takes place an overexpansion of credit.
Then there comes an overcontraction of credit, and the banks and
the borrowers as well make haste to liquidate the loans, and when
they do that they destroy the money supply which normally is functioning to feed the commerce and industry of the country. That is the
thing which it is desirable to put an end to, by putting in the hands of
the Government of the United States a positive control over either expansion or contraction, so that the country shall have an adequate supply of money with which to exchange the products and services of the
people with each other, so that businessmen can have a basis of
dependable security in making future contracts which they do not
have now but would have if we had sound currency, as pledged by the
platforms of both parties.
Sound currency can only exist when you have sound currency which
lias a uniform, permanent, debt-paying power, and that can only be
accomplished under the strong hand of an intelligent government
^acting under a statute that knows what it is talking about and lays
-down a basis of dependable security through a statute that shall
control the money supply in spite of those who merchandise in money,
so that the merchandising in money shall be abated. The merchandising in money may be abated when you have a period of uniform purchasing power, because speculation in the stock market, or
the merchandising of money through stocks, depends for its opportunity upon the fluctuations of the purchasing power of money, either
up or down.
If you are going to expand the money supply under the influence
of those who are operating in the merchandising of money through
the stock market, as you expand that credit those stocks go up, and
they know it and they speculate upon it or they merchandise upon
it, as you prefer, and they know that when you contract it and start
a movement among the banks and the debtors of the country to contract the money supply, that money will increase in value, and therefore they sell their stocks as conveniently and as rapidly as possible
without glutting the market. They sell steel all the way from 126
down to the lower levels, because they are satisfied it is going to sell
a t a lower point, and they make money in that way.
Well, that will cease when you have a policy of dependable, full
control by the Government of the United States under a statute executed by members of a board who dare not disregard the will of
Congress which instructs them. The political power of this country
is vested by the people of this country in the House of Eepresenta-




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

201

lives and in the Senate of the United States, and here is the placewhere this debate must be brought to a conclusion.
Mr. FORD. Well, Senator, I still am wondering about this: The
price of steel stock was 126 before the close of the middle of last yeary
and it dropped to 51 this morning.
I also note in that connection that the bank deposits are about on a
level today with what they were a year ago.
Now, do bank deposits represent to any extent the amount of money
that they have ?
Mr. OWEN. YOU insert the phrase "to any extent."
Mr. FORD. Yes. Do they to any extent reflect the amount of money
that we have ?
Mr. OWEN. Yes, sir; but when you insert the term "to any extent,"
3'ou put a limiting phrase there which makes the reply necessarily
"yes"; but what I wish to say is that these demand bank deposits,
although of the same volume as in 1929, are entirely different in this,
that in 1929 practically they were having a turnover of 50 times per
annum as to the entire volume. In other words, the number of check
dollars drawn at that time was 1,227 billions against 630 billions in
1937.
In other words, the velocity of one-half in all human probability
of those demand bank deposits in 1937 might be averaged at
zero, and you have just as good a right to average the deposits that
are not turning over as you have to put those that are turningover and merging them with those that are not turning over
and saying that they have a velocity of 25 when they ought to have a
velocity of 50. The fact is that a large part of those deposits, amounting to billions, have zero velocity, and they are in effect warehouse
receipts held by the banks, subject to the order of the owner of the
deposit; but the deposit which is actively employed in running a
grocery store, or a drug store, or any merchandising enterprise, or
any enterprise using its capital actively in the manufacture of goods
for the market, those deposits turn over rapidly and comprise the
money of the country, and you have to make a distinction between
deposits which do not circulate and deposits which do circulate.
That is the distinction which the Federal Reserve Board, it seems
to me, has failed to clearly understand. If they had understood n%
they would have realized the danger of any further contraction. They
would have realized the importance of expansion in order to give the
people of the country a sufficient amount of money with which to pay
wages and salaries, buy inventories, and carry on the business of production and distribution.
Mr. FORD. I would like to make a further observation.
When the reserve rate was raised, there was still some $3,000,000,000
in excess reserves. What amount of credit that would have permitted
to be granted is problematical. They could at least have issued
$9,000,000,000 on that amount, could they not?
Mr. OWEN. The reserves, Mr. Ford, which existed before under the
lower ratio, of course, allowed a larger expansion against the reservesT
and raising the reserves diminished the potential power of the banks
to create credit.
Mr. FORD. It did, but they still had $3,000,000,000 on which they
could have created more credit.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. OWEN. Yes, so that they might have expanded, on the old ratio,
on an average of 10 percent to $30,000,000,000, we will say, and when
it is raised, that potential power is diminished; but the observation
which I would like to make with regard to that is that it is of no importance in a practical sense to say that the banks could increase the
money supply when the banks, for whatever reason, do not increase
the money supply.
Mr. FORD. There is an imponderable in there; it is pretty hard to
see what it is, and any one man's opinion is as good as another man's
opinion, or any one man's guess is as good as another's.
Mr. OWEN. I doubt that.
Mr. FORD. We have heard the phrase so often that the banks are
bursting with money, but nobody can get it. Why can't they get it ?
Mr. OWEN. They can't get it for the reason that banks prefer the
United States as a debtor rather than the businessmen of the country.
They prefer to buy the bonds from the United States to invest in, but
they do not want to extend loans to individual businessmen, and that
was completely demonstrated by the Treasury Department in sending Mr. Viner of the University of Chicago to examine a great many
hundreds of business loans sought by businessmen in Chicago of the
banks there, and he found a large number of demands for loans which
the banks did not care to make, although the demands were sound and
liad sound asssets behind them, but the banks did not want to do that.
Now, it does not make any difference why they do not want to do it.
There is a plain reason why they do not want to do It. They do not
"want to do it because they do not think that a businessman has any
dependable security upon a condition of instability of the value of
money. They do not think a businessman is safe when there may be
a further contraction to ruin the sound, honest, hard-working men
engaged in production and distribution in this country. We have
seen hundreds of thousands of them destroyed and put through the
bankruptcy courts because of this violent fluctuation in the supply
of money.
That is why the banks do not want to lend, and that is why careful
businessmen hesitate to borrow. Whenever you give stability to the
purchasing power of money, you will give stability to the value of
property, to the value of inventories, to the power of people to buy,
and there is a great deal of merit, in my opinion, in the principle of
•distributing money as far as practicable at the bottom, as was contemplated by Mr. Goldsborough's bill and by Mr. Binderup's bill,
because in that way the purchasing power would be produced at the
bottom, and without purchasing power at the bottom you cannot have
maximum production, because it is in vain to produce if you cannot
sell.
Mr. FORD. Well, now, just one more question, Senator, and then
I will subside.
Mr. OWEN. I will be glad to answer your questions..
Mr. FORD. Mr. Goldsborough's bill provided for the influx of
money at the base, for the creation of new purchasing power at the
bottom, and you approve of that principle? I suppose everybody
would that analyzed it.
Mr. OWEN. I approve of the principle as far as it can be conveniently done, to distribute credit at the bottom, where the consumers' power should be expanded.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE 'BANKS

203

Mr. FORD. NOW, then, as to the Patman bill on the other hand,
would that put money in at the bottom by taking over the Federal
Reserve, altering the method by which the Federal Reserve was operated, and adding to that the 100-percent principle
Mr. OWEN. Please don't intermingle those things in a question,
because when you ask a very complicated question, it becomes exceedingly difficult to answer it.
Mr, FORD. Let us leave out the 100-percent reserve. Let us take
the Goldsborough bill as contrasted with the Patman bill. The
principle of the Goldsborough bill is to put money in from the
bottom,
Mr. OWEN. Yes.
Mr. FORD. I think

that I have read the Patman bill very carefully;
I think I have gone over it with the same care and the same amount
of intensive thought that I have given to the Goldsborough bill.
Will you tell me how it would operate to put money in at the bottom ?
Mr. OWEN. Yes, I will now address myself to the amendments
read in my presence on yesterday.
When you raise the price level, it raises employment absolutely,
not just perhaps.
Mr. GOLDSBOROUGH. Senator, may I interrupt you right there?
Mr. OWEN. Yes,

sir.

Mr. GOLDSBOROUGH. Because I think the record ought to be clear.
You are not addressing yourself to the Patman bill as it is at the
present time ?
Mr. OWEN. I am not.
Mr. GOLDSBOROUGH. YOU

are addressing yourself to the proposed
amendments ?
Mr. OWEN. That is what I was invited to speak upon this morning,
and I am addressing myself to the proposed amendments to the
Patman bill.
Mr. GOLDSBOROUGH. Yes, sir.
Mr. OWEN. In effect, it is the

same as if I were addressing myself
to the bill known as the Goldsborough bill, which Avas passed by the
House of Representatives on May 2,1932. It is the raising of the price
level. It does not make any difference whether you say raising the
price level or restoring the dollar to the level ascertained by the
Department of Labor for the years 1921 to 1929, because they mean
identically the same thing. There is no difference of meaning, -and
it is a fact established by the statistical records of the United States,
through the Department of Labor, that, month by month, factory
employment and factory wages slavishly follow the rise or fall of the
price level, and it is a fact that the price level slavishly follows the
rise and fall of the money supply, keeping in mind ahvays that by
money supply you mean not only currency but you mean also the
demand bank deposits in circulation employed in the transaction of
the business of the country, in paying the wages and salaries and
buying inventories, and so forth.
Mr. GOLDSBOROUGH. Senator, when you spoke of the price level you
were referring to the wholesale commodity price level ?
Mr. OWEN. I am referring to the term ordinarily applied to the
wholesale commodity index, or the price level. That is the term
usually employed, the price level or the wholesale commodity index,
and the wholesale commodity index represents the relationship between




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

the volume of money and the volume of things sold through the wholesale markets as compared with the year 1926, and the year 1926 is
practically identical with the average of the years 1921 to 1929, and is
practically identical with the years 1914 to 1930 on an average.
Mr. TRANSUE, Mr. Chairman, I would like to ask Senator Owen a
question in regard to the matter he is now discussing.
He referred to the falling of employment with the price level, and
the price ]evel with the flow of money or the regulation of money.
I would like to ask why that is so.
Is my question clear?
Mr. OWEN. Yes; I understand perfectly what you mean; I think
I do.
First, the price level necessarily rises as the money supply rises,
because of the law governing supply and demand. As you increase
the money supply you cheapen it in terms of commodities, and as you
contract the money supply you increase its purchasing power in terms
of commodities, so that if you increase the money supply you will raise
the price of commodities and you will raise the price level.
If you contract it, it will go down, and the table which I submitted
this morning will verify that in different parts of the world.
Now, the next question involved in your question was as to why
wages rise as the price level rises. The reason why is that the price
level depends upon the increased supply of money. The larger supply
of money enables money to be employed in paying the wages of a
larger number of people, and it also increases the power of people to
buy at the bottom, because money flows in every direction, and when
the consumers can buy more, the producers are willing to produce
more and to employ more labor and to pay better wages in order to
induce labor to increase the production against the increased consumption and consumption increases as you increase the money supply, particularly at the bottom, but it does go to the bottom when
you increase wages, because the money which is paid out in wages
goes right to the bottom, to the small laborer engaged in production.
Mr. TRANSUE. Senator Owen, is it not a fact that at the present
time there is plenty of money in the country that would be employed
in production if it was profitable to produce and there was a market
for the things after they were produced?
Mr. OWEN. AS to the money which has been spoken of this morning
that the banks are full of, I pointed out that many billions of dollars,
money which was held by those who were merchandising in money
and who invest money in stocks, and invest stocks in money, when
they sell their stocks and invest it in money, it is to obtain an advantage in the rising purchasing power of money in terms of stock,
they wait until the bottom is reached and they hold their money
unemployed with a view to its future investment when the investment can be made to the greatest advantage and I say, that money
does not pay wages. That money does not pay salaries. That money
is not employed in inventories. That money is not employed in
transacting the business of the country, but that money is being
used as storage money for the purpose of reaping an advantage
when reaction shall take place in the value of money.
Mr. TRANSUE. But my question right here is this: As to the money
that is in banks and at the command of those who are engaged in
production, if it is profitable to produce more goods and there is a
market for it, would not that money come into production of goods




GOVERNMENT OWNERSHIP* OF FEDERAL RESERVE BANKS

205

right now if they considered that it was profitable to produce those
goods ?
Mr. OWEN. I should say yes, but they have reached the point of
tolerance or the point of absorption by the public, the public suffering from what might be called monetary anemia. There is not a
sufficient amount of money with which to buy any additional products, and for that reason those who produce have the wisdom not to
pile up on their shelves property which they cannot dispose of.
That has the effect of cheapening the products, and they may be
piled up and sold at a price which is not profitable if they have an
oversupply and underconsumption taking place at the same time.
Mr. TRANSUE, If I may follow that just a little further
Mr. OWEN. Yes;

do.

Mr. TRANSUE. I think that everyone will agree that trade and
commerce w^ould flow again if the unemployed had money with which
to buy; at least, it would be good for a time, anyway, but how does
the change which is proposed here give the man who is now unemployed and the man about him who is employed at low wages adequate
purchasing powTer?
Mr. OWEN. There will be some very important consequences following the declaration of a policy of expanding the money supply
under a policy fixed by the Congress of the United States.
The first thing that will take place, in my opinion, will be that the
merchants of money, those who are merchandising in money, will
recognize the truth that they will know that under the mandate proposed, which we are now considering, there will be an increase in
the volume of money and there will be a rise in the value of property, and they will know that under that policy the money which
they have in storage awaiting investment should be invested without
any further delay, because the bottom of the depression will have
been reached and the correction of the depression will take place,
and these gentlemen who have been selling stocks and accumulating
money will sell money and accumulate stocks and other forms of
property, including real estate and inventories, and they will put it
into production and into the business life of the Nation, instead of
holding it in storage, where it has paralyzed production and consumption both.
Mr. TRANSUE. Senator, is there going to be a very much bigger
demand for consumers' goods until the unemployed and the submarginal wage earner gets some money?
Mr. OWEN. When you cause those who have hoarded the money
of the country to let it loose, that money will flow in every direction.
It will flow into employment, and you will end the evil system which
has caused one depression after another. You will stabilize the value
of property. You will stabilize the value of labor. You will increase carloadings and will end the distress of the railroads of this
country. You will double production of the physical assets created
by labor, and you will increase the power of the people to buy the
things they produce by giving them an adequate volume of money
with which to buy and exchange products and services.
That is what Great Britain has done, and it is rather a verysimple thing that it has done. It went off the gold standard in 1931
and established by consent a managed currency in 1932. When they
69972—38

14




206

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

did, immediately employment began to increase. Immediately the
index of physical production began to increase, and it has increased
at a rate of about 10 percent per annum in the last 5 years.
A statement to that effect I put in the record as given out in the
annual report of Sir Reginald McKenna, of the Midland Bank of
London. It is a very important statement, and if you will examine
the table which I submitted this morning on the price level of Great
Britain, you will find that it has been comparatively stable, and has
been steadily rising and is now above par, and they are in a condition of business prosperity there, and we on the contrary, under our
unwise management, and I wish to be very moderate in my comment
upon the gentlemen who have been administering these laws; I do
not wish to appear to be harsh in criticizing them and damning
them for this, that, or the other, but I am calling your attention to
what has happened, and that is that, having power, this country has
gone from a condition of comparative prosperity in January a year
ago, where the steel furnaces were producing 90 percent of capacity,
to a point below 30; and I want to call your attention to the fact
that under this system of contracting, which fed on itself through
the stock market, our index of physical or industrial production fell
from an index of 122 in March, April, and May of 1937, to 79 in
the last report; fell 43 points within a year, while Great Britain
has shown an annual increase of 10 percent for the last 5 years, or
50 percent on a maximum.
I am very anxious to answer the questions that may be asked, and I
hope that if I do not answer them satisfactorily the members will be
good enough to let me know to what extent they think it unsatisfactory, so that I may, if I can, answer it satisfactorily.
Mr. FOKD. Let me ask you a simple question in that connection.
It seems to me that the Goldsborough bill of 1932 is a bill that can
pass Congress again. I do not think the sentiment of the House has
changed very much, and it seems to me to comply with your idea, and
I have a profound respect for your views on this subject, that the price
level can be controlled by monetary action.
Now, that being the case, and that being a very simple bill, without
very many other things tied on to it, I believe that we could get action
in that field and get it promptly, while the Goldsborough bill that we
have been considering in the last 2 or 3 weeks attempts to do something
in a rather direct way but in a way that seems to me to have a bug in
it, and that it would be impossible to make the Congress see, but I
think that the original Goldsborough bill could be passed right now
in Congress.
Mr. OWEN. I think these amendments which have been proposed
here this morning comprise the soul of the Goldsborough bill, with
some additional strengthening points, such as requiring the members
of the Federal Reserve Board to obey the law, and they must be required to obey the law, and Congress must have power over them, to
remove them. Otherwise they will not be dependable. I say that
with respect, but I know enough about human nature to know the
tremendous power that they have and the enormous influences that
can be brought to bear upon them, not corruptly, not wickedly, but
through argumentation that may be fallacious and deceitful, and for
that reason I think, since Congress is charged with the duty of regulating the value of money, it should have an agency through which




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

207

to perform that duty, and that agency, as far as the personnel is concerned, with the directing power, seems to be fitly in the Board of
Governors of the Federal Reserve System, and the mechanism through
which that is to be accomplished is through the Federal Reserve
banks, which exercise this monetary power.
The Federal Reserve banks in my opinion should not be used in
competition with the banking of the country, but we should leave
the banks in the banking business and keep the banks out of the
monetary business.
I think that these amendments which have been offered here are
merely an expansion and a clarification and a strengthening of the
very principles passed by the House of Representatives in 1932, but
I remind you that even in 1933, with a President who was in sympathy
with the bill, those w^ho administered it prevented the operation of
the principles which were involved in the Goldsborough bill. They
paid no more attention to the opinion of the House of Representatives, where a vote of 289 to 60 took place, than if the House had
not expressed an opinion, and I think in that respect they showed a
very great lack of understanding.
Mr. LUCE. YOU spoke of mechanism.
Mr. OWEN. Yes.
Mr. LUCE. In the

use of that word you have hit the chief anxiety
in my mind.
The Federal Reserve Board has had three machines, so to speak,
with which to carry out its purposes, or our purposes, or somebody
else's purposes. One has been to regulate the discount rate; and,
second, open-market operations; and, of late, the handling of reserves.
I see in this bill no reference to the first two of which I spoke, but
there is a reference to reserves that I presume you have in mind.
Now, my question is, Can you suggest to us any further mechanism, any further power that should be given to the Reserve Board ?
This is quite apart from whether the powers have been wisely used
or not, but, to bring us down to the colloquial phrase, hard tacks,
what additional power, if any, should be given to the Federal Reserve Board—not directions, but power.
Mr. OWEN. I would give them the power, if it be not existing now,
to direct the Federal Reserve banks to create money, and not create
it by providing it on debt, but create it to the extent the people of
the United States require a circulating medium of exchange, which
I think would approximate $250 per capita, taking for the basis the
volume that was used in 1929.
Mr. LUCE. What would be the mechanism for creating that power ?
Mr. OWEN. The Federal Reserve banks would be the mechanism
through which they would exercise that power.
Mr. LUCE. HOW would the Federal Reserve banks exercise the
power of creating money?
Mr. OWEN. By buying the bonds of the United States, and canceling the bonds.
Mr. LUCE. I would have to think that over a while.
Mr. OWEN. I advise you to figure it over. If you do, you will
find it very attractive.
Mr. LUCE. Perhaps.
Mr. OWEN. I am not jesting. I hope that I will not be thought of
as jesting. This matter in my opinion is of too profound importance




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

for a man to deal lightly with it, and I do not intend to deal lightly
with it.
Mr. LUCE. I do not think, sir, that anybody would suspect you of
that. I would have to think over it some time.
So the Federal Eeserve banks can create money ?
Mr. OWEN. They create money precisely as the member bank now
creates money, by giving credit subject to check against security.
That is the creation of money, and that is exercised now by the
member banks.
I had occasion once to telegraph my banking correspondent in
New York to buy $500,000 of United States 2 percent bonds and
place them with the Comptroller of the Currency, and pay themselves out of the national bank currency issued against the bonds,
and when they did that, the bank, of which I happened at that time
to be an officer, created $500,000 in money. Nothing strange about
it; everybody understands that who has studied the matter carefully.
You create money against sound assets
Mr. LUCE. Ah! That is what I am after.
Mr. OWEN. Well, sound assets are supposed at all times to be
behind the creation of a credit by a bank. That asset may be personal character, it may be a record for the faithful meeting of all
obligations and capacity to pay, and it may mean a mortgage on a
house or lot. It may mean other security that is dependable or is
believed to be dependable by the banks; but, if you allow a condition to arise by which the value of property from one end of the
Nation to the other is suddenly destroyed, and by a contraction of
the money supply there is no dependable security, and there is no
dependable background in money created by the banks, that is the
thing we are trying to cure now.
Mr. LUCE. Let us go back to the matter of assets. The bank has
to lend money to somebody.
Mr. OWEN. That is the existing system.
Mr. LUCE. HOW can you get money out unless you lend it to somebody. You say that you will create credit.
Mr. OWEN. I will buy their assets. That wTill get it out, will it
not?
Mr. LUCE. YOU give me a concrete illustration.
Mr. OWEN. YOU have $10,000 of bonds of the United States. I
bought them on behalf of the Federal Reserve bank. You will transmit those bonds through your local bank. Your local bank will send
those bonds to the Boston Federal Eeserve Bank. The Boston bank
will credit your local bank with the value of the bonds, and your
local bank will credit you with the value of the bonds. You will
have a deposit subject to check, and you can convert it into legaltender money on demand.
Mr. LUCE. That is quite clear.
Mr. OWEN. That is quite clear, is it not ?
Mr. LUCE. It is; but you come finally to the point that somebody
lends and somebody borrows.
Mr. OWEN. NO, Mr. Luce; that I deny, and I deny it for this
reason: The Constitution of the United States, interpreted by the
Supreme Court of the United States, gives exclusive, broad power
to the Congress to create money, but not to borrow it.
Mr. LUCE. I agree perfectly with that.




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209

Mr. OWEN. I am glad
Mr. LUCE. But when you have created the money, you have not
yet gotten it into circulation.
Mr. OWEN. I have your money in circulation. I have got the
$10,000 in your hands, and it is in currency if you want it. Now,
if you do not circulate it, that is your business, but it is money available for circulation and for production, available to be used in your
business, and it is against your interest to keep that money idle. You
will want to employ it in some profitable, useful manner, and you
will employ it in some profitable, useful manner, because all men
who handle money handle it from the profit motive or the motive
of safety.
Mr. LUCE. But I do not want to borrow the money.
Mr. OWEN. YOU are not borrowing the money. You are buying it.
Mr. LUCE. I do not want to buy money.
Mr. OWEN. Then you won't sell your bonds, and you are not the
person that we are talking about.
Mr. LUCE. I am talking about getting this money to the masses of
the people in a period when enterprises are unwilling, for one
reason or another
Mr. OWEN. Mr. Luce, there is always available in the market for
sale United States bonds, notes, secured by the United States, bonds
issued by the 48 States and the subdivisions thereof, and other sound
bankable assets which can be bought and which should be bought
by the Federal Eeserve banks as a means of creating money without
inflation, and when they buy these properties and pay for them at
the market price with credit, they create money against a sound
asset, and do not inflate money, but only create money for the benefit
of those who need money and prefer the money to the investments
which they have.
Mr. LUCE. But the banks tell us that nobody presents themselves
with sound assets against which to borrow.
Mr. OWEN. They tell you what is not strictly a fact, and that has
been demonstrated, Mr. Luce, by the investigation made by Mr.
Viner, to which I referred a while ago. You were not in here this
morning when I was giving an account of Mr. Viner, who was employed by the Treasury Department to examine into several thousand
cases of applications for loans in the Chicago district which were
refused by the banks, although Mr. Viner found that they were
properly secured.
I do not blame the banks for not lending money at all, because
they do not really know whether we will get into a still more serious
depression than that which is now existing.
Mr. BROWN. I wonder if you would mind placing into the record
the value of the United States bonds, State bonds, and bonds of subdivisions of States, the total now ?
Mr. PATMAN. DO you mean the total amount outstanding, Mr.
Brown?
Mr. BROWN. Yes, sir.
Mr. OWEN. It is very

large. I have not the figure at my command,
but it can be gotten by telephone.
Mr. PATMAN. It aggregates about 50 billion dollars.
Mr. OWEN. I do not know the precise amount.
Mr. PATMAN. About 38 billion dollars represents United States
Government bonds and other securities, and then about 15 billions,




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

bonds and other securities of the States and political subdivisionsthereof. That would be about 53 billion dollars. I do not think that
that includes cities.
Possibly it would aggregate around 60 billion dollars.
Mr. LUCE. It seems to me that we are up against an impasse there,,
the Senator believing that there are those with sound assets that
cannot get money, and there are those who feel to the contrary. I
do not know how we can settle that.
Mr. GOLDSBOROUGH. Senator Owen, my understanding of the argument that you are making to the committee is this, and see^ if I ami
correct: Your view is that if the Federal Reserve banks went into
the market and bought Government, State, and municipal securities,
that would put actual money into the hands of those that sold the
securities, which in turn would be utilized by them in investing iiii
some business or enterprise, and that, human nature being what it is r
and desiring profit, it w^ould be inevitable that this money would be*
invested.
Now, is that right?
Mr. OWEN. Yes; that is quite right.
Mr. PATMAN. IS it not also true, Mr. Chairman, that as this money
is placed in circulation, that has a tendency to decrease the value of
other money outstanding, so that the tendency then would be a decline in the value of the dollar and a corresponding increase in the*
value of everything else, so there would be an incentive on the part
of the person receiving this money to quickly, as soon as possible, sell
that money, as the Senator sa*ys, for something else that is becoming
more valuable every day?
Mr. EEILLY. I want to make this observation.
My information from the bankers is that we have hundreds of
millions of dollars of money in the banks today owned by private^
individuals who refuse to invest it or loan it.
Mr. OWEN. Quite right.
Mr. TRANSUE. The question seems to come down to this, Senator,,
that, as demand deposits wTere expanded, would that place money in
the hands of those who would buy more goods by so doing, because
it seems to me that that is what will have to happen before th^re^
will; be an increase of money in circulation, and just how are they
going to get it?
Mr. OWEN. The profit motive will put that money in circulation,,
and when you sell these securities to which we are referring, you
convert nonliquid securities into liquid credit. That will then" by
the profit motive flow into all sorts of enterprises and investment.
Mr. TRANSUE. All right. What will they invest in? What will
they use that money for? That is what I want to know.
Mr. OWEN. Well, they will use it for every conceivable purpose..
It is a little bit difficult to enumerate the purposes for which money
will be employed, when last year we employed 630 billion dollars of
it for these various purposes.
Mr. TRANSUE. Will it be invested in the further production of automobiles ?
Mr. OWEN. All kinds of investments will be the result of that, and
nobody can specify any particular investment, because if people have
the money unemployed, they will want and seek employment for it
in the form of property, which they think will increase in value or




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

211

can be made productive of value. That is the normal, natural thing
to do, and you can rely upon human nature to do it.
Mr. PATMAN. Senator Owen, Mr. Reilly raises a question there that
is often raised, that individuals and corporations now have hundreds
of millions of dollars of money that they could use if they wanted to,
but it i^ idle, it is inactive, and they do not know how to put it in
circulation. Isn't it a fact that it is a natural thing for one to do to
keep money as long as money is becoming more available, and isn't
that what you are trying to do now, to impress upon the committee
that it is necessary to start in the other direction ?
Mr. OWEN. Mr. Reilly is quite right in what he said. He not only
is right, but he understated the case. It is not just hundreds of
millions of dollars tied up in this way; it is billions of dollars tied
up in this way, and that is the thing which is causing the country to
suffer T now. Those who have this money to which Mr. Reilly refers,
so
and w ho are holding it now in storage because they do not see clearly
how they may safely invest it at a profit, as soon as they see that they
can with safety invest at a profit, they will make haste to do so,
and you will have released gradually these frozen deposits which are
now in storage awaiting investment.
Mr. TRANSUE. Senator, last June T
Mr. REILLY. Just a second. I w ant to make this observation.
Senator Owen, it may be true that there are some people today who
are holding money because they think it will get dearer, but the
great mass of people who have deposits in banks are holding it because they do not know what to do with it. They are afraid. That
is why they do not want to touch it.
Mr. TRANSUE. Senator, my question is this
Mr. OWEN. YOU are quite right in what you say, that they do not
know what to do with it, that they are afraid to spend it, because times
might get harder. Then those who do not need it for living purposes,
and who are holding it merely for investment purposes, are awaiting
the time when they will be sure of a rise in the value of property
through the attitude of the Government itself. All that this country
needs now is a word of courage and wisdom, to tell them that the
Congress of the United States is determined to carry out the Constitution of the United States and create the money necessary for
public purposes, for the use of the people, and to regulate its value.
When they do that and fix a standard, the people will respond to it
gladly, but at the present time they are in the dark, and without
adequate leadership.
I do not like to say that, but that is my judgment.
Mr. TRANSLTE. My question is this, that up to and including 1937.
for some years, there had been, in my estimation, an increase in business activity, and last year in the industry that I know the most
about—the automobile industry—they made 5,000,000 automobiles.
That was the peak production since 1929.
Mr. GOLDSBOROUGH. That was the entire automobile production ?
Mr. TRANSUE. Yes; and there were at the same time, if I understand it right, large demand deposits so that the banks could have
loaned money, and money could have been used for further production.
Now, something happened. The automobile companies could not
sell their automobiles any longer, and they shut the plants down




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

and laid off 30,000 men last fall, and things have been getting no
better since.
What I want to know is, and I think that this is the same question Mr. Luce asked, How will you get this money out so that it
wTill affect the people who are unemployed, and give them money,
wages, with which to purchase goods, which we know w^ill put men
to work?
We just think about demand deposits, and the man with credit
being able to get it; but I cannot see where he will buy any more
clothes or automobiles or things of that kind to give the fellow a
job who is out of a job.
Mr. OWEN. NOW, Mr. Transue, what took place was just the reverse of what you wish to take place. The demand bank deposits
existing in the beginning of the year 1937 could, when things were
comparatively in better condition, enable the automobile manufacturers to make a maximum number of cars; but what took place
then was that the money which was held in the banks subject to
€heck and was held as demand bank deposits was "bought" and
absorbed by those who had United States Steel stock and General
Motors stock and all kinds of stock which they sold to those who
had demand bank deposits in bank, and they "bought" and absorbed those demand bank deposits in the bank that previously had
been functioning, and as a consequence the country suffered from
a scarcity of money with which to carry on the business of the country, and that reflected itself in throwing men out of employment,
it reflected itself in making it more difficult for people to buy and
more difficult for them to meet the contracts which they had entered
into to buy the 5,000,000 cars on time payments.
Now, what is needed is just the reverse of the thing that took
place. What took place was a destruction of the volume of your
money by its being absorbed by those dealing in money, those who
might be called money merchants; and sometimes you might call
them money speculators, if you want to be a little disrespectful—
but they are money merchants, and when they absorb your money
supply, they cause the value of stocks, including General Motors
and all the balance of the atuomobile stocks, to go down; and they
are in a position to buy those stocks back at a fraction of the previous values at which they were sold.
There is nothing very strange about it. It has taken place over
and over and over again. Every depression sees the same thing,
and the marvel to me is that the financial and commercial leadership
of this country has not had the wisdom to see what this cause was
and to provide an adequate remedy. The remedy is written into
the Constitution as plain as human language can be, charging Congress with the duty of regulating the value of monej^, and therefore
to regulate the value of property and the value of labor.
Mr. TRANSUE, Well, Senator, I see what you have said; but, being
in a depression, where the unemployment is as it is in this country,
it just seems to me that you have to get some money in their hands
so that they can buy what they need to use before you start the
ball rolling the other way.
Mr. OWEN. The money is taken from their hands by depriving
them of wages and of salaries
Mr. TRANSUE. That is right.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

213

Mr. OWEN (continuing). Through the broad contraction. There is
only one way to get it back quickly,* and that is by broad expansion.
The remedy for contraction is expansion, and there is no other remedy
adequate to meet this depression. It can only be applied through
a mandate of this Congress, and you are the leaders, as the members
of the Committee on Banking and Currency, charged with the responsibility of solving this problem, and I am glad to have the opportunity to answer whatever questions I can. I may not answer them
satisfactorily, but I will answer them to the best of my ability.
Mr. TRANSUE. I want you to know that I appreciate your testimony,
as I have said before. I am just thinking out loud when I say that
I think you have to get money into the hands of the unemployed.
Mr. OWEN. YOU can only get money into the hands of the unemployed by putting the money where ft will increase the factory employment and factory w^ages, and the statistics on that I have already
put into the record with my remarks of the other day. The volume
of our money supply determines the price level. The price level
determines employment and wages up to a point where the people are
employed. Be3^ond that you go into the harmful field of inflation,
which nobody advocates and nobody wants and everybody is opposed
to who understands monetary science.
Mr. GOLDSBOROUGH. Senator Owen, in 1932 Professor King, of New
York University, testified before this committee, and he was illustrating the fact that there was a lack of confidence among businessmen ; that it was impossible to get bank deposits in circulation as long
as that lack of confidence remained; and he illustrated his statement
by saying that you could not push a string.
Now, as I understand your statement to Mr. Transue, it is that if
the business public now saw that the Federal Reserve System was
determined to raise the price level, and demonstrated that by putting
the money into the market, by buying Government bonds, that would
reestablish their confidence, and the string would be pulled.
Mr. OWEN. I do not like such a metaphor as pushing a string; I
would not use a metaphor of that kind. You cannot push a string,
and that is misleading, I think.
Mr. GOLDSBOROUGH. That is what Professor King said.
Mr. OWEN. If he used that metaphor, I do not approve of it.
Mr. GOLDSBOROUGH. I understand that Mr. Transue's question was
that you could not make these people invest their money if they did
not want to invest it, and I understand that your answer to him is
that if the Federal Reserve Board announces a policy of actually going
into the market and buying Government bonds, largely, that will reestablish the confidence of the people.
Mr. OWEN. Yes.
Mr. CRAWFORD. Will the gentleman yield there ?
Mr. GOLDSBOROUGH. Certainly.
Mr. CRAWFORD. DO you mean to say that it would

reestablish the
confidence of men in business and tend to destroy the confidence of
men who have money in storage, and thereby cause them to run away
from storage money to active money in business ?
Mr. OWEN. It would not destroy their confidence in money in
storage, but it would induce them to employ that money if they had
the opportunity of increasing the amount of money through a rise in
value of that which they bought.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. CRAWFORD/That is exactly what I mean.
Mr. OWEN. I think that they are exactly right about it. I do not
see anything wrong about that. I do not criticize those men. They
are dealing with life as it is and the realities as they are, but it is
up to your committee to stabilize the value of property and human
labor and to dignify American life by stability which shall end this
condition that leaves one-third of the people underfed, underclothed,
and undersheltered.
The responsibility is on your committee. It is no longer on the
Reserve Board.
Mr. CRAWFORD. May I ask Senator Owen a question which deals
somewhat with this question of expansion and contraction, and which
goes back to your statement with reference to the letter of 1893 ?
Mr. OWEN. Yes.
Mr. CRAWFORD. I

have here what purports to be the substance of
that letter. It is very short, and I would like to read it and see if
your memory ties up with something to this effect—and this is a
quotation made by Mr. Benson in 1912, in which he says that the
National Bankers' Association sent out a circular letter in 1893, the
contents of which were [reading] :
DEAR, SIR: The interests of national bankers require immediate financial legislation by Congress. Silver, silver certificates, and Treasury notes must be
retired, and the national bank notes, upon a gold basis, made the only money.
This requires the authorization of $500,000,000 to $1,000,000,000 of new bonds
as a basis of circulation.
You will at once retire one-third of your circulation and call in one-half of
your loans.
Be careful to make a money stringency felt among your patrons, especially
among influential businessmen. Advocate an extra session of Congress for the
repeal of the purchase clause of the Sherman law; and act with other banks
in your city in securing a large petition to Congress for its unconditional repeal,
as per accompanying form.
Use personal influence with Congressmen, and particularly let your wishes
be known to your Senators. The future life of national banks as a fixed and
safe investment depends upon immediate action, as there is an increasing sentiment in favor of Government legal-tender notes and silver coinage.

Does your memory tie up with that at all, in substance ?
Mr. OWEN. Yes; of course, after so many years a man cannot recall
the details of a letter of that kind, but I got a letter of that purport
urging the contraction of credit with a view to the repeal of the
Silver Purchasing Act, and I am satisfied that it is the same circular
letter. I referred to it in a book which I sent to the members of this
committee a year ago, on January 9.
Mr. CRAWFORD. YOU did not quote the letter in that book.
Mr. OWEN. I quoted part of it; yes.
Mr. CRAWFORD. Mr. Benson claims that this letter was mailed out
on March 12, 1893—8 days after the inauguration of President Cleveland—by the National Bankers' Association to the national banks.
Mr. PATMAN. Were you president of a bank at that time ?
Mr. OWEN. Yes; I was.

Mr. CRAWFORD. Was your bank a national bank at that time ?
Mr. OWEN. It was.
Mr. GOLDSBOROUGH.

Senator Owen, several members have said that
they had to be on the floor very promptly this morning. Professor
Spahr cannot come tomorrow, and if it is agreeable to the committee
and agreeable to you, you might come back tomorrow.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

215

Mr. OWEN. I would be glad to do anything the committee wishes
me to do. I have a great desire to be of service in the matter.
Mr. PATMAN. Are there other members that w^ould like to ask questions %
Mr. GOLDSBOROTJGH. Is there any member who would like to have
Senator Owen come back for the purpose of asking him questions ?
Mr. MEEKS. I would like to ask him some questions.
Mr. PATMAN. Senator, you can come?
Mr. OWEN. Yes; I can come.
Mr. GOLDSBOROUGH. Then we will adjourn until 10:30 o'clock tomorrow morning.
(Thereupon, at 12 o'clock noon, an adjournment was taken until
Wednesday morning, March 23, 1938, at 10: 30 o'clock.)




GOVEBNMENT OWNEBSHIP OF THE 12 FEDEKAL
BE8ERYE BANKS
WEDNESDAY, MARCH 23, 1938
HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

W ashing ton, D. G.
Hearings on H. R. 7230 were resumed at 10:30 a. m., Hon. T. Alan
'Goldsborough presiding.
Other members of the committee present:
Mr. Reilly, Mr. Williams, Mr. Spence, Mr. Farley, Mr. Meeks, Mr.
Ford, Mr. Brown, Mr. Patman, Mr. Evans, Mr. Transue, Mr. Luce,
and Mr. Crawford.
Mr. GOLDSBOROUGH. The committee will come to order.
Mr. Crawford, I believe that you have some questions that you
want to ask the Senator.
Mr. CRAWFORD. Yes, Mr. Chairman, I have some questions that I
would like to ask him.
STATEMENT OF HON. KOBERT I. OWEN—Resumed

Mr. GOLDSBOROUGH. Proceed, Mr. Crawford.
Mr. CRAWFORD. Senator Owen, in Document No. 19, Senate, Seventy-fifth Congress, first session, which is made up, I believe, entirely
of a statement by Mr. Chester Morrill, secretary of the Federal Reserve Board, on page 3 he says this, and he is here discussing the
increase in reserve requirements which took place May 1, 1937:
This action increases reserve requirements to the full extent authorized by
law. It is not the true intention of the Board to request from Congress additional authority to absorb excess reserves by means of raising reserve
requirements.

Now, that statement came following that increase, and since then
excess reserves have moved back into the field of around $1,400,000,000.
What consequence do you think would follow a request by the
Board at this time for power to increase reserves, so as to do away
with present excess reserves, which according to this statement by Mr.
Morrill would lead one to believe that present excess reserves are
rather dangerous.
Mr. OWEN. The excess reserves of member banks in the Keserve
banks represent the potential power of the banks to expand credits
or create money by loans to business men or others, including the
Government among others. The potential power of the member
banks to expand credit has been viewed by the Federal Keserve Board
217




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

as containing the possibility of dangerous inflation, and the effect
of what the Board has said has been from time to time to warn the
country against the danger of inflation.
At the same time the public press uses the word inflation as synonymous with expansion, and therefore the effect of what the Board's
policy has been and their comments has been to impress the country
with the idea that the Board of Governors of the Federal Reserve
System do not favor expansion, although in my opinion and that of
millions of other people, it is the contraction of the money supply
below normal which is the real difficulty of the country and which
can only be remedied by expansion to raise the money supply to a
normal predepression level.
Therefore the effect of the action taken by the Reserve Board and
its officers is to impress the country with the idea that the administration at least is opposed to any expansion. That lays the foundation for those who are merchandising in money to buy money in order
to get the increasing power which money will have under a process
or a public policy of contraction and sustained contraction.
Mr. CRAWFORD. Well, now, at the time this statement was made,
the statement I read just a few moments ago, Mr. Morrill also made
this observation:
It is the Board's expectation that with approximately 500 million dollars
of excess reserves remaining with the banks, that credit conditions will continue
to be easy. At the same time the Reserve System will be in a position to take
promptly such action as may be desirable to ease or tighten credit conditions
through open market and rate policies.

Now, since that observation was made, I repeat that your excess
reserves have gone past the $1,000,000,000 mark, and are moving into
the $1,500,000,000 atmosphere, we will call it, and I come back to this
statement where Mr. Morrill leaves the inference that, w^hen these
excess reserves can become very heavy, and at which time the Board
would find itself without the power to increase reserves, the Board
might at the time it so finds itself request from Congress additional
authority to absorb excess reserves by means of raising reserve requirements.
Now, assuming that the Board does, sometime during the next 60,.
90, or 120 days, make a request for the power to raise reserve requirements so as to dissipate these excess reserves which continue to mount,
would you care to make an observation as to what you think the
consequences of that request would be?
Mr. OWEN. The anticipation of the country from observations made
by the higher officials of the Federal Keserve Board that the policy
of the Reserve Board is contraction instead of expansion justifies
them in anticipating the lowering of the price level and the increase
in the purchasing power of money, particularly in the stock market.
For that reason, such comments and such attitude on the part of
the Reserve Board are harmful instead of being beneficial, because,
at a time when the country needs courage, they are being discouraged.
At the time when the country needs expansion, they are constantly
being exhorted as to the beauties of contraction, and a negation of
expansion.
Mr. Roosevelt, as I quoted a few days ago, on October 22, 1933,
made a statement that what w^e needed was to restore the price level,
and immediately when he made the statement he said there were some
who were disposed to put the cart before the horse, by changing the




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

21&

value of the dollar through the changing of the gold content, and
that was followed immediately by an article on the 25th day of
November 1933, in the Saturday Evening Post, by Mr. Barney
Baruch, who opened his article with a denunciation of inflation as
the enemy of mankind. "Inflation is the enemy of mankind," says Mr.
Baruch, and then he defines inflation as any expansion of the money
supply that is not based upon gold as a medium of redemption and
equalled by the gold. His idea was you should expand as you could
expand with gold, and then he gave remedies for the depression.,
which involved such considerations as the N". R. A., the A. A. A., and
so forth.
Well, that policy has been tried, and a conscientious effort has been
made by the Congress to get relief for the country by such processes,
and we have not achieved stability by those processes. We have
been disappointed to a considerable extent, although to some extent
our efforts have been useful, but we left the country without the protection which I have been advocating before this committee, and
which I have been advocating for a great length of time—we left the
country without the protection necessary to protect it against the
sudden contraction of the money supply, and that contraction took
place in 1937 under the management of the Board of Governors of
the Federal Reserve System and under the management of the Secretary of the Treasury and under the management of the Secretary of
Agriculture, and I remind you that the Secretary of Agriculture and
the various members of his staff, during the spring of 1937, told the
country that prices were too high, and even the Chief Executive was
induced to say that the prices were too high, but he meant the particular prices controlled by monopoly, such as copper and lead, which
were of course too high, because those who control the prices of those
commodities desired to take the cream off of a market when they
thought that the demand would absorb copper and lead at a high
price.
Well, copper and lead, of course, fell severely under the contraction
of the buying power of the country and under the contraction of the
money supply. Copper fell from 17 and a fraction cents a pound
down to 9 cents a pound, and lead fell almost one-half.
These things show the result of contracting the money supply, regardless of any amount of talk by the officers of the Federal Resorve
Board or the Treasury Department. I do not intimate or state to
the committee that there was any purpose on the part of the members
of the Federal Reserve Board or their officials, or of the Treasury
Department, either, to do anything as unpatriotic or as unwise as
to bring on a depression and throw millions of people out of employment. I only point to the effects, to what has taken place under
their management. They not only did not produce the prosperity
we were entitled to have under the powers that you gave them, but
instead of achieving a high point of prosperity under their management with the powers that you gave them, we have witnessed a
calamity, at first called with courtesy and tolerance a recession, and
then a depression, and now we see by the markets yesterday that
United States Steel, which sold at 126 in January a year ago, was
selling under $50 a share; which is a measure of the increased purchasing power of money in this country, in terms of the finest properties in this country, because of the scarcity of money created arfi-




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

ficially, and for which there is no excuse, and to allow it to remain
as it is, and for this committee to disregard its duty under the Constitution, and their oaths of office, to regulate the value of money and
bring it back to a reasonable norm, I think would be a national
calamity.
Mr. CRAWFORD. Senator, directly in line with that observation just
made, a day or two ago I had a talk with reference to the sales of
baby bonds, and this morning I have a statement which came in the
mail from the Treasury Department
Mr. OWEN. The sale of baby bonds
Mr. CRAWFORD. May I give you these figures first ?
Mr. OWEN. Yes. I know them, but go ahead.
Mr. CRAWFORD. Beginning with April 1937 and running down to
and including December 1937, the sales of baby bonds each month
ran from $26,900,000 up to $35,600,000 per month.
Then, wThen we come to January 1938 after people have begun to
realize that perhaps this is a general depression, we find that the sale
of baby bonds increased more than 300 percent per month. Take the
months of January and February, 1938. As one-sixth of the year
1938, we find that the sales of those baby bonds are running at the
rate of 900 million dollars per annum, or double what they were in
1937, and this in spite of your recession.
Mr. GOLDSBOROTJGH. Nine hundred million dollars?
Mr. CRAWFORD. At that rate. In other words, a fraction under
$150,000,000 for the 2 months January and February.
Now, that indicates to me that the people of this country to a large
extent are growing tired of carrying idle demand deposits, and that
they are now somewhat accepting the philosophy that this is to be a
recession, that demand deposits will not give them any income, that
they do not desire to spend that money for the time being, and that
the net result of the baby-bond activity is a contraction, or, saying it
another way, a destruction of demand deposits that might be used for
consumers5 goods, and as they move into baby bonds the tendency will
be to hold that billion dollars a year, we will say, but personally, I
assume it is going to increase from month to month as inactive demand deposits which have since been converted to baby bonds.
Would you care to give us the benefit of your observations on that ?
Mr. OWEN. In my opinion, the effect of the activities of the Treasury Department in substituting baby bonds, so-called, for money in
the form of currency paid to the soldiers for their soldiers' compensated income, or indebtedness due to them, was to have the baby bonds
absorbed by persons of small means who had unemployed demand
bank deposits in bank which they were saving for cases of need, and
when this depression began to take form, such persons, remembering
what happened to the banks under the previous depression of 192932, preferred to buy a baby bond rather than to leave the account in
the bank, even if it was insured, because they would be safe, and they
would get some increment of value if they held it, whereas they could
not get anything from the demand bank deposits in the bank, because
the banks are no longer permitted to pay interest on demand bank
deposits.
The effect of what the Treasury did then and is doing now was distinctly a contraction process, which goes to add weight to what I have




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

221

been saying about their policy in assuring the country that there
would be no expansion.
At the same time, of course, they could not help expanding when
they sold bonds to the banks
Mr. GOLDSBOROUGH. Senator
Mr. OWEN (continuing). As a means of meeting the unavoidable
expense of public relief and of meeting the unavoidable expense of
Government where the revenues were not sufficient to meet the normal
expenses of Government.
Mr. GOLDSBOROUGH. Senator, you spoke of the fact that people prefer to withdraw the money from demand deposits even if they were
insured. Now, of course, I am very much in favor of the Federal
Deposit Insurance Corporation, and I expect that I had more to do
with the passage of the law creating it than anybody in the world
except Mr. Steagall, and I still have the same opinion that I had at
that time.
Mr. OWEN. I am in full accord with the chairman.
Mr. GOLDSBOROUGH. I want to ask you a question.
Mr. OWEN. Yes.
Mr. GOLDSBOROUGH.

It is a fact, however, is it not, that, after all,
the Federal Deposit Insurance Corporation's possibilities are no
greater than the possibilities of the monetary system under which we
are working?
Mr. OWEN. Certainly.
Mr. GOLDSBOROUGH. And if calamity should come, if fair weather
should be changed to foul weather, the Federal Deposit Insurance
Corporation would not be able to
Mr. OWEN. YOU can bankrupt that Corporation.
Mr. GOLDSBOROUGH (continuing). To insure its deposits.
Mr. OWEN. YOU can bankrupt that Corporation if you do not
stabilize this country; and if you allow this depression to go on as it
is going, with a heavy decline downward, the conditions may easily
arise where the Federal Deposit Insurance Corporation might not
only suffer severely, but it is not inconceivable that it could be bankrupted, because even in the last year, strengthened as the banks have
been by the experience of the past, we have had over 50 banks fail
and about 50 others absorbed, possibly to keep them from failing. I
do not know about that.
Mr. GOLDSBOROUGH. But under the present system if the depositors
went after their money, they could not get it ?
Mr. OWEN. If the depositors would go and demand their money,
of course they could not get it. If they would all demand the money
at one time, they could not possibly get it.
Mr. PATMAN. May I make an observation there ?
Mr. OWEN. Certainly.
Mr. PATMAN. Let us see how much they could get. The banks
have about $18,000,000,000—that includes the Federal Eeserve banks—
in United States Government bonds and securities. The banks over
the country, the 16,000 banks, have about 15y2 billion dollars of those
Government securities. These Government securities can be converted almost immediately into cash. That is a considerable sum of
money.
69972—38

15




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

In addition to that, the Board of Governors of the Federal Reserve
banks have recently ruled that all sound bankable assets may be discounted with a Federal Reserve bank and Federal Reserve notes
received in return therefor.
With that ruling, I am not so sure but what the Government could
print, if it could run the printing presses fast enough, enough money
to meet all demands of all depositors in all the banks; but the result
of it is that the Government is guaranty or security behind them,
just awaiting demands. The Government is just waiting, standing
by. The Bureau of Printing and Engraving is just a stand-by
agency, waiting for the demand, and the money could be printed to
meet these demands.
Mr. OWEN. Yes; that is true as to demand bank deposits, but the
total deposits are 50 billions. The observation that you have made
I sympathize with, and I certainly approve the ruling to which you
refer of the Reserve Board. But if you have a contraction of the
money supply in circulation to the point where the value of property
is destroyed or very seriously impaired you create a situation which
impairs the solvency of borrowers.
Mr. PATMAN. That is very true.
Mr. OWEN. And it is the solvency of the borrower which afflicts
the bank when the bank is called upon to liquidate its obligations to
the depositors.
Mr. PATMAN. One further observation
Mr. OWEN. Just a moment.
Mr. PATMAN. If you please
Mr. OWEN. Just a moment, please.
If, therefore, the demand on a member bank due to the insolvency
of borrowers brought about by a severe depression exceeds its capital
and surplus, the bank goes into bankruptcy regardless of what you
have said.
Mr. PATMAN. Along the line you mentioned a while ago about the
duty of this committee, that there is a great duty on this committee
to do something, that the burden is on us, I am glad that you mention that. I feel that the country is in worse shape right now than
it has been for some time. I just hate to state how I feel about it,
but whenever you see, according to my notion, bank clearings and carloadings take a nose dive at the same time you had better look out;;
and commencing about the first of the year 1938 they not only took a
nose dive about the same time but they have gone almost straight
down at the same time. The carloadings represent the movement of
the actual tangible physical goods and commodities from producers to
consumers and from manufacturers to consumers; and the other,
bank clearings, represents the medium of exchange; and whenever
they start down at the same time it is a bad sign.
I noticed in the morning paper where there is one concern that last
year made $300,000 a month profit, which was a fair profit, considering the investment of the 25,000 stockholders in that concern. But
in January profits dropped from $300,000 to $200,000, and for the
month of February they dropped again to a loss of more than $50,000
for that month; and the president of the company, in commenting on
that, said that their loss for this month would be a lot worse than last
month; and he insisted that his business condition reflected business
conditions all over the country, because he operated in 45 of the 48




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223

States and handles a commodity that reflects general business conditions.
Now, with such startling and astounding statements as that, it
occurs to me that this committee should take action as soon as possible
on some bill that will make this Board of Governors of the Federal
Reserve banks take the action that we know they can take to relieve
this condition.
Mr. CRAWFORD. May I ask the Senator one more question ?
Mr. GoLDSBOROUGH. Surely.
Mr. CRAWFORD. Senator Owen, the last census of manufacturers
that I have been furnished with, which is illustrative of the point
that I want to bring out, is 1935, at which time there were engaged
on the pay rolls of the manufacturers of this country 8,454,918
workers, and during that year they were paid a wage of $9,83(3,044,074.
Now, when you consider related industries, or what you might
term those feeding the manufacturers, and taking the 1930 census,
which is the latest I can obtain, and using the statistics of 11 lines of
work, made up of agriculture, forestry, and fishing, extraction of
minerals, mechanical and building industries, transportation and
communications, public service, professional service, domestic personal
service, and clerical occupations, I come to the conclusion that for
each man engaged on a pay roll in the factory there are related to
his activity three men on the outside.
Now, when you take our present 10,000,000 unemployed adult workers, which we will assume are heads of families, it appears to me
that if we could put 3,000,000 of those 10,000,000 in the factory at
work there would follow related employment in feeding the factory
and taking away from the factory and serving those who are thus
engaged in the service professions another 6,000,000, which would
absorb in round figures 9,000,000 of the present unemployed.
Now, taking that thought, and tying it up with the statement made
in Chicago the other day by Mr. Hanes, who is a new member of
the Securities and Exchange Commission, and at which time he was
addressing the investment bankers of that region, and in which
he said:
It seems to me that the investment-banking mechanism is not now hitting
on all cylinders. I know too well that the inactivity of the capital market is
not all your fault, but it is time to study your own situation and find out
just what can be done under present conditions and where changes are required
or new machinery necessary, since the job cannot be left undone, and since
the job is yours it is up to you to start thinking of possible remedies.
For your information, I may • say that in view of the growing realization of
the acutenese of the problem of reopening the capital markets and the need for
speedy action, there have been some broad exchanges of views on machinery
whereby the Government may cooperate with the investment banking fraternity in doing its job. There is a substantial body of informed opinion which
seems to favor some sort of cooperative endeavor. As a matter of fact, one
Senator recently proposed a bill aiming at such cooperative machinery.

Then this article goes ahead, and, in substance, it says that these
capital markets must either be reopened and capital permitted to
flow to industry, to give employment, or that the Government will
have to take over the entire situation.
Now, do you feel that the Goldsborough bill and the Patman bill
and these measures that we have had here under consideration are
such that if this committee acted aggressively, it would tend to break




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

this log jam, and permit these elements to begin to function, so that
those men could go back into factories and other services ?
Mr. OWEN. The activities to which you have been referring, and
the points to which you have made reference, of course, deal largely
with the unemployed capital that represents so-called easy money,
where money is being loaned for a quarter of 1 percent per annum on
Government securities or one thing or another. That only means
unemployed capital. That does not mean easy money for the people
of the United States. It only means this unemployed capital in the
centers where those who control it are willing to get any rate of interest they can so as to keep it moving with the objective of meeting
expenses on that; but, answering your question, the proposals which
are before this committee and which have been recognized in 1932
by the Congress of the United States, representing both parties on
a most liberal scale, deal with this matter from the fundamental of
creating money, not borrowing credit, which is money, from other
people, but it is to create money, to create capital needed for all productive enterprises in this country, creating capital without paying
interest to anybody, creating money and not relying upon those who
have accumulated money by the various processes which our economic
system permits, and therefore I have no hesitation in saying that the
bills which have been before your committee here, and which you
have been considering, and which this committee has been considering, I might say, for 25 or more years—your committee considered
the price level in 1913, and in 1922 under the leadership of Mr. Goldsborough, the present chairman of this committee, and in 1924, 1926,
and 1932; continuously there has been an examination upon examination with regard to solving this question, and the time has come for
the taking of testimony to end, because you have 10,000 pages now
covering this subject, and the time has come for action, and this bill
which you have before the committee, taking over the reserve banks,
1 regard as an important matter, so that you have the mechanics, the
management of the machine, and the ownership of the machine in the
public administration and under the public control, without any
interference of any Advisory Council whatever from outside sources.
I think the Federal Keserve Advisory Council should be terminated, and I think the open market committee should be ended. I
think the full power should be put in the hands of the Board of
Governors of the Federal Reserve System as the agents of the
Congress of the United States, with a mandate requiring them not
to exercise their own views at all except within the narrow scope of
the form and direction and the order of the Congress of the United
States, that tells them what to do.
They will tell you that they do not know how to do it. That is
what Mr. Ogden Mills, in his "Federal Reserve Board" said in 1932,
that it could not be done, and Mr. Mills said that if he knew how
to do it he would be the smartest man in the world, and yet, in spite
of that testimony on the part of those charged with the duty of
protecting this country, and having the power to protect, we see
from the table which I submitted here yesterday that every civilized
nation in the world is now considering with care the price level and
the maintenance of the price level and the stabilization of the price
level, and we see that the price level of Great Britain has satis-




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225

factorily been rising until it is above par, I believe, now. Germany,
Switzerland, and the Netherlands had a stable price level for 1937.
Look at the price level of these countries, and you will observe
what is taking place in the world, and what does the price level
mean? It means nothing in the world except the index of the
purchasing power of money, the index of the debt-paying power
of money. The price level and the all-commodity index are the
same; the all-commodity index is connected with and a part of the
price level, but one being always in inverse ratio to the other, and
when you bring the price level up to 100, you bring the dollar index
to 100, and, multiplying it together, those two numbers give 10,000,
and if you divide 10,000 by the current all-commodity index—say it
w-as 80 today—then the purchasing power of the dollar would be
125, or 25 percent above the normal fixed for 1926.
I think the committee should keep in mind the true significance
of the price level, and the relationship of groups of commodities to
the price level. You take, for instance, the field of agricultural
products and their relation to the price level is about 17 percent,
normally, and sometimes goes up to as high as 18 percent, but it
fluctuates around 17 percent.
You take wheat. Wheat represents about one and a half percent of
the price level, and the price level on agricultural products at the
present time is about twro-thirds of what it ought to be; in other
words, it has got to raise 50 percent in order to give the farmers
the normal of 1926, which everybody knows was below the general
average of agricultural commodity prices.
I call your attention to these things because we sometimes are apt
to forget the meaning of terms, and as we speak of the price level
we are apt to forget its significance, so that when we speak of the
price level rising, we speak of the volume of money rising, and when
you speak of the price level rising in value, we mean that the dollar
is increasing in purchasing power in terms of those particular commodities as a class, and since we know that the rise of the price level
up to normal is alwa}7s followed immediately by a rise in employment
in the factories and a rise in factory wages, what you have suggested,
Mr. Crawford, means employing not only those who would be thus
reemployed in factories, but it means three times as many employed
in other vocations as the result of reemploying those engaged in
factory production, which in this country is largely mass production
of things that we all want.
Mr. CRAWFORD. Thank you. That is all that I have to ask.
Mr. GOLDSBOROUGH. Are there any other questions?
Mr. PATMAN. I wanted the Senator to take up these amendments,
if he will, and explain exactly how they will operate, especially the
first one about the price level.
Shall I read them?
Mr. CRAWFORD. Does the gentleman yield?
Mr. PATMAN. Yes, sir.
Mr. CRAWFORD. I see Judge

Meeks coming in. Yesterday he said
he had some questions that he wanted to ask the Senator.
Mr PATMAN. I believe he did.
Are you ready to ask the questions now, Judge Meeks?
Mr. MEEKS. NO ; not right now. I will wait on somebody else.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. PATMAN. All right. I will read this first suggested amendment, Senator.
It shall be the duty
Mr. MEEKS. Pardon me; you are going
Mr. PATMAN. Yes, sir.
Mr. MEEKS. When you are through, I

on your first amendment?
will probably have some

question on it.
Mr. PATMAN (reading) :
It shall be the duty of the Federal Reserve Board to raise the all-commodity
index, or the so-called price level, until full employment of all persons able
and willing to work shall have been achieved, and until the price level shall
at least reach the all-commodity index of 100 as established by the Department
of Labor for the years 1914-30, inclusive. Thenceforth such price level shall
be standardized and maintained at a variation not to exceed 2 percent above
or below the standard reached as aforesaid. It shall be the duty of the
Federal Reserve Board in accomplishing these ends to expand demand bank
deposits by the purchase of United States bonds and notes, or bonds secured
by the United States, or bonds of States and subdivisions thereof, or other
sound bankable assets; and to contract demand bank deposits by the sale of
the securities aforesaid.

I wish you would give us the benefit of your views on that amendment, Senator Owen, please, especially
Senator OWEN. The amendment, which goes to the achieving of full
employment, is based upon the table to which I have just referred,
that a rising of the price level always increases employment up to
the point where employment can be safely increased. Beyond that
it would be idle to go. The index of 1926, which is the same as the
average, from 1914 to 1930, and is the same as the average from 1921
to 1929, is the standard which is apparently in accord with our history, on an average, and therefore it represents the best point to
which we could fix our standard.
Now, it is perfectly easy to prevent the rise or fall of the index by
expanding when it is too low and contracting when it is too high.
All that it is necessary to do is to use the powers that you give the
Board.
The value, I think, of the amendment is not only in stating a definite
objective but in telling the Federal Reserve Board how to achieve
that objective, and takingTthe responsibility on the Congress of telling
them how. Then they w on't be responsible if things do not go right.
If they obey the law of Congress, things will go right, because that
is exactly the way in which you can stabilize and restore prosperity in
this country.
The amendment which you have read is quite long, and there may
be some points in it that perhaps I have overlooked.
Mr. PATMAN. AS to the variation of not to exceed 2 percent above
or below, do you think that that can be maintained ?
Mr. OWEN. It can be maintained within 1 percent. That 2 percent
is a reasonable degree of tolerance.
Mr. PATMAN. Let me read the next amendment. You have discussed this first one pretty fully in your answers to the questions of
the different Members. I will read the next one:
The Board of Governors of the Federal Reserve System is hereby declared to
be the agency of the Congress to create money and regulate the value thereof as
authorized by the Constitution of the United States, and the individual members
of such Board shall hold office subject to the will of the Congress of the United




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

227

States; and either the Senate or the House by resolution may authorize and
request the President of the United States to nominate a successor to a member
of the Board from any Federal Reserve district regardless of the term for
which he was appointed, whereupon, the office of such member upon the passage
of such resolution shall be vacated.

Now, the question has been raised, first, Is that constitutional?
Next, Is it right and reasonable for one House to have so much power,
or should both Houses be required to approve the same resolution in
order to vacate such a position?
I would like to have you discuss those two points, Senator.
Senator OWEN. The first point is as to the constitutionality of the
provision. I take it that that is fully met by the Supreme Court of
the United States in the Legal Tender cases and in the Constitution
itself, w^here it directs the Congress to regulate the value of money.
Congress, in appointing agents for that purpose, is exercising its
power by giving an administrative duty under directions to the
Federal Reserve Board, and that is a necessary part of carrying out
the Constitution. It is not only constitutional, but it would be unconstitutional for you not to do that. It is your duty to regulate the
value of money and to use that mechanism by which it can be accomplished.
Now, as to the question of removing a member of the Board, we
have had demonstrated in the last 18 years, from 1920 to date, the
supreme importance of the members of that Board recognizing their
responsibility to the Congress of the United States in regulating the
value of money.
I remind you that even the act of 1913 provided for a stable price
level in the draft which I introduced on June 26, 1913, but it was
changed so as to make the requirement that the Reserve Board,
through its power, should protect and advance the commerce and
industry of the country.
Well, the commerce and industry of the country were bankrupted
and ruined by the action taken in 1920 and 1921. They did not pay
attention to the act of Congress. They ignored it and they produced
an enormous disaster in consequence, and the same thing happened
again in 1929 and 1932, and the same thing has been happening in
1937 again, a third time within 18 years, an average of about once
every 6 years, and the question is, will they obey or will they not
obey?
I think the amendment which you have read is perfectly sound,
because when the Congress of the United States passes the act declaring that a resolution of the House or a resolution of the Senate shall
suffice to cause a vacancy, that is the law of the land, and therefore a
resolution of the House would be within the law of the land, and a
resolution of the Senate would be within the law of the land, established by the joint action of both Houses and the signature of the
President.
I think it is of supreme importance to require the members who are
charged with this colossal power of life and death over our industries
and over the individual life of the citizens, tens of thousands of whom
have committed suicide under the policies which have actuated this
country and caused these depressions, and 14,000 suicides per annum
was the increase in the number of suicides in 1932, so I say that you
are entirely within your rights to make the Federal Reserve Board
and the members thereof subject to the approval of the House of




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Representatives and subject to vacation of their office if the House of
Representatives votes no confidence or invites a successor to be named
for the individual member of the Board or for the whole Board
covered in such a resolution.
It leaves the power where it belongs, in the Congress of the United
States, which is charged by the Constitution with the regulation of
the value of money.
Mr. PATMAN. AS much as I am interested in the passage of this
bill to take over the Federal Reserve banks, and considering the
necessity for immediate action, I would be willing to take this first
amendment which has been read, and which is nothing more nor
less than the Goldsborough bill of 1932, and add to it the mandate
and power of removal of members of the Federal Reserve Board of
Governors if they did not carry out that mandate, and try to get
that bill through Congress just as soon as possible.. I think it is the
most important measure right now pending before Congress, including my own bill or the bills sponsored by many Members of the
House providing for Government ownership of the 12 Federal
Reserve banks.
Don't you think that if we were to pass something like this there
would be a change in our economic affairs overnight, Senator?
Mr. OWEN. Absolutely; not the slightest doubt about it.
Mr. REILLY. I would like to ask you a question, Mr. Patman.
You and the various Members of Congress who prepared this bill
gave serious study to it, did you not ?
Mr. PATMAN. We certainly did, but there are differences of
opinion
Mr. REILLY. And you did not think it necessary to put in a provision like your amendment?
Mr. PATMAN. Well, we did not have the benefit of the sound advice
that has been given to us before this committee. We thought that
we were just announcing a policy, like the Goldsborough bill of 1932
just announced a policy; but in view of what has happened in recent
months and in recent years, we have decided that it is best to have
a way of compelling the adoption of that policy.
Mr. REILLY. YOU do not have to introduce any new bill. All that
you have to do is just to amend the present law.
Mr. PATMAN. All right; that is what I would be willing to do.
Would the gentleman be willing to do it ?
Mr. REILLY. That is the question. Senator Owen takes that stand,
but we have not heard any other authorities on finance and currency
who take the same stand that he takes. Now, I do not know whether
he is right or wrong, but I do not want to change our monetary
system upon the statement of one man.
Mr. PATMAN. Whose statement do you want?
Mr. REILLY. That is up to you. There ought to be some other
authorities on this question.
Mr. PATMAN. YOU would not be willing to be governed by this
National Economists' Committee entirely?
Mr. REILLY. I do not know anything about that. Some of them
are of high standing; but I do think that this committee, before we
think of adopting a revolutionary proposal such as you have suggested, ought to have the judgment of more men who have studied
finance and currency.




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229

Mr. PATMAN. AS Senator Owen has stated, 10,000 pages of testimony have been taken on this question, and I have been attending
meetings of this committee for 10 years, listening to the testimony.
Of course, I have not always been a member of the committee, but
only a short time, but I attended the hearings anyway. I heard
Professor King, Professor Fisher, Professor Kemmerer, and I have
heard all of these different people testify about this for the past 10
years.
So when are we going to act, if not now? What more testimony
do you want, when we have 10,000 pages already?
Mr. EEILLY. YOU heard all of this testimony, and yet when you
drafted your bill you left that amendment out of it ?
Mr. PATMAN. Well, we had to give and take. We had to compromise. We had 100
Mr. EEILLY. Compromise on what?
Mr. PATMAN. We had to take up each phrase and sentence, just like
the gentleman does—he has a bill, I presume, occasionally, before this
committee, and I doubt if he has ever gotten a bill through and I
doubt that this committee has ever had presented to it a bill that was
not changed, with a substantial change, before it left this committee.
That is what a committee is for. We are merely carrying out the
best purposes of the committee in analyzing a bill, and if something
should be added or taken from it, that is when it should be done, in
committee.
So, in doing now what we are doing, we are carrying out the normal
functions of committee work.
Mr. REILLY. I agree with you on that, Mr. Patman, but
Mr. PATMAN. All right; then there is no difference between us.
Mr. EEILLY. But in view of the wonderful discussion and all of the
discussion that you heard, you came in here leaving out the guts of
your bill.
Mr. PATMAN. Your hindsight is always better than your foresight.
Mr. REILLY. YOU left out the real essence of your bill.
Mr. PATMAN. I suspect that the gentleman's hindsight is always
better than his foresight. I admit that mine is, and this bill needs
amendment. Tell me about a bill of major importance that has not
been amended. The amendments are suggested.
Mr. FORD. Might I make an observation ?
Mr. GOLDSBOROUGH. Mr. Luce has been waiting to ask some questions.
Mr. LUCE. Yesterday, Senator, in inquiring about the process by
which the purposes of this bill would be carried out, I reached the
point where I struck something which I wanted to think about, so I
did not pursue the inquiry any further. Last evening I was able to
give it some reflection, and I would like to ask one more question
at least.
You said in effect that the purpose of this bill would be carried out
by the purchase of bonds. Am I right in thinking that you would
contemplate having the Treasury or the Federal Eeserve Board buy
these bonds from the banks first ?
Mr. OWEN. I would buy them from the general public, preferably,
because that would expand the supply of demand bank deposits, while
buying them from the banks would not expand the demand bank deposits, because the demand bank deposits have already been expanded
by the purchase through the member banks of the bonds.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. LUCE. The bonds are now, for the greater part, in the hands of
the banks.
Mr. OWEN.

Yes.

Mr. LUCE. If you went into the market to buy them from the public, is there any assurance that you could buy them?
Mr. OWEN. NO; there is none, except the ordinary market transactions which take place daily.
Mr. LUCE. NOW
Mr. OWEN. But

this amendment offered to the committee takes up
other forms of securities which are equally available for the purpose.
Mr. LUCE. Yes.
Mr. OWEN. I did
Mr. LUCE. SO far

not intend to interrupt you. Proceed, please.
as they are bought from the banks, the net effect
would be to exchange what we call bonds or a substitute for what
we call bonds in the hands of the banks, Federal Reserve notes ?
Mr. OWEN. Well, it wTould be a credit with the Federal Reserve
bank, which could be changed to Federal Reserve notes if they
wanted them. They ordinarily would want credit, and if they had
that credit it would mean that they could make loans because they
would have the credit which they could loan on.
Mr. LUCE. NOW, what is the cause for thinking that at that stage
the Federal Reserve notes or whatever form the credit might take
would be loaned to borrowers ?
Mr. OWEN. When you adopt a policy of a rising price level, you
will encourage men to borrow and encourage men to lend; the banks
would be willing to lend to businessmen on sound security if there
were a rising market and there were a stable monetary poiicy established by the Government of the United States upon which they
could depend. Then the banks would perform their duties in lending to the business people of their community, and that wrould be a
perfectly rational and reasonable thing for them to do, because wTith
the rising market or a market which is stable, they can forecast the
future and tell whether or not they will be justified in making the
loans.
Mr. LUCE. I think now, sir, that I understand the program. But
it is hard to judge that program without some definite knowledge,
rather than impression, of whether the banks today have or have not
at hand credit with which to help industry. There seems to be a
difference of opinion about that. The general opinion is that the
banks are loaded with money which they cannot lend. On the other
hand, I gather from you
Mr. OWEN. YOU have members of your committee who know
perfectly well what the banks are doing within the inside of banks
with which they are connected, and they tell you the facts about it,
I am sure, but there is no question about the present situation. Why
should a bank lend money to men when they do not know what the
future value of property is going to be which is going to be bought
or operated in? They are unsafe. They have no dependable security. You have given them no dependable security. You have permitted a condition which has made them insecure and caused losses
in the last 20 years of 500,000 business concerns, so why should they
lend, until you establish a basis of dependable security?
Mr. LUCE. IS there any way in which we could find out whether
as a matter of fact the banks today are or are not desirous of lending money to business?




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

231

Mr. OWEN. Mr. Viner examined that for the Treasury, and he
made a report showing 1,600 cases in the banks of Chicago, for an
example, where sound loans were offered to the banks and the banks
declined them.
I think that the banks were quite right, too.
Mr. LUCE, NOW, we heard in this committee some years ago much
testimony on this matter. We heard witnesses from various parts
of the country who came here and declared that they could not borrow
money. I remember in particular the owner of a chain of stores near
Albany, N. Y., who seemed to be in a desperate plight. He could not
borrow money. Yet I think the committee reached the conclusion
that the weight of the evidence was to the effect that these people
who are so worried because they cannot borrow money cannot furnish
adequate security. Now, that thing is going on at this moment.
Mr. OWEN. NO security is adequate under these conditions of instability.
Mr. LUCE. The President has urged the Eeconstruction Finance
Corporation to interest itself in this matter, and in turn Mr. Jones
has made a most persuasive appeal to the banks to lend money.
Mr. OWEN. I think that that is perfectly absurd.
Mr. LUCE. Well, I am trying to say to you that in the past this
committee has thought that the trouble was that the complainants
were people wihout any resources.
Mr. OWEN. We come back at last to the instructions of our forefathers, written into the Constitution of the United States out of the
experience of the long past, as a result of which they have put into
the Consitution the instruction to your commitee to regulate the value
of money; in other words, to have public control over the money
supply; and the simple question is, Will you or will you not carry out
that provision of the Constitution; and if so, in what form shall you
do it most acceptably and with the greatest certainty of a happy
return from your efforts?
Mr. LUCE. Well, sir, you do not go the whole distance when you
say that we should furnish the supply. You want us to assume a
demand, a legitimate demand, and I wish there were some way to
find out if there is such a legitimate demand.
Mr. OWEN. Well, I have pointed out to you that the normal demand
in 1929 was $1,227,000,000,000 of check money. I have pointed out
to you that in 1926 the normal demand was $845,000,000,000, and since
that time we have had a natural expansion of approximately 4 percent
per annum, which would make an increase of about 50 percent and
would make the normal demand twice as great as the current use of
money in the country now.
I do not see what further testimony you need. The testimony is
overwhelming. It only requires a careful examination.
Mr. LUCE. I quite agree with your wishes in this matter, that we
should stimulate business in some way, but I still fail to know
whether it is true that a man with adequate resources cannot borrow
money today.
Mr. OWEN. This committee in 1932 considered that matter at the
bottom of the depression; they considered what was taking place at
that time, when even pocket money had bean so contracted and was
hidden and withdrawn from us that there were manufactured in this
country 2,000 different kinds of scrip money to take the place of the
hoarded pocket money of the country.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

The hoarding of money is a perfectly natural thing. The hoarding
of money has been proven beyond the possibility of a doubt, both as
to the currency and as to the demand bank deposits. There is not any
doubt about it. The evidence is overwhelming. The question is
whether those demand bank deposits which are hoarded shall be
induced to cease to be hoarded and to be turned loose to flow again as
the money of the country, and if it refuses to come out, then it is perfectly easy for the United States Government, by the buying of
sound bankable assets, to create in lieu of nonliquid securities the
liquid money with which to replace the money that has now been
hoarded and which refuses to flow.
Mr. LUCE. That is all that I have.
Mr. FORD. Might I make an observation ?
Mr. MEEKS. Will Mr. Ford yield to me a moment ?
Mr. FORD. All right.
Mr. MEEKS. I would like to follow that up right here, because it
is the logical place for me to ask, briefly, some questions.
Mr. FORD. All right.
Mr. MEEKS. Are you through, Mr. Luce ?
Mr. LUCE.

Yes.

Mr. MEEKS. NOW, Senator, you have mentioned the Viner report.
Mr. OWEN. Yes,
Mr. MEEKS. DO

sir.

you knoAv how the information was gathered that
is in the Viner report ?
Mr. OWEN. I think it was gathered directly from the individuals
who made the applications, and probably from the banks themselves,
because it was made for the purpose of ascertaining that very question,
as to whether or not borrowers who had legitimate use for money
could get it from the banks.
Mr. MEEKS. I suggest to you that I live in the seventh Federal Reserve district. That, of course, is in what we know as the Chicago
district.
Mr. OWEN. Yes.
Mr. MEEKS. And

this was the method employed, as far as I know,
and I attended one of their meetings in my town,, in Danville, 111.
There they called a meeting of the bankers of a certain area, and they
went all over that district and interrogated the bankers with respect
to their profits, and why they were not lending money. I was called
upon to make some remarks in this meeting, and you will find in
Viner's report two reasons assigned, one the fear of the banks in lending money, for they were anxious to know what the result of their
lending might be, and I think the facts clearly disclose that in order
to carry out the policy that we are discussing here, it is necessary to
have the cooperation of the Treasury, which leads through the office
of the Comptroller of the Currency, out of which proceeds an army
of examiners that go over the United States examining banks and that
pass upon credits and make reports and pass upon paper; and so I
think you will admit that that is an essential element in the procedure
along that line.
Mr. OWEN. Yes, indeed; and very interesting.
Mr. MEEKS. On the other side of this question, they interrogated a
great many customers of the banks, people who were accustomed to
borrowing money to carry on their operations, to get their story, and
you will find this in the report also, that the respective borrowers, the




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

233

men who had been in the habit of borrowing—and there was not any
question about the security—were afraid to borrow money because
they did not feel sure that they could keep it long enough to carry out
their plans.
Mr. OWEN. Exactly.
Mr. MEEKS. Are you familiar with that ?
Mr. OWEN. Yes.
Mr. MEEKS. Am I stating it correctly or not ?
Mr. OWEN. YOU are, mildly.
Mr. MEEKS. Well, I am rather mild in my ways.
Mr. OWEN. What I meant to imply was that the

honorable member
might state it with a good deal more
Mr. MEEKS. But the sum of these two things in detail was developed by that Viner inquiry made in that manner, of which I happen
to have knowledge.
Mr. OWEN. Yes.
Mr. MEEKS. NOW,

going to your theory of the matter, and I will
call it theory, because I am not an artist with words
Mr. OWEN. YOU are good on facts.
Mr. MEEKS. The cooperation of the Treasury, as I have indicated,
i? absolutely essential, is it not ?
Mr. OWEN. It is of great importance, and the Secretary of the
Treasury should also be instructed, and I believe that that amendment does provide for the cooperation of other departments—if not,
it should be required
Mr. MEEKS. At any rate
Mr. OWEN. What you said with regard to the examiners has
extraordinary force, because the examiners themselves were frightened, and they would come into a bank full of fear, and question paper
that was not unsound but which could not be immediately liquidated,
and they closed many banks that were entitled to live.
Mr. MEEKS. And which was fully paid off before the examiner got
away from the bank in many instances. I know about these things.
Mr. OWEN. And I know about these things.
Mr. MEEKS. And it is not always pleasant to sa}7 what you know.
Nevertheless, I think it is important, in view of the effort made here
to bring about a change in some of our monetary operations.
That is as much as I want to say on that, although I could say
more.
Mr. OWEN. I thank you for the interruption. I remember that
Viner report and regard it as a report of importance.
Mr. MEEKS. Let us go back to this second proposed amendment,
which you began to discuss shortly after I entered the room. Being
a lawyer by profession, I examined the amendments in a lawyer's
fashion, when it becomes his professional duty to do so.
Now, I noticed the language of the amendment to the effect that the
Federal Reserve System is made the agency of Congress, and it is
proposed that one branch of that Congress shall have the power to
bring about the discharge of members of the Board.
Mr. OWEN. Yes; one branch of Congress.
Mr. MEEKS. Not the whole Congress but only one branch of Congress.
Mr. OWEN. Yes; but it would be
Mr. MEEKS. Listen to my question, please.
Isn't that statement in that amendment, if it should be adopted, of
such a character that it would produce a great deal of controversy




234

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

hereafter with respect to the power of one branch of Congress,
whether we declare ourselves to have that power or not ?
Mr. OWEN. Are you ready for my answer ?
Mr. MEEKS. Yes.
Mr. OWEN. My answer

is that that power, exercised by the House
of Representatives, would be exercised under the authority of an act
of Congress, just as an act of Congress which authorizes the Senate
to ratify and to confirm the appointment of a member of the Board
of Governors of the Federal Reserve System. It would be an authority exercised by either House given to that House by statute of the
United States, representing the full legislative power of the United
States, and approved by the President.
Mr. MEEKS. DO you know of any decisions of the United States
Supreme Court where that has been held ?
Mr. OWEN. Such a particular matter as this has not arisen, as far
as I know, but the Constitution, which authorizes Congress to regulate the value of money, justifies the statute using the means which
have been proved to be necessary to carry out that mandate of the
Constitution, and it has been proved to be necessary to exercise power
over the members of the Board of Governors of the Federal Reserve
System.
Mr. MEEKS. While we concede that it is necessary to use that power,
my question is
Mr. OWEN. It will never be necessary to use it if you have it in the
statute. Their conduct will be so exemplary and satisfactory that
you will never have to use it.
Mr. MEEKS. My question is whether, in using the term "Congress,"
you can in the same line or paragraph authorize one branch of it to
exercise that power.
Mr. OWEN. It is my judgment, as a student of the Constitution,
that the Congress of the United States, in carrying out a mandate of
the Constitution to regulate the value of money, has a right to determine the agency through which they will exercise that duty, and to
employ all means by which to make that agency effective in carrying
out that mandate, and no court, in my judgment, would ever be found
that would question it.
Mr. MEEKS. I want to go back to the first amendment. If you have
answered this question before I 7entered the room, of course you need
not answer it again, because I w ill get the answer from the record.
It is proposed to accomplish a certain thing, namely, to employ all
of our employables, and in order to reach that result it is provided
that there shall be a percentage above which the Federal Reserve
System cannot go
Mr. OWEN. May

go.

Mr. MEEKS. And one to which it shall go.
Mr. OWEN. The one to which it shall go was the purport of the
amendment read to me. r
Mr. MEEKS. In other w ords, it must not go below 2 percent.
Mr. OWEN. The fluctuation must be within 2 percent.
Mr. MEEKS. On a scale of 100, it must be 98.
Now, do you think there is any doubt about the possibility of reaching 98 percent employment in this country ?
Mr. OWEN. It is not the point to reach 98 percent of employment.
The point is to reach a level of prices which can be maintained within
2 percent.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

235

Mr. MEEKS. But with that objective ?
Mr. OWEN. YOU do not have to have 98 percent employed.
Mr. MEEKS. All right. There may be a little difference of opinion
in the interpretation of the language used, but the purpose of the
question is this, and I will illustrate it.
About 2 years ago I had a conversation with a very important industrialist of the country about some of our legislation. He made
this startling statement to me, that in his opinion there would alwTays be some 12 million to 15 million of the people in this country unemployed—and I mean employable people. I asked him why that
was true, and he explained that it was because of the advancement
in methods, improvements, and so on, that because of that it was impossible to keep them employed, and I asked him what should be done
with the rest of them, and he said, "That is where we would go to
get our labor."
Mr. OWEN. Yes, indeed; where you can go to get it cheap; keep
12 million men unemployed in order to get labor cheap.
Mr. MEEKS. Then I asked him if he thought the American people
would stand for that, and he said they would have to.
Now, to pass from that, do you think that the figures mentioned in
this proposed amendment are possible of attainment?
Mr. OWEN. Absolutely.
Mr. MEEKS. The importance of that is this, that if it is not possible
of attainment, then men should not be removed for doing something
which it is impossible for them to do.
Mr. OWEN. YOU will find that possibility demonstrated in the experience of other countries, where this system is being employed now
in expanding the amount of money sufficiently to exchange goods and
services and in raising the rate of employment, and what is more
important than that, I put in this record a statement of the Midland
and London City Bank on this matter, and more important in achieving the high standard of living for all the people, and achieving the
maximum employment, is the index of physical production, which
under managed currency in Great Britain in 6 years has has increased
50 percent, and in the United States, from March, April, and May
1937 the index of industrial production has fallen 43 points, fn>in
122 to 79.
Mr. TRANSUE. YOU mean 1938.
Mr. OWEN. I mean from 1937 to the present, in 1938 it has fallen,
from March, April, and May 1937, from 122 to 79 in March 1938,
which shows you what the effect is on employment when you have a
destruction of the money supply and a hoarding of money in this
country by anybody for whatever reason.
1 am pointing out the physical facts. Here is a contraction in the
index of industrial production from 122 to 79, and remember that
the index of industrial production was 100 as of the average of 1923
to 1925, and ought to have increased 4 percent per annum by virtue
of our technological improvements, our mass production, our increase of horsepower in machinery, our increase of electric power
throughout this country, which has increased hundreds of percent
since that time, and we ought to have had an increase of at least 4
percent compounded, and instead of that being 100 inT 1937, or 122
in March, it should have been at least 175, and now w e have got it
at 79. We have it at about one-half of what it ought to be.




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GOVERNMENT OWNERSHIP 01? FEDERAL RESERVE BANKS

I am calling your attention to these facts which I have already
put into the record, because they are very important in dealing with
this question of employment.
Our real objective is to give every man and woman in this country
an opportunity to earn his or her daily bread, by having the opportunity to be employed in profitable or reasonably profitable labor.
That is the objective, and there can be no harm in trying to reach
that objective when every other proposed remedy has failed and when
those who are advising you to the contrary now have had charge of
this Government and have brought upon us one calamity after another in 20 years.
Mr. MEEKS. Are you through with that statement ?
Mr. OWEN. Yes.
Mr. MEEKS. In your view, it at least cannot do harm?
Mr. OWEN. NO ; it cannot do harm.
Mr. MEEKS. NOW, are the questions that I put to you,

in your
opinion, pertinent to what you consider the issue?
Mr. OWEN. Very pertinent, indeed, and they are very useful, indeed.
They point out the difficulty at the root.
Mr. GOLDSBOROUGH. Are there any other questions, gentlemen?
Mr. WILLIAMS. I have quite a number of questions, but there is
not time for me to ask them now.
Mr. PATMAN. Senator, could you conveniently come back tomorrow ?
Mr. OWEN. Yes; I would be glad to come.
Mr. PATMAN. We appreciate your patience.
Mr. OWEN. It is not patience with me. I am deeply interested
in this matter, in achieving the highest standard of living for all
of our people, and I know that you cannot do it if you allowT the
lii'eblood of commerce to be the object of merchandising or speculation which can from time to time congeal it, and I am profoundly
convinced of the value of the instruction in the Constitution to Congress, that Congress shall regulate the value of money.
Mr. PATMAN. It will be all right for you to ask your questions
tomorrow morning, Mr. Williams?
Mr. WILLIAMS. Yes.
Mr. GOLDSBOROUGH.

Then, we will adjourn until half past 10
tomorrow.
(Thereupon, at 12:10 p. m., an adjournment was taken until
Thursday morning, March 24, 1938, at 10: 30 o'clock.)




(JOVEKNMENT

OWNEKSHIP OF THE 12 FEDEBAL
EESERVE BANKS

THURSDAY, MABCH 24, 1938
HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

W ashing ton, I). C.
The committee met at 10: 30 a. m., Hon. T. Alan Goldsborough presiding. Other members of. the committee present: Mr. Rsilly, Mr.
Williams, Mr. Spence, Mr. Farley, Mr. Ford, Mr. Brown, Mr. Patman, Mr. Transue, Mr. Barry, and Mr. Luce.
Mr. GOLDSBOROUGH. The committee will please come to order.
At the close of the hearing yesterday Mr. Williams indicated that
he desired to ask Senator Owen some questions. You may proceed,
Mr. Williams.
Mr. WILLIAMS. I have not any desire to prolong the hearings. I,
for one, have listened with a great deal of interest, and I hope with
some profit, to the very able discussion you have given us here in
the last several days, Senator Owen.
In the course of your remarks, Senator, it seems to me you have
put down a rather severe indictment of the Federal Reserve Board,
not only the present but past boards, and you seem to have reflected
somewhat on the intelligence of this committee. Understand, I am
not complaining of that.
If these problems were as clear, simple, and plain to the members
of the committee as they appear to be to you, and if we had that
understanding of them and were as convinced and positive of the
effect of this legislation, I am very frank to sa}' we would be derelict
in our duty, and even unworthy of the positions we hold, if we did
not enact this legislation immediately.
Of course, the trouble is we have not been able to see it that way.
I do not know whether we ever will or not.
There is one thing that disturbs me. From what I have read and
from my little association with some of what might be called the
orthodox economists of the country, the men who represent what we
might call the school teachers and representatives of the colleges
who are teaching economics and finance, and from my knowledge,
I think there are a great many different schools of thought on this
subject, and they do not agree with the idea that you present.
On the other hand, when we get into the field of every day, hardheaded, practical businessmen and bankers, and, so far as I can find
out, those who have had the management of our Federal Rsserve
System since its inception 25 years ago, they do not seem to entertain
those ideas.
In view of that, my limited vision is rather confused, and for that
reason it is not difficult for me to understand and appreciate the clif69972—38

16




237

238

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

ferent ideas and the different views that are extent on the subject.
I am not sure that I understand your position, Senator, and it was
for that reason that I wanted to ask you a few short, plain questions,
if I may, with reference to some of those matters.
In the first place, do I understand that it is your position that the
Federal Reserve Board—and I am speaking of the Board of Governors of the Federal Reserve System under our present law—that
they have all the power they need in order to reach the objective that
you think should be reached to bring about stabilized conditions, not
only in prices, but also along the line of production, trade, and employment. Do you think that they have all the powers now that
are needed?
STATEMENT OF HON. ROBERT L. OWEN—Resumed
Mr. OWEN. In reply to the question as to whether or not the Federal Reserve Board has all the powers it needs to regulate the value
of money, I would reply that the powers given to the Federal Reserve
Board to exercise supervisory control, to determine wTho the presidents of the banks should be, having a veto power on that, and that
they should have the right to buy and sell bonds as a means of expanding and contracting the volume of credit, are' very important
powers.
But they are handicapped by the influence of the directors controlling the Federal Reserve banks, who are chosen to represent a few
of our bankers, for whom I have a great respect, but they entertain
the view which leads them to approve what banks do and have done
in expanding credit too ouch and in contracting credit too much.
They reflect the interest of their group, which is adverse to the public
interest, as demonstrated by the repeated effects of undue expansion
and undue contraction, sometimes called inflation and deflation.
They have not the power which they ought to have, because they
should absolutely control the instrumentalities by which to regulate
the value of money.
That is a governmental function, in my judgment, charged as a
duty upon the Congress by the Constitution. That is not a question
of debate with me; it is a question of obedience or disobedience, and
the instrumentality should be sufficient to enable the Congress to
obey the mandate of the Constitution.
Therefore, I favor as a part of that instrumentality the taking over
of the Reserve banks, so that the United States can control its monetary operations. It has certain banking operations, acting as a great
clearing house for all of the banks of the country—a very useful
service.
As far as my view is concerned, I should have no objection to the
banks having three of the nine directors, so that they might be heard
with regard to matters which relate to the banking elements in the
Federal Reserve banks, which operate as clearing houses for all banks.
But I do. not think the open-market committee, with the technical
restrictions which have been placed around it, should be permitted
to continue. The open-market provision and the open-market regulations are a means of preventing the free exercise of the powers necessary to regulate the value of money.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

239

Moreover, the influence of the 12 members of the Federal Reserve
Advisory Council has been used over and over again against tbe
public interest.
I do not mean that they are guilty of conscious wrong, nor have I
intended to convey the impression by what I have said that the Federal Reserve Board has been guilty of conscious wrong.
They have accepted a theory of contraction, and what they did
justified what the operators in the stock exchanges did, as a consequence of which the country is the victim.
Those are the points that I made. I have not intended to go further
than to repeat the views which are of record and call attention io
them, with the natural consequences which ensue from such action
and such a declaration of policy.
I have felt rather conscious of having been perhaps called to the
stand too frequently, for fear that I might w^ear out the patience of
the members of the committee. But I have not intentionally been
responsible for that. I have been invited to come, and this is the
seventh time I have appeared before the committee. In every instance it has been upon the invitation of the members of the committee or the chairman of the committee that I have appeared.
Now, the record on all of these matters is very complete and very
abundant. The argument has been finished. There is no need for any
further argumentation, because every side has been heard.
When this matter came up in 1932, it w^as heard on both sides.
In favor of governmental control and carrying out of the constitutional provision there appeared representatives of the National
Farmers Cooperative and Educational Union, represented by John
Simpson; the National Grange, represented by Mr. Taber and others.
The National Federation of Farm Bureaus appeared, being represented by Mr. O'Neal and others. The American Federation of
Labor appeared, represented, I think, by Mr. Husing. I could enumerate many other expert students and thinkers wTho supported the
view of the House of Representatives on this question of public control, included in the hearings of 1932, 1935—in the House and Senate—and in 1937 before the Committee on Agriculture of the Senate
on farm commodity prices, and the report of that committee on this
subject matter. In Mr. John D. Miller's testimony at the latter hearings he strongly endorsed public control and obedience to the Constitution. He represents 4,000 farm organizations with 1,200,000
dues-paying members. They had experts studying this matter for
several years. He quoted many of the highest authorities in the
world. I have not been voicing merely a personal view of my own,
but the best-informed opinion in the world.
In 1896 George Shibley wrote a splendid book, Honest Money. A
discussion of honest money and stable money has been going on actively for over half a century. Ten thousand pages of testimony are
before Members of Congress on this question. My personal views
are of no importance whatever. It is a question of obedience to
the Constitution and public control of our money supply upon which
the stability of national business depends. It comes down to the
simple question, Shall we have public control or shall we not have it ?
A number of other experts appeared, all of them asking that the
Constitution be carried out, and the committee, I believe, by practically a unanimous vote, recommended that the purchasing power




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

of the dollar should be restored to the predepression level and maintained at that point, and instructed the Secretary of the Treasury
and the Federal Keserve Board and the banks to make effective that
policy.
But those who were in official positions derided that suggestion
and said it could not be done, while in 1928 a hundred of the leading
businessmen of Great Britain met together and considered these questions and made a demand on the British Government that the British
Government do this very thing, that is, create and regulate the value
of money. By 1932 they put it into effect, and it has worked very
well, and causes us to believe, therefore, that a similar policy in our
country would be followed by similar consequences.
Mr. FOED. In the event that the Congress would do anything of
that kind, the reverse condition would exist, and instead of businessmen coming in and asking that be done, they would be here with a
mass of propaganda against its being done.
To my mind, it is useless to make comparisons between England
and the United States for that reason. They work differently, and
they operate differently.
Mr. WILLIAMS. Let me get back to my question, Senator. I still
am not quite sure whether you think the Federal Reserve Board
should have any additional powers.
Mr. OWEN. Yes.
Mr. WILLIAMS. Let

me ask you if they do not have all the powers
that have been enumerated by you as it is now, and where they have
fallen down, according to your view, is that they have been unduly
influenced by some outsider persons.
Mr. OWEN. All human beings, I think, are influenced by argumentation made to them. I do not think that they are any exception to
the rule, but I think it is perfectly obvious that they have been influenced by forces representing the banks of the country.
Mr. WILLIAMS. They have the right now, of course, to buy and sell
in the open market ?
Mr. OWEN. Yes, they have, but they have the right to do it only
under the restrictions of the so-called open-market provision.
Mr. WILLIAMS. Yes; under the restrictions and under the direction
of the open-market committee.
Mr. OWEN. Yes.
Mr. WILLIAMS. They can do that ?
Mr. OWEN. Yes; and if you will examine

those regulations carefully
you will find that they are such as to permit action along the lines
which have been suggested of expanding credit.
Mr. WILLIAMS. Who made the rules and regulations ?
Mr. OWEN. They are made by the open-market committee.
Mr. WILLIAMS. Of course, theoretically at least, they are made by
the Board; that is the theory of it, at any rate ?
Mr. OWEN. The open-market committee has consisted for some time,
until just a few days ago, of five members chosen by the banks and five
members of the Federal Reserve Board.
Dealing with thepoint you mentioned, as to their power, they have
power enough, I think—I know they have power enough, if they had
exercised it, to have prevented this depression.
Mr. WILLIAMS. That is exactly what I want to get at. In your
judgment, the power is sufficient?




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

241

Mr. OWEN. I say it is not sufficient.
Mr. WILLIAMS. I understood you to just say you thought they did
have the power, if they would use it.
Mr. OWEN. If they would exercise the power they have, and independently of interference with them, they might accomplish it, but
they should have enough power to make them exclusively responsible
to the Congress and not to the banks.
Mr. WILLIAMS. What I am trying to find out from you, Senator—
and trying to find out for the benefit of myself and the other members
of this committee—is this: If they do not have the necessary powers,
we want to try to give them those powers. In all earnestness that is
exactly what I want to find out.
Mr. OWEN. I am urging that they be given absolute power over the
Federal Reserve banks because of the ownership by the United States
of those banks as an instrumentality of our monetary policy.
I favor expanding the Federal Reserve Board to make it reflect
more fully the opinions of the whole country. I favor putting the
Federal Reserve Board under the instructions of the Congress of the
United States, as an agency of the Congress. At the present time
that is not operating as a policy.
Mr. WILLIAMS. That, however, does not add anything to their powers; that simply gives them a mandate as to what we think they
should do.
Mr. OWEN. It is of supreme importance in regard to their powers,
because it makes them an agency of the Congress, where the power
really is to be exercised, if the provisions of the Constitution are to be
carried out.
Mr. WILLIAMS. I understand; it is a mandate from the Congress to
tell them what we think they ought to do.
Mr. OWEN. What you know they ought to do.
Mr. WILLIAMS. But it does not give them any additional powers ?
Mr. OWEN. Oh, yes; it does.
Mr. WILLIAMS. I do not see where it gives them any additional
powers; it is simply telling them to exercise the powers they already
have.
Mr. OWEN. It gives them directions by Congress as to what to do.
That is, it is a power moving from the Congress to control their
actions, and therefore it is a power of supreme importance, both politically, socially, and financially.
Mr. WILLIAMS. I do not concede that the mandate from Congress,
or directions from them, gives the Board any additional powers. It is
simply a matter of direction to use their powers they have in order
to accomplish the purposes that we think they ought to accomplish.
And if they have not the power to do that as they are now constituted
under the law, of course, we ought to give them additional powers.
But if they do have that power already, then the direction by Congress to exercise those powers to accomplish certain purposes, to my
mind, is another matter.
But let us get back to the question of the ownership by the Government of the Federal Reserve banks.
What governmental function, or what functions, do the Federal
Reserve banks now, of themselves, exercise, so far as it affects the
expansion or contraction of credit, so far as the monetary policy of
the country is concerned ?




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. OWEN. The Federal Reserve banks were established in the
beginning as a means of regulating the value of money, and it was
intended to have its powers used for the benefit of industry and commerce, according to the terms of the act.
That phrase was adopted in lieu of the more precise phrase "to
promote a stable price level." They were supposed to be identical
in meaning, but they were not given the same meaning, because the
judgment of the Federal Reserve Board was that it was not for that
purpose, and they caused a panic in 1921 by contracting credit currency to the extent of over $6,000,000,000.
That took place, and the standard set was so obscure that you would
have difficulty in holding the members of the Federal Reserve Board
responsible for what they did.
But they were under the influence at that time of 35 class A directors, representing the bankers, and of 12 Federal Reserve Board advisory counselors who were urging upon the Board this policy; and
the Board, surrounded by those influences, who assured them that
it was necessary to quickly liquidate the effect of the war, accepted
that policy, with the effect of throwing some millions of people out
of employment and causing a contraction in the production of services
for 1931 alone amounting to some $15,000,000,000.
Now, the Federal Reserve banks, therefore, comprise the most important agency for regulating the value of money.
Mr. WILLIAMS. But they do that, do they not, Senator—or do
they?
Mr. OWEN. They do not.
Mr. WILLIAMS. I have not finished my question.
Mr. OWEN. They deregulate it.
Mr. WILLIAMS. I have not finished my question. They do that
to the extent that they do operate under the direction of the Federal
Reserve Board.
Mr. OWEN. NO.

Mr. WILLIAMS. IS not that the theory of it?
Mr. OWEN. It may be; it depends upon whose theory it is.
Mr. WILLIAMS. Was not that the intention?
Mr. OWEN. The theory of the law was that the Federal Reserve
Board should regulate the value of money.
Mr. WILLIAMS. That is what I mean; the banks are simply an
agency for that purpose.
Mr. OWEN. They have completely diverted from that. In 1932 and
1933, and in 1937 in nearly every instance, they pursued a policy that
contributed to the contrary.
Mr. WILLIAMS. They did that with the consent of the Federal Reserve Board.
Mr. OWEN. I do not think they asked the Federal Reserve Board
anything about it.
Mr. WILLIAMS. What means has the Federal Reserve Board, or the
central bpnkinr systr^i, ui^der t1 e law now, to create money, and to
regulate the value of it, and determine the credit or currency policy
of the country ?
Mr. OWEN. The most powerful agency is the buying and selling
of bonds.
Mr. WILLIAMS. That is one.
Mr. OWEN. That is one. They have also the right to pass upon the
margins of stocks bought in the stock exchanges, another quite im-




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

243

portant regulatory operation. They have the right of control over
the discount rate.
Mr. WILLIAMS. That is three.
Mr. OWEN. They have various other relationships with the reserve
banks, which are not only
Mr. WILLIAMS (interposing). There is the one that gives them the
right
Mr. OWEN (interposing). But they have failed to perform their
duty, in my opinion, and I have pointed that out without any unkind
criticism. I have not been disposed to deal in any unkind criticism,
although I have deplored what I think was their lack of understanding and lack of vision.
Mr. WILLIAMS. They have also power over reserves, within certain
limitations.
Mr. OWEN. They have raised them to the maximum which the law
permits.
My own opinion would be that they should have the power to raise
the reserves up to 100 percent, and, if necessary, of creating the money
necessary to provide that money in the Federal Reserve banks in order
to have a 100-percent reserve for the member banks. It would not
cost the member banks anything at all.
The United States would be creating money and putting it into
the Reserve banks to have 100 percent of reserves against its demand
deposits of the bank. And in addition to that, I think the United
States should provide other money which might be required by the
United States until we reach the point of maximum employment.
Mr. WILLIAMS. The Federal Reserve Board has all the powers
enumerated for the purpose of regulating and controlling the credit
policy.
Mr. OWEN. I have enumerated some of the powers, but the powers
which I think they ought to have, I have recited.
Mr. WILLIAMS. They carry out those policies through the Federal
Reserve banks; the banks are simply the agency of the Board.
Mr. OWEN. I do not think the Federal Reserve banks pay very
much attention to the monetary policies of the Federal Reserve Board,,
because I do not believe the Board ever shows any monetary policy.
They have no monetary policy.
Mr. WILLIAMS. Then it is just purely a question of policy on the
part of the Board, or a difference of opinion as to what that policy
should be?
Mr. OWEN. Yes. You have delegated your power to the Federal
Reserve Board, and the Reserve Board has no policy, and you are
responsible for it, in my opinion. I say that with the greatest respect,
but I say it because it is the truth.
Mr. WILLIAMS. Has the Federal Reserve Board, any Federal Reserve Board since the institution of the Federal Reserve System, ever
had any policy?
Mr. OWEN. They were supposed to have had a policy of protecting
industry and commerce, but that was not defined clearly enough.
You could not hold them to be responsible, because that was obscure.
Mr. WILLIAMS. Has there ever been a board, according to your
view, that has exercised its powers in the right direction, to accommodate commerce, trade, industry, and agriculture ?
Mr. OWEN. The intimation which the honorable Member makes
that I regard the Board as having been defective from the very be-




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

ginning, I do not believe is justified, because until 1921 I had no
occasion to complain against the policies of the Board.
In 1921, or in 1919 and 1920,1 did, and I complained loudly on thei
floor of the Senate against the policy of contraction which they were
putting on, attempting to liquidate the debts created by the war within a sudden, short period of time, which would necessarily mean
bankruptcy.
Nine times on the floor of the Senate between January and June
1920, I raised my protest against that, and I have put in the record,
and I sent to you a book showing how this change of policy took
place under the conservative members of the Federal Reserve Board,
in which Mr. Paul Warburg told how it came about. I gave that
quotation in the book I sent to you, on January 7, 1937.
And to say that I never thought that the Board was doing its
dutv at anv time is to put me in the attitude of just being a general
croaker, setting myself up as a standard for everybody to bow down
to.
T came before the committee simply as an humble citizen of the
United States making no pretense of any kind, but having studied
the matter carefully and extensively because of my deep interest in
it, I have not been willing to be unkind to other men, or be severe
in my judgment of them. I have been only trying to help them.
Mr. WILLIAMS. Let me make this observation. If you got the
impression that I was attempting to be critical of you, I had no such
intention.
Mr. OWEN. Then I wTill withdraw my comment.
Mr. WILLIAMS. YOU, of course, have a different view, as I understand it, from the policy exercised by the different Federal Reserve
boards ?
Mr. OWEN. Since 1919.
Mr. WILLIAMS. Since that time, in your view of it, they have not
performed what you think is their duty, or have been mistaken in
the1'v jn dgment ?
Mr. OWEN. I have in detail made my comments upon the matter,
and I am not prepared to agree broadly that they have at no time
discharged their functions satisfactorily. I think they have at times
done so. I think during the period when Benjamin Strong was in
the office of Governor of the Federal Reserve Bank of New York he
exercised a very potent, beneficial influence, up to 1928,1 think it was,
when he died.
They realized at that time the importance of attempting to stabilize credit, and T think it was fairly well stabilized in the wholesale
commodity markets at that time.
But in 1927 there grew up a tendency to expand credit unduly, in
the speculation in or purchasing of stocks and bonds in the stock
markets, or so-called security exchanges all over the country.
Thev began to expand credit to the point where it was dangerous,
and which caused the reaction in 1929. That Board was unwise m
its attitude at that time and I tried my best to be heard. I requested
them to give me a hearing, but I was refused. And I did not make
it my business to go around damning them because I failed in my
effort to make them take a proper course.
Mr. WILLIAMS. Briefly, Senator, what do you think they should
have done during that period of 1928 and 1929 ?




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

245

Mr. OWEN. In 1928 and 1929 they should have expanded credit to
the businessmen of the country and used their influence to prevent
loans based upon the stocks and securities in which speculation was
obviously taking place.
Instead of that, they raised the rate steadily on the people who
were transacting the business of the country, and thereby had the
effect of depriving the people of producing value while they were
allowing the call money rate to go up to 8, 10,15, and 20 percent, and
thus starving business people of credit.
So, on the floor of the Senate I urged them to do that in 1920. I
urged them to do it in 1919, because when they allow the rate of
interest to be raised to a very high point in the security exchanges
they attract money from all over the country, and from all over the
world for speculation in stocks, and they withdraw that money from
the little home people who have deposited that money, who have
created that money at home, to the injury of the little people athome, and finally, to the ruin of maney of the big people.
It is a great mistake to think that the big people are all successful.
It is only the most powerful, the most sagacious, of them that are.
Mr. WILLIAMS. Could they have hampered loans for business purposes or for speculation purposes?
Mr. OWEN. They could have used their influence to prevent those
loans, and to correct the high rate of interest on call money. I call
attention to the fact that that still can be done without any interference of law.
I think Congress should pass a provision forbidding any rate of
interest on call money exceeding 4 percent. In that way that call
money would not drain the country banks and country people of
money to which they are entitled.
I have begged for that for many years, and I again pray for it novr
as one of the things this committee should do.
Mr. WILLIAMS. Was there anything done by the Federal Reserve
Board during this period, say, from 1923 to 1929, with reference to
stabilizing prices and employment?
Mr. OWEN. They raised the rate of interest on business credit.
They did not cut down the high rate of interest on call money; they
did not use their power to do it, and thereby they contributed to that
situation.
Mr. WILLIAMS. I am simply asking whether that extended over
that entire period?
Mr. OWEN. They never exercised any control whatever over the
call market; they allowed that to take its own course.
Mr. WILLIAMS. Did they take any action intended in any way to
influence the financial, industrial, and commercial conditions of the
country at that time, any more than just performing their ordinary
functions ?
Mr. OWEN. At one time they lowered the rate, thereby stimulating
activity and allowed 500 million dollars of gold to go to Europe
without replacing it.
But the effect of those few years preceding was influenced by the
fact that the call rate did steadily rise and that the Federal Reserve
Board. I think it was in 1928, three times raised the rate of interest
to the businessmen of the country, and finally raised it to 6 percent,
which means a prohibition on the member banks lending money,




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

because it costs $1.30 per $100 on an average for banks to handle loans,
and if they had to pay 6 percent to the Reserve banks for it then
they would have to get 7.30 percent in order to keep from losing
money, without any gain at all. Under those conditions, of course,
the banks of the country found themselves in a position where it was
not convenient to extend loans, and the effect of the depression in
1929 was that the loans of member banks which had been made to
the business men of the country wrere contracted $20,000,000,000 between then and 1934, and that never has been replaced.
Mr. WILLIAMS. We had a fairly stable price level during that
period, did we not?
Mr. OWEN. It was not very stable. It went to 95 in 1929, and it
could have been kept at 100, if anybody had been charged wTith the
duty of doing it.
Mr. WILLIAMS. The period from 1923 to 1929 is generally taken
as a standard, is it not?
Mr. OWEN. The price level in 1926 was 100, and it went to a safe
point. It was not absolutely stable, and in 1929 it was 95 for that
year. But it was comparatively stable, and the country had reason
to be thankful for that.
Mr. WILLIAMS. DO you believe, Senator, that there are many other
factors that enter into the price level, outside of the volume and
velocity of money?
Mr. OWEN. Yes; there are many other factors, in number.
If you take the price of copper, and allow a monopoly to run the
price of copper up, as it did in 1936 and 1937 from 9 cents a pound
up to 17 cents a pound, it has a tendency to obstruct the building
industry. The same thing is true with regard to lead and other
products which are affected by monopoly prices.
So monopolies do exercise some harmful influence where they are
unrestrained.
But that is another story and does not explain what took place on
the 23d of October 1929, when within 6 weeks $6,000,000,000 of credit
was contracted, and a $30,000,000,000 loss in the security exchanges
took place. During that 6 weeks there was no particular change in
the attitude of the monopolies.
Mr. WILLIAMS. SO monopolistic influence is one of the things that
affects prices?
Mr. OWEN. Yes; and those who are representing the Federal Reserve Board and the Treasury Department have been expounding
very much on that, which is not important, comparatively.
A report made by Mr. Morgenthau on the 27th of February 1937,
called attention to the various things which affect our economic life.
There are various things which affect our economic life, such as
taxation, labor, drought, and the threats of war, and this, that and
the other. But there is one thing; which is important to be recalled,
if you have any stability in this country, and that thins: is being
overlooked in these statements by the Federal Reserve Board authorities and by the authorities in the Treasury Department, and they
are emphasizing such matters as that to which you now refer.
Mr. WILLIAMS. What influence, in vour view, have our reciprocal
trade agreements had on prices; in other words, the tariff policy?
Mr. OWEN. I will say this, Mr. Williams, that if you will examine
the table which I submitted for the record during my testimony here,
the table which I put in the book which I sent to you on the 7th of




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

247

January 1937, at page 63 you will find that when the check money
of the United States contracted two-thirds, from 1,227 billion dollars
to 430 billion dollars, our exports fell correspondingly two-thirds,
and our imports fell correspondingly two-thirds. That is my answer.
Mr. WILLIAMS. DO you think that the legislation which we have
been following here for the last 2 years to control production, especially as applied to agriculture, has had any influence on prices; that
is, the legislation of the last 2 years ?
Mr. OWEN. Yes; it has had some effect.
Mr. WILLIAMS. The policy of trying to control production and
adjust it to consumption, as far as agriculture is concerned?
Mr. OWEN. Yes; but it is putting the cart before the horse.
You cannot regulate the value of agricultural products by these
palliative means with any great degree of certainty until you shall
have removed the colossal cause of the destruction of the values of
agriculture.
When that drastic contraction of credit and currency took place
under the Federal Reserve Board in their meeting of May 18, 1920,
the value of farm commodities, as a class, fell over 50 percent within
a single year, and the value of farm lands, which had been increased
in value very much by the operations of the war, shrunk from about
$78,000,000,000 down to about $57,000,000,000, approximately a
shrinkage of about $20,000,000,000, under the same effects of the contraction of currency and credit, under the policy put over by the
Federal Reserve Board and the class A directors and the Federal
Reserve Advisory Council, and the same thing was repeated again
when they permitted the panic of 1929 and 1932 to take place and did
not correct it. They could have corrected it if they had been wisely
administering the law.
Mr. WILLIAMS. Did I understand you correctly to say yesterday
that you thought that the Federal Reserve Board, by the very exercise of their powers, could maintain the price level at the 1926 standard, or within 1 percent of it?
Mr. OWEN. Yes; if they w^ere given the power I am suggesting
they get.
Mr. WILLIAMS. Has there ever been anv other nation that did
that?
Mr. OWEN. Yes. It is being done by Sweden now. And I put in
the record a few days ago the price levels of the leading nations of
the world, showing that all of them now are looking to the price
level as a most important guide in their economic and monetary
policy.
You will see in that table the extent to which prices have already
been stabilized in various countries.
Mr. WILLIAMS. I have not seen your table, but I do not get that
impression from the table I have here, Senator.
Mr. OWEN. I am not informed as to what statement you have.
Mr. WILLIAMS. I have in front of me the last Federal Reserve
bulletin, and I have also a special dispatch to the New York Times
from London, dated March 12 of this year, which is the most recent
thing I have seen.
That show^s that there was a fluctuation in general wholesale prices
in Great Britain from a low in 1933 to a high in September 1937
of 28 points.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. OWEN. Quite right, and that is what we ought to do here.
Mr. WILLIAMS. And it also shows a reduction in prices at other
times, a fluctuation varying from 112 down to 83.
Mr. OWEN. From 83 up to 112, was it not?
Mr. WILLIAMS. Yes; but on the other hand, it was 112 last September, and it is 105 now.
Mr. OWEN. Yes. It was a class of management by consent. What
they did was to adopt a policy of cooperation between the banks,
including the Bank of England and the Government of England
to attempt to furnish the money necessary to the people to exchange
their products and services. So they expanded the money supply,
and when they did that they increased their physical production by
50 percent, thereby exercising a dominating power in the price level.
It should have reduced the price level substantially, except for the
corresponding increase in the money supply at the same time, and
that money supply was continuously increased until the physical
production increased 50 percent, but along with it came a rising
price level, and along with the rising price level came the reemployment of over 2,000,000 people who previously were out of work and
on public relief.
So that so-called fluctuation from 85 up to normal, and then the
rise above normal to 112 has been accompanied in Great Britain by
great prosperity.
I do not know to what extent that price level may have been
affected by the unhappy conditions which then existed in the very
closely allied financial system of France. France has had a shrinkage in the value of the franc of nearly 50 percent during the last 18
months, and France is doing the same thing. It is expanding, it is
trying to increase its industrial activity by expanding the volume
of francs and diminishing the value of the franc.
Mr. WILLIAMS. I noticed from the bulletin I have here from the
Department of Labor with reference to Sweden, that in 1926 the
price level was 149, and in 1933 it dropped to 107. There is a drop
of 42 points under their system.
Mr. PATMAN. Over what period?
Mr. WILLIAMS. From 1926 to 1933.
I have taken occasion to compare a great many figures from the
different countries, and I find there is a remarkable similarity among
all of them. I think, without exception, from those I have examined,
taking 1926 as the standard, either in 1932 or 1933 they had all
dropped just like the United States did, and at about the same rate.
Mr. OWEN. I have explained that on various occasions, and I will
be glad to explain it again.
Mr. WILLIAMS. The point I had in mind is this, that in those countries where they are attempting to stabilize the price levels they have
not done so anv more than we have here.
Mr. OWEN. May I now answer?
Mr. WILLIAMS Yes.
Mr. OWEN. When under

our system we reduced the purchasing
power of the dollar to 60 in Mav 1920, and then, by contraction, raised
the purchasing power of the dollar—that is, the gold dollar—up to
167 by February 1933, that had the effect of reducing the value of
commodities correspondingly, not only in our own country, where
the commodity index went down to 59, but we had that effect all over




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

249

the world, because all these nations in the world had been taught to
regard gold as the only measure of stability in the world.
It never occurred to them that the purchasing power of gold could
fluctuate, as we know it did.
When we caused that to happen, we interfered with the stability
of the index in Sweden just as we did in Wisconsin or in Missouri.
There was that effect all over the world. Practically, we bankrupted
the world, and we justified the nations of Europe in postponing the
settlement of their debts to us, and we justified the South American
republics in withholding the servicing of their bonds which they had
sold to the people of the United States; and now, after that effect
had taken place and we forced all the nations of the world to drop
the gold standard in 1931 and 1932, they had to go to another standard, leaving gold only to be employed as a medium of international
exchange, and no longer employed by any nations in the world as
domestic currency.
The figures you have been examining, of course, have been profoundly affected by what I am calling your attention to, and now we
are looking forward to stability, and stability is possible, but these
other nations have each their own particular laws, and they are looking more to the employment of the people than they are to the mere
stability of the figures on the index of the purchasing power of the
dollar, or the all-commodity index.
They are thinking in terms of employment, just as Hitler says that,
so far as Germany is concerned, work is everything in Germany.
That is what Hitler says. He does not care so much about stable
price levels as he does about the stability of employment and the activity of people producing things that the people want; yet the
German price level lias remained stable and averaged 106 for the year
1937, never going more than one point above or below this. The price
level of Switzerland and the Netherlands was stable. The fluctuation in the English price level was 103 in January 1937 and 108 in
December 1937, on a policy of raising the price level.
That is why I was pleased with the amendment offered a day or
two ago here, which, while it went back to the 1926 price level, still
permitted the price level to go above par, if necessary, to employ all
people able and willing to work.
Mr. WILLIAMS. Right in that connection, as I understand you, it
has been your position that by raising the price level and maintaining
it at a stable point, that would mean employment, that they go along
hand in hand.
Mr. OWEN. Yes, surely; there is no doubt about that.
Mr. WILLIAMS. IS there any difference in the situation here and
in other countries in that respect ?
Mr. OWEN. I do not feel qualified to pass upon the affairs of other
countries in the world. It is difficult to pass upon the affairs in our
own country.
I find myself in great difficulty in satisfying those to whom I am
appealing about this matter because of the difference of opinion at
home.
If we go abroad we certainly will get into further difficulties, which
will not serve any useful purpose.
Mr. WILLIAMS. The reason I asked that question is because the
situation in other countries has been referred to here, and I understood you to refer to Sweden.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. OWEN. Yes; it has comparative stability now.
Mr. WILLIAMS. I was wondering whether conditions there
Mr. OWEN (interposing). The figures ought to show that there is
comparative stability in Sweden.
Mr. WILLIAMS. Whether or not there is some relationship in those
countries between the price level and employment, as there is here—
that is what I had in mind.
Mr. GOLDSBOROUGH. Mr. Williams has referred specifically to the
condition in Sweden and the drop between 1926 and 1933. I think
that is what he is directing your attention to and upon which he is
asking your comment.
Mr. WILLIAMS. Yes; and the relationship between those things. If
I am in error about my understanding, that is another thing.
I have understood that the argument here has been all along that
there was a very close relationship between the price level and employment. Am I right in that assumption ?
Mr. OWEN. YOU are right in the assumption that in the recent falling of the price level that we have had in this country that there has
been a corresponding fall in factory employment and factory wages.
There is a fixed relationship which is shown, month by month and
year by year, and the tables have been put in these hearings.
Mr. WILLIAMS. The question I asked a while ago, and about which
I am very serious, is whether or not the same relationship exists, say,
in England.
Mr. OWEN. I should say it would be approximately the same.
That would be my inference, but my knowledge of the internal conditions in England is not expert and I am not really qualified to
discuss in accurate detail the affairs of England.
I am only justified in my opinion by the opinion of Sir Eeginald
McKenna and Lord D'Abernan and many other men who have given
their testimony in regard to this matter. They were quoted by Mr.
John D. Miller in his appearance before the Senate Committee on
Agriculture in relation to the stability of farm prices.
Mr. WILLIAMS. While we are on the question of price levels, I
understand we are talking about the general wholesale price level.
Mr. OWEN. Yes.
Mr. WILLIAMS. But

that is made up of the prices of individual

commodities ?
Mr. OWEN. Yes.
Mr. WILLIAMS. It

is a fact-, is it not, and always has been, and perhaps always will be, that there is a wide variation, so far as individual prices are concerned %
Mr. OWEN. Oh,

yes.

Mr. WILLIAMS. There are some commodities that are perhaps too
high, and at the very same time others are perhaps too low ?
Mr. OWEN. I do not know what you mean by too low and too high.
They are high and low according to their quantity in the market.
Mr. WILLIAMS. I mean relatively.
Mr. OWEN. I do not think you should use the words "too high"
and "too low," because they are not too high when they are very
scarce, and not too low when they are very abundant.
Mr. WILLIAMS. I am speaking of the prices of food products and
of clothing, and such commodities, which may be too high for the
laboring man or too high for consumers, or the prices of building




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

251

material may be too high for the man wants to build a home. I am
of the opinion that there are times when those materials are too high
in price.
Mr. OWEN. The all-commodity index has no relationship to the
individual prices of oats, or barley, or steel, or copper. The all-commodity index only means this, that in 1926 it took 54.7 billion dollars
to handle the turn-over through the wholesale markets, and that was
put at the arbitrary figure of 100 in order to have a basis of comparison with 1927, and so forth.
Mr. WILLIAMS. Perhaps I do not know what I am talking about.
Did not that mean that the average prices were higher than they
were in 1932?
Mr. OWEN. YOU are now making a comparison of the index of
1926, and conditions then existing, with the present. I was talking
about the definition of the all-commodity index which I thought you
did not clearly appreciate from the questions you asked.
The all-commodity index was an arbitrary figure set in 1926 on
the basis of 54.7 billion dollars as representing the total proceeds of
all commodities enumerated passing through the wholesale markets.
That is all it means.
It means then that the next year, if the index should go up, it
would necessarily indicate that there had been an increase in money.
That is the theory, because it is not to be assumed that all commodities created by all people of the United States going to the wholesale
markets would vary very much from one year to another, and therefore it was assumed that the next year the commodities would be
approximately theTsame, and therefore, if the index went up it would
mean that there w as an increase in money, correspondingly.
Mr. WILLIAMS. It would mean also an increased price, would it
not?
Mr. OWTEN. Of course, it would mean an increase in price, on the
average, of everything.
Mr. WILLIAMS. I so understood it.
Mr. OWEN. Of everything, not of some things.
Mr. WILLIAMS. Of course, that would mean individual commodities that make it up, necessarily?
Mr. OWEN. Some commodities would increase and some would
decrease, and you put the average in there, so neither one is really
considered in the total.
Mr. WILLIAMS. But the sum total of it is that if there was an
increase in the index it would mean an average increase in price ?
Mr. OWEN. It means an average increase in money, and, of course,
in the price, because that is the statement you make.
Mr. WILLIAMS. I think I understood it all the time.
So it would mean an increase in price ?
Mr. OWEN. In the average price.
Mr. WILLIAMS. That is what I mean.
Mr. OWEN. Some of them would be lower.
Mr. WILLIAMS. In getting that general average it must be higher
in some cases, otherwise it would not be a fair general average if you
did not consider both those that were higher and lower ?
Mr. OWEN. On an average means what it says; it means some might
be lower and some higher, but take it on the average, take it on the
whole, there would be an increase, and that increase can only be
explained by the increase in money.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. FCRD. Would this be a fair statement: Assuming that it had
gone to 100, and that that is looked to as an ideal, would it be possible
in that case to have cotton selling at 5 cents and copper at 20 cents?
Mr. OWEN. Yes,

sir.

Mr. FORD. Considering the fact that cotton, representing as it does
such a large area of the country, were in that depressed state, would
a price level necessarily bring prosperity because of the stabilization
of the price level? It might, in the case of copx>er, but how about
cotton ?
Mr. OWEN. The effect of a stable price level is to leave the coimtry
free to deal with these arbitrary increases or decreases as individual
spots needing attention.
Where there is a monopoly price on copper the effective method of
dealing with that would be through the process of controlling
monopoly by action of law.
In the case of cotton, where it is overproduced, there must be some
means of regulating that surplus, regulating the creation of the
volume of cotton.
That could be done in various ways, and is being attempted to be
done in various ways, by persuading people raising cotton to do it,
by way of a vote as to whether there shall be a contraction of acreage,
and those are individual cases.
But the whole body politic, or the whole economic body, I should
say, is influenced where you do not have stability in your money supply, and when that is stabilized, on the average, then you can deal
with the sore spots, such as extreme prices for cotton, or lumber, or
other things, whether the price is up or down.
Mr. FORD. May I ask one or two other questions ?
If we were to pass something similar to the amendment which was
offered here recently, directing the Board of Governors of the Federal Reserve System to do some certain thing, such, as for instance,
as to enter into open market operations, or in connection with measures for the control of our monetary system, that would be a direct
direction, from Congress, and it would not make any difference
whether there was 1 member r of the Board or 50 members. They
would be doing what they w ere told, and the number of members
on the Board would not have any effect, would it ?
Mr. OWEN. I think having a member from each of the districts
would cause the membership to better reflect the opinions and the
needs of the country.
Mr. FORD. But if we were giving them direct directions, that would
not be material.
Now, there is another question I w^ould like to ask you.
In 1929 the Board had no control other than the influence it might
use in connection with call money; it had no control at that time over
margins.
If it had had those two controls, and if Congress had said that
4 percent was the limit on call money
Mr. OWEN (interposing). I did not know that it had.
Mr. FORD. I say if it had done that, had put a restriction on call
money of 4 percent and had been given control over margins, would
not those two things have enabled the Board to control the market
situation in 1929, before the crash ?




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

253

If they had said that instead of 20-percent margin they would have
to have 75-percent margin, would not that have cut down the volume
of business on the exchange ?
Mr. OWEN. I think it would have gone a long way toward affecting
speculation.
Mr. FORD. If the Board had also had the right to say that no call
money should pay in excess of 4 percent, would not that have had a
good effect ?
Mr. OWEN. It would have kept out $3,000,000,000 of foreign money
that helped to destabilize our market.
Mr. FORD. It would have kept a lot of other money out of the
market that went in at 8, 10, 15, or 20 percent, and it wTould have
kept a lot of corporate surpluses from being used on the market. I
think it is agreed that that was due to the fact that neither of those
powers was in the hands of the Board.
Mr. OWEN. The only thing they had was just their persuasive
influence on the stock exchange. You know and I know that the
persuasive influence which motivated members of the stock exchange
was the commissions they got on the sale of stocks, and the millions
of dollars that individual operators made by buying today and selling tomorrow and making profits.
Mr. FORD. SO, unless the Board was given those powers and enforced them, it is hardly fair to criticize them for doing something
which they really could not have done.
Mr. OWEN. I think they did not use the powers they had wisely,
but if they had had those powers they could have used them advantageously.
Mr. FORD. The other powers they had were as to open-market
operations, and control over the discount rate; and they also had some
power with reference to legal reserves, did they not ?
Mr.

OWEN.

Yes.

Mr. FORD. They raised the discount rate, to the disadvantage of
general business?
Mr. OWEN. I thought so.
Mr. FORD. But they had no power to control the call rate on Wall
Street.
Mr. OWEN. NO.
Mr. FORD. And in

that respect Congress w^as derelict in not giving
them that power?
Mr. OWEN. I think the Board could have exercised their influence
over the New York banks and over conditions, if they had endeavored
to do so.
Mr. FORD. Maybe they could, but I doubt if it would have had
much effect,
I recall the case of one town where I sawT people pay as much as
$550 a square foot for land on a street wThere you could have taken
a machine gun and shot all the way down the street and you would
not have hit one building of any kind. That same property went
up to a thousand dollars a foot because of wild speculation.
It could not earn one-tenth of 1 percent on a thousand dollars a
foot or on a hundred dollars a foot. The same thing was true of the
stock exchanges.
I am holding no brief for the Board. But I say that at the present time Congress might well take some action for the benefit of the
69972—38

17




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

country, and take some steps toward telling the Board what to do and
insist that they do it, if they are willing to do it. It is not the
Board's fault.
So far as I am concerned, I am willing to go along with some
action of that kind, after we have discussed it and decided definitely
what the action ought to be.
Mr. WILLIAMS. There is just one more question that I want to ask.
In your opinion, did the Board act wisely in raising reserves during 1936 and 1937? Was that a wise move, in your opinion, under
the conditions then existing?
Mr. OWEN. I myself favored raising the reserves because it thereby
diminished the power of the banks to either inflate or deflate; but
I think that at the same time that was being done, the Board should
have given the country courage by stating that it was the intention
of the Board to increase the volume of money so as to increase employment in the country, that it was their intention to increase the
volume of money by buying bonds, and they should have then shown
that it was their intention to do that by buying the bonds.
Instead of doing that, they have not expanded credit through the
Reserve banks.
Mr. WILLIAMS. DO you think that there was evidence of inflation
at that time?
Mr. OWEN. The Board said that there was danger of inflation
because of the size of these reserves. There was the potential power
under the reserves for the banks to expand credit more than they
thought would be judicious. In other words, under the old rate of
an average of 10 percent, they could increase outstanding loans 10
times on an average against reserves by doubling them.
Mr. WILLIAMS. There was a potential expansion there for credit
of about $30,000,000,000.
Mr. OWEN. Yes; and they wanted to cut that off by increasing the
reserves.
I was in favor of it as far as that feature is concerned, but to do
that on the grounds of preventing inflation, and using that word
"inflation" to stigmatize expansion was wrong, and the failure to expand when this country was suffering the pangs of death from a
lack of money I thought was the gravest error on the part of the
Board, and when the Board used the argument against expansion
and took action looking against expansion, and condemned expansion
by their arguments and by their acts, they encouraged the people
who had stocks to sell those stocks and to accumulate money for the
reason that they could forecast an increase in the value of money.
Mr. WILLIAMS. DO you think it was rather a healthy situation on
the stock market, for instance, when United States Steel had gone
from 25 to 126 and Anaconda Copper had gone from 3 to 75 ? Was
that an indication that the stock market was getting loose again,
like it was in 1929?
Mr. OWEN. It is my opinion that when United States Steel is working at a capacity of 90, and has a right to expect to continue to work
at that capacity, that that stock is worth 126; but whether it is or not
is not the point. That is merely one illustration of many.
You take Bridgeport Brass, which a year ago was 23 and now is
% That is a company 75 years old, one of the most stable in the




GOVERNMENT OWNERSHIP OP FEDERAL RESERVE BANKS

255

country, and their employment fell off 75 percent during the latter
part of the year 1937.
Mr. WILLIAMS. Have you the information with respect to the income of the banks in 1937?
Mr. OWEN. No; I do not. I have the information with regard to
my own bank.
Mr. WILLIAMS. Well, if you have not, of course, I do not want that
for your individual bank.
Mr. OWEN. I am a friend of the banks.
Mr. WILLIAMS. SO am I.
Mr. OWEN. I am a friend

of the banks, and I am in favor of having a law that will absolutely protect not only the big banks, but
the smallest bank in this country.
Mr. WILLIAMS. I want to ask you this question—if you have the
information concerning the income of the banks of the country as
a whole, and of comparative industry.
Mr. OWEN. YOU can get that over the telephone from the Comptroller of the Currency. I do not have it in mind, but I am satisfied
that it is substantial.
Mr. WILLIAMS. There was a very substantial net income made by
industry last year, generally.
Mr. OWEN. Yes; I think there was, but not what it ought to have
been. It ought to have been twice what it was.
Mr. WILLIAMS. YOU do not mean
Mr. OWEN. That is my judgment.
Mr. WILLIAMS. YOU think they ought to have had twice as much
income as they had in 1937 ?
Mr. OWEN. I think we ought to have increased the production
of this country to $120,000,000,000 instead of sixty or seventy million
dollars.
Mr. WILLIAMS. Perhaps so, but I do not believe industry should get
all of the profit out of it.
Mr. OWEN. I am in favor of industry getting substantial profits.
This country is run on a profit basis, and. I think that we should conduct the Government in such a way that people who are engaged in
their service and in their capital in creating value should be allowed
and encouraged to make a profit.
Mr. WILLIAMS. I think that we all agree with that. Under our
system they must have something; otherwise they cannot run.
I noticed a statement in the New York Times, with respect to the
reports of 1,020 big corporations. They simply gave the number of
big corporations, without naming them. The statement was that
their net income last year, after everything was paid, was 10.7 per%
cent.
Do you think that that is a fair income ?
Mr. OWEN. I think a 10 percent income is good; yes.
Mr. WILLIAMS. That is very good, isn't it ?
Mr. OWEN. It seems to me that it is; yes. I should like to see it
better.
Mr. TRANSUE. And they included in their expenses very good salaries for some of their officers.
Mr. WILLIAMS. Oh, yes; that includes General Motors and others^
who paid big salaries after paying the tax on undistributed profits
which they claimed would ruin them.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

That net income of course includes the recent period, from September 1 to the end of the year, which was not so good.
Mr. OWEN. N O ; not so good, not so good. Something happened.
Mr. WILLIAMS. But even counting that in, counting it all in, they
still had that net profit.
Do you think the banks of the country made any more than that ?
Mr. OWEN. NO ; I do not, but I do not absolutely know. I should
think the banks on the average made somewhere around 8 percent,
but that is just a guess on my part. I do not know,.
Mr. WILLIAMS. I was just wondering what the comparison would
be. Some of us who are inclined to talk about the banks may have
the impression that their income was not as good and has not been as
good, especially in the last 6 or 8 years, as the income of industry.
Mr. OWEN. Many of the banks have made nothing in the last 2 or 3
years, because they were liquidating their past losses.
Mr. WILLIAMS. Yes; and they are still heavily in debt with preferred stock that the E. F. C. holds.
Mr. OWEN. I think that our banking system should be so conducted
as to put the full power of the credit of the United States behind
every little bank in this country. We can depend upon the honesty
of their management. They have insurance against burglary and
against larceny by their own officials, and we have the security of the
Federal Deposit Insurance Corporation.
Mr. WILLIAMS. Let me ask you a question on another matter, and
then I am done: Is it your view that we should have an independent
banking system?
Mr. OWEN. Absolutely. I think the banks ought to be allowed to
run the banking business, and the Government ought to run the
monetary end of it, and safeguard those banks against self-destruction.
Mr. WILLIAMS. By that do I understand you to mean that it is not
necessary for these little State banks to be members of the Federal
Reserve System ?
Mr. OWEN. I think it is far better for them that they should be the
beneficiaries of this System, because they are transacting business of
great importance in a small way among little people, and I think they
ought to be cherished by the Government of the United States and
not treated as aliens. I think that they ought to be invited to come in,
and the System made so attractive to them that they would be glad
to come in.
Mr. WILLIAMS. Of course, they have not come in so far under the
present System; that is, many of them have not.
Mr. OWEN. There have been various reasons for that.
Mr. WILLIAMS. Yes; there have been various reasons for it.
Mr. OWEN. But I think that they are engaged in interstate commerce business and that they are within the constitutional authority
of Congress, and I think that Congress ought to make the System so
attractive that they would be glad to come in.
Mr. WILLIAMS. They have exercised their right so far to stay out;
that is, about 8,000 of them.
That is all that I have.
(At this point there was a brief informal discussion, off the record,
as to the witnesses to be heard in the following week.)
Mr. FORD. IS Senator Owen through ?




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

257

Mr. GOLDSBOROUGH. Yes; I think so.
Mr. FORD. I would like to move that the committee extend to Senator
Owen its thanks for the splendid service he has rendered and for his
patience and forbearance in answering our questions.
Mr. GOLDSBOROUGH. YOU have heard the motion, and I am sure that
all of the members will heartily approve it.
All in favor of it will so signify by saying "aye."
(The motion was unanimously agreed to.)
Mr. OWEN. I am very grateful to the committee for the opportunity
to appear and to make such contribution as my limited opportunities
have made possible. Please accept my heartfelt thanks for the gracious manner with which you have treated me.
Mr. GOLDSBOROUGH. The committee will adjourn until half past 10
on Monday.
(Thereupon, at 12: 07 p. m., an adjournment was taken until Monday morning, March 28, 1938,'at 10: 30 o'clock.)




GOVEKNMENT OWNEKSHIP OF THE 12 FEDEEAL
EESEEVE BANKS
MONDAY, MARCH 28, 1938
HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. G.
The committee met at 10:30 a. m., Hon. T. Alan Goldsborough
presiding. Other members of the committee present: Mr. Reilly, Mr.
Williams, Mr. Spence, Mr. Farley, Mr. Meeks, Mr. Ford, Mr. Brown,
Mr. Patman, Mr. Transue, Mr. Luce, and Mr. Crawford.
Mr. GOLDSBOROUGH. Gentlemen, the chairman says that he has a bill
in connection with the Reconstruction Finance Corporation that he
will have to take up in the morning at half past 10, so w^e will not be
able to hold hearings on the Patman bill tomorrow.
The clerk of the committee has a letter from Professor Spahr which
states that today Dean Phillips, of the State University of Iowa, and
Professor Bradford, of Lehigh University, would be heard.
As I indicated a few moments ago, the chairman will have another
bill here tomorrow. The committee is anxious, of course, to accommodate these gentlemeen in every possible wTay. I am wondering if
Professor Spahr can tell us now how he would like the program
rearranged ?
Mr. SPAHR. Mr. Chairman, we will do the best we can to make such
adjustments as we can. These gentlemen will have to be.notified. We
arranged for Professor Agger, of Rutgers, and Prof. Clyde Fisher, of
Wesleyan, to come Tuesday.
Mr. GOLDSBOROUGH. Could they come on Thursday and let Wednesday's schedule stand as it is ?
Mr. SPAHR. We will have to telegraph or telephone. We will make
the best adjustment we can and then communicate the results to you.
Mr. GOLDSBOROUGH. I am very sorry about this, but there is nothing
I can do about it.
Mr. SPAHR. We understand and we will adjust ourselves the best
we can.
Mr. GOLDSBOROUGH. Gentlemen, we are very glad to hear Dean
Chester A. Phillips, of the State University of Iowa.
STATEMENT OF PROF. CHESTER A. PHILLIPS, DEAN, STATE
UNIVERSITY OF IOWA
Dean PHILLIPS. Mr. Chairman and gentlemen, I have prepared a
very few typewritten pages which contain the substance of my views
to be presented at this juncture, and with your permission I will proceed at once to the reading of this brief statement.
259




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Prior to the establishment of the Federal Reserve System the oscillations of onr financial pendulum were subject to no important personal controls. We were operating a system of banking in connection
with which expansion went forward unchecked until brought up
sharply and abruptly by the rigidly inelastic bank reserves. Then,
as in 1907, there would be a sudden halt to expansion, with crisis,
panic, and ensuing depression, acute but of relatively short duration.
The inauguration of the Federal Eeserve System brought in new
forces of an inflationary character and new controls of a personal
nature. Prior to 1914 the control of our bank-credit system was
automatic in nature; since that time our bank-credit arrangements
have been increasingly adjustable by thumbscrews turned by human
hand. With reference to the control of demand deposits which are
one of the major factors governing the price level, the Board of Governors of the Federal Reserve System now holds very substantial
powers, including control over rediscount rates, and over even the
reserve percentages required to be maintained by member banks. The
current recession may be regarded as attributable in part to a vigorous application of the brakes when within a year reserve requirements of member banks w^ere increased 100 percent. Inducing contraction of the deposit and price structures appears to be feasible;
generating expansion, howTever, at a time when prices are low and
emplojanent production and trade are at a low e>bb may be as at
present a matter of grave difficulty. In a word, even if we were to
admit the desirability of stable prices, the problem of practicability
would remain in part unsolved.
My own conviction is that any comprehensive and aggressive program of action toward stable prices in present-day societies would
be conducive to results the like of w^hich we witnessed in 1929, when
after general prices had been unprecedentedly stable for the major
portion of the twenties, there came a price and production collapse
of unprecedented extent and nature.
If costs of production in terms of human effort fall and prices are
not allowed to fall, a vicious element of inflation enters.
This vicious inflationary factor would not appear were prices allowed to fall in proportion as costs of production in terms of human
effort fall. If the application of science and invention to industry
resulted during a given period in cutting costs in two, then if
through bank credit creation prices were kept stable or stationary it
would be much as if costs had remained stable and prices had doubled; that is, inflation, by which wTe mean bank credit or other purchasing media created in excess of the volume essential to the
maintenance of a price level that registers with costs as expressed
in terms of human effort expended in the economic processes would
emerge.
The impact of science upon industry during the twenties reduced
costs; general prices for the first time in history established a plateau.
The disparity between money prices which were stable and costs in
the basic sense of human effort involved in production, which were
falling, is of an inflationary nature and like inflation of the most
patent and obvious variety, and in the twenties led to unsound business venture and to ill-advised economic commitments, with disaster
probably unavoidable.
In a word, it would, in my judgment, be a fatal blunder seriously
to attempt to stabilize prices at the 1926 or any other definite level




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

261

when science in a broad sense is positively lowering costs. If costs
in terms of effort fall, prices should fall. Seriously attempting to
hold prices steady when costs are falling would be conducive to a
series of booms and depressions through the years, for inflation in
whatever form is in essence a stimulant, the reaction from the use of
which, as was true in 1929, involves economic ills and maladjustments
that linger long.
A vigorous, persistent, and inclusive effort would be made to keep
the raftlike structure of prices floating down a gently falling current. That is, if costs are going to continue to fall.
Mr. GOLDSBOROUGH. Are you referring now to wholesale basic commodity prices?
Dean PHILLIPS. Yes.
Mr. GOLDSBOROUGH. Proceed, sir.
Dean PHILLIPS. The effort should not be limited to the utilization
of rediscount-rate changes and open-market operations, both of which
have been used with generally good effect chiefly by England; but
the regulation of reserve requirements, the invocation of which was
too emphatic, ought to be made to play a decidedly prominent role.
Attention should also be directed to the relatively neglected factor
of installment credit. It is to be hoped that an effort will be made
to harness the installment forces, the operation of which strongly
contributes to the oscillatory character of American business.
The institution of installment credit accentuates business activity
during a period of prosperity and depresses it during a period of
depression.
Installment credit in 1935 and 1936 reached into the future, grasping income belonging to the future; then with lavish hand poured
that purchasing power into the hopper of the then current prosperity.
Then last July, with repossessions mounting, the terms of installment selling were suddenly made much less liberal, with consequent,
immediate, and contagious contraction in installment sales.
Our program of monetary and price control must not only take
keen cognizance of installment credit, but inventories in production
and consumption should be carefully studied and watched.
Whatever program is finally formulated for the more nearly definitive control of prices will, I think, be inadequate unless installment credit is clearly envisaged and included.
It may be said by way of summary and conclusion that peacetime
monetary and banking policy would seem to call for the consideration
and possible utilization, under various circumstances, of not merely
one or two but of most of the well-known methods of credit and price
regulation. Even changing the weight of the fine metallic content
of our monetary unit might, under conditions now very remote, become advisable. Peacetime policy faces away from inflationary procedure. I refer here to procedure after the current depression has
been superseded by recovery. In war, however, inflation might conceivably be found a needed stimulant to get things done quickly. I
should like to emphasize the "might." It might be found a needed
stimulant. For the present we may well think chiefly of a monetary
policy for peace.
Finally, sight should not be lost of the undesirability of fully
formulating a program far ahead because of our sheer inability to
pierce the mists that lie between the present and the future.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. GOLDSBOROTTGIT. Dean Philips, you speak of installment selling.
I have attempted to emphasize the evils of installment selling in a
great many statements that I have made. I am wondering if you
could visualize how, under our present monetary system, the way it
is conducted now, we could do business without installment selling
which, of course, inevitably, as you have indicated—I presume that is
what you meant to say—which inevitably ended in a collapse. How,
under the present monetary system, can we have anything like an
exchange of wanted goods and services that can be produced without
installment selling?
Dean PHILLIPS. It seems to me, Mr. Chairman, that installment
selling is an institution which ought to be managed, regulated, controlled, rather than destroyed. Installment selling can be utilized as
a stabilizing force—pardon me, I think it can be used as a stabilizing
force. If we are smart enough to devise ways whereby installment
selling may be stimulated during periods of depression and repressed
during peripds of prosperity, then we will have a force working for
us, for stability, rather than against it.
Mr. GOLDSBOROTIGH. Now, it has been said—I think I have said it
oftener than anybody else, and I do know that it is a wise thing, but
I sort of got into the habit of saying it—that you #annot push a
string. In other words, in periods of depression it is very hard to
induce installment selling, is it not? That is the very time when it
is difficult to do it.
Dean PHILLIPS. I am very much interested in your analogy. I
agree with you emphatically about the difficulty of pushing a string.
But I think there is another aspect to this that needs to be stressed,
namely, that installment credit can be regulated. And that is the
issue here. It can be regulated in volume, if only we will touch the
matter of the period during which the installments run.
On July 1, 1937, the maximum period—and I suppose we could
almost say the common period—for which installment credit was
extended in the sale of automobiles, was reduced from 30 months to
18 months. On July 2, when prospective automobile buyers came
into the establishments to buy cars, to their surprise they found that
they could not buy the cars that they had expected to buy, because
the down payment was increased and the time was shortened and
the monthly installments were enlarged. Their budgets did not
permit the purchase of the cars.
Now, if you can shorten the period over which installment credit
extends on the upward swing of the cycle, you can certainly shorten
it on the other side of the cycle. That is where the regulation comes
from.
Mr. PATMAN. I want to ask a question, Mr. Chairman.
Mr. GOLDSBOROUGH. Proceed.
Mr. PATMAN. Are you satisfied with the present price level?
Dean PHILLIPS. I am far from satisfied with the present price
level.
Mr. PATMAN. Would you have the price level higher than it is or
lower ?
Dean PHILLIPS. Somewhat higher, considerably higher.
Mr. PATMAN. If it were within your power, what would you do to
raise it?
Dean PHILLIPS. If it were within my power?




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS
Mr. PATMAN. Yes.
Dean PHILLIPS. Well,

263

a number of actions could be taken that
would be favorable to raising the price level. I interpret your question as being about this: Specifically, what suggestions would you
make looking toward the elevation of the price level? Is that correct?
Mr. PATMAN. That is a fair interpretation of it.
Dean PHILLIPS. In the first place, I should be favorable at this
juncture to reversing the action, in substantial part, that was taken by
the Board of Governors in raising reserve requirements.
Mr. PATMAN. That is the 100 percent ?
Dean PHILLIPS. Yes. I would go practically back to the original
figures.
Mr. PATMAN. If you did that, we would have excess reserves of
about $3,000,000,000, would we not?
Dean PHILLIPS. Yes, sir.
Mr. PATMAN. YOU do not think that is excessive ?
Dean PHILLIPS. Oh, it is a large amount. But we are in the midst
of a depression. Why should we not have excess reserves? We
always have had.
Mr. PATMAN. I am not arguing the question with you.
Dean PHILLIPS. I know you are not. I am putting my statement
in rhetorical question form.
Mr. PATMAN. What else would you do if something else should
become necessary?
Dean PHILLIPS. I would be inclined to put the sterlization process
more vigorously into reverse, ease money conditions. The bankers
will say, "Oh, money rates are low, too low." But, gentlemen, I
want you to remember—and I know you have it in mind already—
that money rates today are rates charged in the nature of pure
interest. Twenty-five years ago a risk element of significant proportions was included in the interest rate. That risk factor has been
practically eliminated. Consequently, we ought to expect low interest
rates.
Furthermore, we have reached a stage in our national conomic
development where, like England of 1900-1910, we naturally tend
to have low interest rates. Low interest rates should be with us
indefinitely.
Mr. PATMAN. DO you believe that one of the greatest contributing
factors of this present depression was the increase of reserve requirements made by the Board of Governors of the Federal Reserve ?
Dean PHILLIPS. Very emphatically.
Mr. PATMAN. DO you not believe it is the greatest contributing
cause ?
Dean PHILLIPS. Personally, I am inclined to think that the shortening of the terms of installment credit was a more important factor,
a more important cause, in this sense
Mr. PATMAN. That only involves a small amount, though, comparatively ?
Dean PHILLIPS. Well, that is a thing that is contagious. It is a
circle that spreads. If you cease to make automobiles, then the
factories cease to make steel and glass and the circle spreads and becomes broader and broader. And that is precisely what happened.
Mr. PATMAN. When did this order go into effect ?
Dean PHILLIPS. July 1.
Mr. PATMAN. This last July 1?




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Dean PHILLIPS. Yes; 1937.
Mr. PATMAN. That only involved automobiles, did it not?
Dean PHILLIPS. Kefrigerators, radios, and other things sold on the
installment plan.
Mr. PATMAN. In other words, everything handled by General
Motors and people who were in competition with General Motors ?
Dean PHILLIPS. I should not like to place General Motors quite so
near the front as that.
Mr. PATMAN. I should not like to do that either. It just happens,
in this case, that they do handle the items that you mention.
Dean PHILLIPS. General Motors was prominent; Chrysler was
prominent—Frigidaire—well, that is part of General Motors. Kelvinator was prominent. Radio manufacturers were conspicuous.
Mr% PATMAN. And they came to an agreement that they would
shorten the length of time over which people would be able to pay
for what they had purchased?
Dean PHILLIPS. Largely because repossessions had become objectionably great.
Mr. PATMAN. And the automobile companies reduced the number
of months from 30 down to 18; is that right ?
Dean PHILLIPS. Yes, sir.
Mr. PATMAN. And they increased the initial payment and increased
the amount of the monthly payments ?
Dean PHILLIPS. Yes, sir.
Mr. PATMAN. And you think that was a great contributing cause
to the depression?
Dean PHILLIPS. It was great in this sense
Mr. PATMAN. Although you considered it necessary, it was a contributing cause ?
Dean PHILLIPS. I t would be a mistake for me to answer your
question yes or no. It would call for a brief comment on my part
to make my thought clear.
Mr. PATMAN. GO ahead.
Dean PHILLIPS. It was necessary in this sense. It was necessary in
the sense that it was desirable that at some time that should have been
done. Personally, I think it should have been done gradually, over a
period of the preceding months—6 months.
Mr. PATMAN. Eather than quickly, as it was done ?
Dean PHILLIPS. Yes, sir.
Mr. FORD. DO you have any figures for the volume of installment
sales ?
Dean PHILLIPS. I have not any figures, but they are significant.
Mr. FORD. DO you have it approximately?
Dean PHILLIPS. I cannot give you approximate figures, but they
are very significant.
Mr. FORD. Somebody said that it was $7,000,000,000. Would that
be right?
Dean PHILLIPS. Per annum, do you mean?
Mr. FORD. Yes; the volume of those sales.
Dean PHILLIPS. That would not seem unreasonable to me.
Mr. FORD. Then a sudden contraction in a flow of that magnitude
would materially affect the exchange of that type of commodities
almost immediately, and the fact that the automobile reaches back
into almost every other collateral branch of production and manufac-




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265

ture, would mean that it would be a very contributing factor; is that
right?
Dean PHILLIPS. Yes; it would. I would regard that as an important cause, because it was an inciting cause.
Mr. FORD. Speaking of this installment business, I should like to
ask one more question. Do you consider the purchase of homes on an
installment plan a factor in that situation ?
Dean PHILLIPS. It is in the same category.
Mr. FORD. The period is much longer. It is in a little bit different
classification, is it not?
Dean PHILLIPS. There is a difference in degree, but not a difference
in kind.
Mr. PATMAN. YOU have stated that you would lower the reserve
requirements, put the requirements back to where they were before
the increase was made. And, if necessary, you would take this sterile
gold and use it. If something else should be needed, what would you
do, Dean?
Dean PHILLIPS. Well, I think I should give some attention to the
taxation system, but I am not an expert in that field, and a great deal
has been said on that subject. Something might be done. But I
would want to refrain today from making a specific suggestion.
Mr. PATMAN. Since you have made such interesting statements in
regard to this subject, I would like to ask you one further question.
If you were President of the United States, or had the power of the
President of the United States, and you wanted to do something
quickly, what would you do? You know the. stock market took a
decided drop a few days ago. I do not agree with the people who
say that the stock market does not influence business conditions in
this country. I believe the stock market does. It occurs to me that
something should be done quickly.
The President of the United States has the power to issue $3,000,000,000 of money under the Thomas amendment to the Agricultural
Adjustment Act of 1933. The Executive also has power over the
$2,000,000,000 stabilization fund. There is as much power in the
Executive under the Silver Act, permitting an increase in the circulating medium through the issuance of money on silver at $1.29.
Of course, the Federal Eeserve Board, the Board of Governors^
have tremendous powers. Now, if you had the powers of the Executive and the Board of Governors of the Federal Reserve banks, what
would be the first thing you would suggest to do now, to get us out
of this depression ?
Dean PHILLIPS. I should like to say that very frequently when
they physician calls on the patient he does nothing except to administer plenty of water and to see that the patient has an abundance of
fresh air, so as to give Nature a chance to assert itself.
Herbert Spencer, more than 50 years ago drew a very close analogy
between society on the one hand and the individual on the other.
Mr. PATMAN. But suppose
Dean PHILLIPS. Just a moment, please.
Mr. GOLDSBOROUGH. Let the gentleman finish his answer. It is
very interesting, Mr. Patman, I think.
Dean PHILLIPS. I am glad to listen to your question, Mr. Patman,
or I shall be glad to go ahead, whichever you wish.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. PATMAN. I was going to say, Suppose the patient is sinking
all the time ? But go ahead.
Dean PHILLIPS. I regard that as a condition contrary to fact.
Now, Herbert Spencer drew this very close analogy between society and the individual. So far as I know no one has ever broken
that analogy down, and it is very helpful to keep that analogy in
mind in facing problems the like of which we are facing today.
There are times in case of the individual when the doctor does
nothing. There are times in the case of economic society when, at
a given juncture, nothing should be done. There are junctures when
to do something will aggrevate the trouble, particularly from a psychological point of view. If the President of the United States were
today to issue $3,000,000,000 in paper money, it would be an aggravation of one of the worst kinds, in my judgment, from a psychological
point of view.
The recession of the stock market has, in my judgment, and will
have, about the same effects that you suggest. I find myself in complete agreement with you on that subject, and I base my judgment on
observation and experience and contact wTith business itself. But
there is not much to do today about the stock market above what I
suggested with reference to the restoration of the reserve figures
and the desterilization of our gold on a somewhat more rapid scale.
I think I may have expressed myself slightly in accordance with
my own views unintentionally, inasmuch as I observed that Representative Patman seemed to think that I would go the full distance
back in restoring reserve figures. I should go 50 percent back. I
should have gone 50 percent back long ago and then would have
watched that 50-percent effect and then awaited further action,
allowed further action to await the results of the first application of
the medicine.
Mr. PATMAN. YOU think installment buying did aggravate the
situation considerably last July 1st?
Dean PHILLIPS. Yes. I am pretty strongly convinced of that idea.
Mr. PATMAN. One other question. Congress in 1932 voted for a
bill—at least the House of Representatives did—by Mr.' Goldsborough
asking that the 1926 price level be restored. That is the price level
for 1921 and 1929, which we consider the same as 1926. That bill
did not pass the Senate, and it did not become a law. The members
of this committee have become convinced, I believe—a majority of
the Members of Congress, I think, have become convinced—that there
is a way by regulating the value of money to maintain a price level
as at 1926. That is, by regulating the quantity of money, I guess we
can call it, we can regulate the volume of money; and when I use the
word "money," I refer to demand deposits in banks, which, of course,
serve the same purpose as money. And by regulating the quantity oi
money we regulate value, and we can control the price level in that
way and bring it back to where it was in 1926 and keep it there
within 2 percent either one way or the other.
Do you consider that impossible, Dean ?
Dean PHILLIPS. I do today.
Mr. PATMAN. YOU do today ?
Dean PHILLIPS. Yes; I do today.
Mr. PATMAN. Well, over a period of years. Suppose we were to
:adopt a policy leading up to that ? Do you think it is probable that
we .could arrive at that goal?




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267

Dean PHILLIPS. NO. Today I think it would be impracticable.
Mr. PATMAN. But suppose we were to adopt a policy leading up to
that in the years to come or in the months to come. You do not
think it would be possible to do it in that way ?
Dean PHILLIPS. NO ; I think it would be impracticable.
Mr. PATMAN. Why do you say it would be impracticable ?
Dean PHILLIPS. I think it would be impracticable for the same
reason that I find myself unable to justify the wholesale creation of
credit that would have been necessary to keep the price level of 1926
stable on through 1929, 1930, 1931, and 1932.
Prices dropped in 1929, beginning chiefly on the stock exchange
because weakness had crept in extensively into our economic fabric.
Weakness had crept in partly because prices were not allowed to fall
when the costs of production, in terms of human effort, were falling.
Mr. PATMAN. YOU talk about prices not being allowed to fall. Do
you not think that we have so many fixed charges—and Congress and
the Government are responsible for many of these fixed charges—
that it is impossible for prices to fall, especially in certain main
commodities, like steel? If you will notice, the steel price today is
about the same that it was a year ago. Practically everything else
is falling, except aluminum and a few commodities like that where
the price is fixed.
Certain people enumerate fixed charges, which would include, I
presume, interest, taxes, electricity, water, gas, or fuel; then there
are freight and passenger rates, and so many items like that that
are fixed, how can prices fall so quickly ? Also, labor is more or less
fixed in some industries.
Dean PHILLIPS. The market is the answer.
Mr. GOLDSBOROUGH. Professor Phillips, I am not sure that your
view with reference to the situation when Mr. Strong was endeavoring to stabilize the price level is the view of this committee. I th^ink
probably our view would be this: That while it is true that prices
on the stock exchange rose a very great deal and industrials were
fairly high during that period, it is also true that the price of basic
agricultural products was very low throughout the entire period
beginning in May 1920 through the crash of 1929. So that while
Mr. Strong's policy of maintaining a stable price level, an average
price level, was carried through, the difficulty was that agriculture
had no buying power through that entire period. In fact, there was
not only the mortgage debt but all other agricultural debt was
increasing through that entire period.
So that I am wondering whether or not the conditions of agriculture, the fact that its buying power was tremendously reduced
while at the same time installment selling was going on at a very
accelerated rate and stock prices were being pyramided through the
same process, whether that did not have a great deal to do with the
crash, and not the attempt of Mr. Strong to maintain a stable price
level. Or, do you not agree with the facts? You may not agree
with the facts as I give them to you.
Dean PHILLIPS, Well, I think I agree with the facts insofar as
they have been stated.




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The following considerations seem to me to loom up rather big in
significance in connection with the interesting question which you
have propounded and the statement that you have made:
Earnings were satisfactory. In fact, earnings should be regarded—
corporate earnings should be regarded during this period as being
somewThat above average. They were so much above average, in fact,
that a Harvard statistician, a friend of mine who went from Harvard
to New York, went as a bear and kept sharpening his pencil sharper
and sharper and making finer and finer calculations, and just before
the crash he flopped to the other side, because he reasoned like this:
If earnings are increasing at, say, 10 percent per annum—that is
slightly higher than the rate at which they were increasing—if earnings are increasing, then my mathematics tells m^ that there is future
in these stocks, and simple arithmetic does speak eloquently along
that line.
The second consideration that I want to mention is that I have no
brief for the fixation of prices beyond utilities, public carriers, and
the like. I should not like to appear as championing that arrangement. At the same time, in connection with the agricultural situation,
it must not be forgotten that their purchasing power, the purchasing
power of that population, was not wholly unaffected by the bank
lending of the period. Bank credit during that period was expanded.
It was increasing rather decidedly. But prices were remaining
stationary.
If prices had been allowed to fall, corporate earnings would have
been reduced. The stock-market fiasco would have been truncated,
to say the least, and the repercussions, the important repercussions
that came from the stock-market crash would not have occurred.
You have raised difficult questions and some of these questions, of
course, are exceedingly complicated and difficult.
Mr. PATMAN. Mr. Chairman, may I ask one question? Do you
believe in the quantitative theory of money, professor ?
Mr. GOLDSBOROUGH. If we are to get an answer to that, we should
have to stay here for several days, I should think.
Dean PHILLIPS. Would you allow me, Representative Patman, to
recite a brief incident before I answer ?
Mr. PATMAN. Certainly.
Dean PHILLIPS. I used to have a friend who was a student at Western Reserve University when President Thwing was president. He
was in a Bible class of President Thwing one time and he said, "President Thwing, do you believe in a physical hell ?" and President Thwing
said, "In answer to your excellent question I would say both yes
and no."
I think the answer is this: Over a long period of time, the answer
is "yes." Over a short period of time the answer is u no."
Mr. PATMAN. What do you mean by a short and a long period of
time?
Dean PHILLIPS. By a long period of time I mean 15 years, 20 years,
25 years.
Mr. PATMAN. DO you think it would take 15 or 20 years ?
Dean PHILLIPS, Just about.
Mr. PATMAN. I am not advocating the issuance of $3,000,000,000
of currency. But suppose the President of the United States were to




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269

decide to pay the Government debts for a month or two in new currency ? You do not think that would affect prices immediately ?
Dean PHILLIPS. Yes." We would have a big boom and then we
would have a terrific crash.
Mr. PATMAN. Well, it would affect prices?
Dean PHILLIPS. Oh, yes.
Mr. PATMAN. It would not take 15 years, would it, professor?
Dean PHILLIPS. I did not mean to say that it would take 15 years
to affect prices. I think it takes 15 years for price forces to work
themselves out. I would say 15 years, 20 years, 25 years.
Mr. PATMAN. SO you do believe that the quantity of money will
affect the price level and do it quickly ?
Dean PHILLIPS. It does if handled under given conditions. At
other times you may have an increase in the circulating medium without much effect. Let me try to make clear what I have in mind by an
analogy.
Suppose we had a small reservoir of water out on the front lawn
here. It is raining very hard. The tendency will be for that level
to rise. But if there is seepage at the bottom just equal to the rainfall, there will be no rise in the level. And so, too with the increase
of money. You may have a substantial increase in money, but no
visible effect, because it may be offset by other considerations.
Mr. PATMAN. It depends on whether it goes into industry or people
use it to buy goods and services, I presume.
Dean PHILLIPS. It depends on a thousand and one circumstances,
some of which are visible and some of wThich are not.
Mr. FORD. May I make an observation there, since you are talking
about water? Let us take a reservoir that is developed to irrigate,
say, a thousand acres of land. If you let that water out gradually,
through the channels, and plow the land, and so forth, and let the
water sink in, it is very beneficial. But if you open the reservoir and
let it pour out over the thousand acres, it would ruin the land, would
it not? So that there is some argument for the time element. And
I presume that would work with reference to money as well as water.
Dean PHILLIPS. I will remember your analogy, Mr. Ford.
Mr. LUCE. Bearing on this other point, some years ago—3 or 4, I
should say—I read in one of the economic publications an article
by a statistician who showed, at any rate, to his own satisfaction, that
increases in the volume of money had never, with rare exceptions,
produced their effect inside of 2 years. Once in awhile there had
Deen results in 1 year. Did you happen to read that article ?
Dean PHILLIPS. I do not recall that article.
Mr. LUCE. While I am speaking, may I make another inquiry?
Unfortunately I was not here in the earlier part of your statement,
much to my regret. But I gathered from what was subsequently said
that you did not sympathize with Governor Strong's views in trying
to stabilize money.
Dean PHILLIPS. His heart was in the right place. His action, in the
light of history, seems to me to have been ill-advised.
Mr. LUCE. That action produced no speedy result, did it ? That is,
it was some years before the crash of 1929.
Dean PHILLIPS. Well, that action continued through a period of
years, many months.
Mr. LUCE. But he had died
69972—38

18




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Dean PHILLIPS. Before the crash; yes. I cannot recall the date of
his death.
Mr. GOLDSBOROTJGH. I think he died in 1928.'
Mr. LUCE. 1928?
Mr. GOLDSBOROTJGH. That is my impression.
Mr. LUCE. I thought it was a year or two earlier.
Mr. CRAWFORD. Dean Phillips, so that I may follow closely the reasoning of Congressman Patman and yourself, let us go back for a
moment to the amount of excess reserves. I think the record shows
you used the figure $3,000,000,000. Would that not be $4,000,000,000 or more, arrived at in this way? At the present time we have
excess reserves of a billion and, say, seven hundred million dollars, or
$1,560,000,000; which were the figures last week. About eight or nine
hundred million dollars of that have accumulated since the reserve
requirement was raised.
Looking at a chart here of the Department of Commerce, it shows
that in the middle of 1936 the reserve requirements were $3,000,000,000,
and in about September 1937 they had gone up to $6,000,000,000.
Mr. PATMAN. DO you mean $6,000,000,000?
Mr. CRAWFORD. $6,000,000,000, reserve requirements. Of course, all
of that increase of $4,000,000,000 was not caused by the; increased
reserve requirements. But a very large part of it was, so I think the
figure which you referred to in item 1 as to what you would do is
closer to four and a half billion dollars than the $3,000,000,000 which
you put in the record awhile ago. I just wanted to check to make sure
that I am thinking along with you two gentlemen as to how you
arrive at that.
Dean PHILLIPS. Yes; we are all seeing eye to eye. The recent
increase in surplus reserves has been attributable to two factors. An
increase in our gold stock—well, may I say three factors? There was
a slight result from desterilization and also a substantial effect, which
has come as a consequence of credit contraction. Whenever deposit
liabilities shrink, reserves previously required to support those liabilities are set free, hence the surplus tends to grow during a period of
depression.
I think the apparent disagreement there is attributable to my own
failure to make quite clear my own position. When Congressman
Patman asked me what I would do, I was answering about as much
this question as his: "What would you have done?" I would personally have reduced reserve requirements long ago.
Mr. CRAWFORD. Suppose they reduced this step-up by 50 percent
and added to your present $1,560,000,000 of excess reserve. Would
that, in itself, greatly alter the power of the Federal Eeserve Board
to make its three slide rules effective? In other words, would not
that infringe upon the position of the Board to carry out the things
that it is supposed to be doing by reason of their having such an
enormous excess reserve ?
Dean PHILLIPS. There might be some slight disadvantage attaching to this increase in surplus reserves that I am perfectly willing
to have come about; but my own judgment is that psychologically
it would be helpful, and actually it would be helpful, that the advantage would outweigh the disadvantage.
Mr. CRAWFORD. May I go to another question which interests me
more than anything else you have said? That has to do with the




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271

decreased cost of the human effort involved in the production of goods.
Assume that industry A takes out the old machinery and makes new
installations which reduces the human effort 25 percent, in the cost
of a given commodity. I understood you to say the price of that
commodity to market should decline, we will say, proportionately?
Dean PHILLIPS. I did not make that a specific statement.
Mr. CRAWFORD. Well, was that what you mean ?
Dean PHILLIPS. Not quite.
Mr. CRAWFORD. Would you mind enlarging on that a little bit ?
Dean PHILLIPS, In general, when labor-saving devices are introduced, they are introduced because the introduction will be inducive
to an enhancement of profits which, in itself, would raise a presumption against a complete reduction in price matching the saving.
There should be a substantial reduction, but I should not anticipate
that it would be quite so great as the saving.
Mr. CRAWFORD. Let us forget that technicality, then, for a moment.
It seems to me that that observation applied to Mr. A, running a plant,
would come to his mind from three different directions: One, his!
technological improvement by the installation of labor-saving machinery as offset by increase in costs outside of direct labor and direct
material, caused by, we will say, Government action, such as Mr.
Patman has referred to; increased taxes, increased expenses incurred
in order to conform to Government decrees, State, local, and national;
increased labor costs per hour.
Now, take that first channel, do you believe it is possible for technological improvement over a period of years, over the last 10 years,
and over the next 5 years as best you can see—do you believe it is
possible for technological improvement applied to our industries to
set-off increased costs which are being brought about by these other
activities to which I have referred? And if so, if it is possible for
technological improvement to offset those things, do you believe that
technological improvement can go a step further and not only set-off
those increased costs, but provide a leeway for this reduction in price
to which you have referred ?
Dean PHILLIPS, It is a little difficult for me to be sure that I am
facing exactly the question that you ask and, therefore, I hope you
will appreciate it if my answer does not quite register with your
expectations.
Mr. CRAWFORD. Yes,
Dean PHILLIPS. It

sir.

is impossible, in my judgment, to ascertain
quantitatively exactly the reductions in costs attributable to the introduction of labor-saving devices and procedures. About all that we
can do is to look around us, as your Michigan State seal would suggest—look around us and observe and reach our conclusions on the
basis of the best observations, the best information available, realizing very well that the conclusions are based upon something which
cannot be definitive, final in its exactness.
As an observer, it would seem to me that we have had, particularly
since 1918-1920, a most extraordinary reduction in costs, attributable
to science applied to industry.
Mr. CRAWFORD. I agree with that statement fully.
Dean PHILLIPS. I cannot answer your question specifically. We
have not the information. Your question calls for the possession of




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exact information which, so far as I know, is unobtainable. Did I
answer the question?
Mr. CRAWFORD. I think that is a pretty good answer. Now, as
plants every day are improving in their technology, installing new
machinery, they are reducing the amount of human effort; there is
not any question about that. But if, by Government decree, we
increase the rates of pay 25 or 50 or 75 percent—when I say increase
the rates, I mean increase the rates of direct labor cost per unit
turned out, and that automatically takes care of the increased units
turned out per man-hour. So those increased rates, in my opinion,
in many places are absorbing the savings in human effort. Now, to
the extent that that is true, there would not be any room for reducing
the price, according to your formula, would there ?
Mr. GOLDSBOROUGH. The market would be greater, would it not?
Dean PHILLIPS. I should like to try to answer the question by going
one step further and pointing out that to the extent that wages are
increased, as you suggested, then the entrepreneur, the businessman,
is under an increasing inducement, because of high wages, to invoke
still further labor-saving devices. So that temporarily you have technological unemployment accentuated and technological unemployment, thus created, becomes a social problem.
Mr. CRAWFORD. NOW, taking your suggestion into the other channel,
assuming the machinery is installed and the human effort is reduced
and prices are reduced accordingly. Where does that leave the man
who has obligated himself many years prior to that taking place on
the basis of a higher selling price per unit? In other words, this
question now brings us into the field of the debtor. Would he be
interfered with in any way whatsoever through the reduction of price,
according to your formula, or did you make that statement independent of what effect it might have on the debtor ?
Dean PHILLIPS. The debtor's status will be determined in part by
the price level and not by the rate of profit. If the price level declines,
the debtor is disadvantaged, because he pays his debts in bigger dollars. He is disadvantaged. But if his profits are adequate, there is
at least a partial offset—at least a partial offset.
Mr. CRAWFORD. This last question, directed more particularly to
agriculture; whether or not the application of improved, new machinery has been resorted to in such a staggering manner in the last few
years—and more coming this coming year? Permitting a personal
reference, I have on my desk a new machine which I expect to purchase within the next 2 or 3 weeks. It will revolutionize agriculture so
far as my participation is concerned, and do away with 80 percent ol
the labor involved. That is, reduce the man effort. But if prices are
reduced on agricultural products, greater than the reduction in actual
cost per unit, per bushel of wheat or per bushel of corn, as the case may
be, then that comes within your last answer, does it not, where the
debtor is handicapped by reason of a reduction in price ?
Dean PHILLIPS. The debtor, before he buys the machine—debtors
in general have to keep those considerations in mind. It is one of
the hazards of the business.
Mr. CRAWFORD. That is all, Mr. Chairman.
Mr. FORD. May I ask just one question ?
Mr. GOLDSBOROUGH. Proceed.




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Mr. FORD. Mr. Phillips, in your judgment, what effect would openmarket operations have at the present time if the Board went into the
market and started to purchase securities ? Would that ease the situation, in your judgment, at all if done on a large scale ?
Dean PHILLIPS. Not greatly. The effect would be in the right direction, but it would not be great.
Mr. FORD. YOU do not think it would have any direct effect ?
Dean PHILLIPS. It would have some effect, but not great. The effect
would not be great, I am confident.
Mr. FORD. It would not have a major effect?
Dean PHILLIPS, Far from it.
Mr. FORD. There is a theory at the present time that if the Board
indulged in extensive open-market operations, they would loosen up
the money situation materially.
Dean PHILLIPS. What help would come would be not so much
from easing the money situation as in raising bond prices.
Mr. FORD. That, of course, would be a natural effect.
Dean PHILLIPS. That in itself wTould be helpful, but that is something that should be dealt with relatively lightly, it seems to me; it
is a delicate subject.
Mr. FORD. There is a proposal before this committee at the present
time to give the Board directions to go into the market and conduct
open-market operations. I do not know just to what extent that
order would go, but it would be an order of Congress for them to
do it. The idea is that if they went in and purchased two or three
billion dollars worth of securities it would place more money in
circulation and have the tendency to counteract the present depression or recession, or whatever you want to call it. In your judgment
would that be a sufficiently important factor to be worth while doing,
coupled with the lowering of the reserve requirements, and so forth %
Dean PHILLIPS. My own strong feeling would be against that procedure for this reason. The Federal Reserve authorities today have
very significant power controlling the credit structure. If the power
is inadequate, then let Congress confer more power. But it is illogical, to my way of thinking, for Congress, which is made up of a
cross-section of our—we will say our lawyers, our businessmen,
farmers, and others—it is illogical to let laymen, however competent they may be in their own fields, step over en masse into finance
and control financial operations directly. That is about what it
would mean.
Mr. FORD. Here is a thing this committee has discussed at some
length. There seems to be a feeling in the committee at the present
moment that the Board has had the power but for some reason are
refusing to use those powers as it is assumed Congress wants them
to do. They are not doing things they ought to do and doing things
Congress thinks they should not, for instance, in increasing the Reserve rate. Then there is another feeling that had the Board gone
into the market and purchased securities that it would tend to ease
things up. There is a strong feeling in the committee and there is
considerable feeling in Congress to that effect, and that feeling is
motivated or based on the constitutional authority for the United
States Congress to coin money and regulate the value thereof. If
they have the right to regulate interstate commerce, certainly they
have the rio\ht to regulate the money, and it is assumed that is what
Congress should do, instead of having a board appointed and allow-




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ing them to use their judgment, that Congress ought to say we want
this done and this done and this done and give them directions, and
put that in the law on the assumption that their doing that would
bring about certain conditions that Congress thinks are desirable
at this time. Do I state it clearly ?
Dean PHILLIPS. I understand your question very clearly. It is
easily conceivable that the Board of Governors will make some mistakes. Bank directorates, central banking, through history, have
made great mistakes, but if Congress were to assume responsibility
for the amendment of the Federal Reserve policy, you would have
the control of our monetary system, banking system, price-making
forces, in the hands of laymen who know a great deal more about
other things in many instances than they do about this extremely
difficult subject of finance.
Mr. FORD. IS it not conceivable, however, that placing that particular power which is one of the most vital powers that Congress
possesses in the hands of a group of men might result in that that
group of men might be motivated not by motives of improving the
general welfare but by motives of profit that might accrue to them
through some other action ? I am not making that charge but I am
simply asking the question.
Dean PHILLIPS. I should not want to let any answer of mine indicate for a moment that the motivation of the Board of Governors of
the Federal Eeserve was questioned.
Mr. FORD. It might be mistaken.
Dean PHILLIPS. Surely.
Mr. WILLIAMS. What, in your opinion, would result if the board
of governors went into the open market and purchased a billion
dollars of Government bonds in the next 2 weeks ?
Dean PHILLIPS. Forecasting is one of the most difficult things to
attempt.
Mr. WILLIAMS. I am only asking your opinion.
Dean PHILLIPS. Someone has said of forecasting: Let a man forecast and it will disabuse his mind of the notion. If the open-market
operation to which you have referred were carried out, I suppose it
would be a reasonably safe prediction that Government bonds would
witness a stiffening in their price.
Mr. WILLIAMS. Undoubtedly that would be one of the results.
Dean PHILLIPS. Yes.
.Mr. WILLIAMS. Would there be any other?
Dean PHILLIPS. The increase in the price of Government bonds
would tend to spread to some extent—how great I do not know—to
very high-grade industrials, railroads, municipal bonds, and utilities.
I t would tend to spread in the other categories.
Mr. WILLIAMS. What effect would it have on the excess reserves of
the bank?
Dean PHILLIPS. It would increase the excess reserves.
Mr. WILLIAMS. What effect would it have on profits ?
Dean PHILLIPS. I can speak only in terms of tendency. The tendency would be in the upper direction.
Mr. WILLIAMS. It would depress prices?1
Dean PHILLIPS. NO ; it would tend to cause prices to go up.




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Mr. WILLIAMS. I understood you to say prices from 1921 to 1929,
speaking generally, were not allowed to fall. What do you mean by
"not allowed to fall"?
Dean PHILLIPS. I might not have been justified in using that
phrase, "were not allowed to fall." I used it because it seemed to
serve the purpose of brevity and seems to have substantial justification. During the period under review Governor Strong, of the Federal Reserve Bank of New York, was the dominant influence, and he
acted on the belief or conviction that the price level could be stabilized
by increasing the purchasing power inherent in bank deposits.
In that respect he was a disciple of Irving Fisher. Irving Fisher
says today that if Governor Strong had lived the price level would
not have been allowed to break. Governor Strong admittedly had
very great influence in Federal Reserve circles, and the policy of the
Federal Reserve of that period was given color and complexion by
his views, and it was the Federal Reserve policy which was primarily responsible in a regulatory way for the swelling in the volume
of deposits that took place in the twenties, culminating in 1929.
Mr. WILLIAMS. What specifically did they do?
Dean PHILLIPS. Keeping the discount—they kept the discount rate
at a level which made possible expansion. They participated in
open-market operations in ways that were conducive to expansion
of bank deposits.
Mr. WILLIAMS. They raised the discount rates up to as high as- 20
to 25 percent.
Dean PHILLIPS. The discount rate?
Mr. WILLIAMS. The market rate.
Dean PHILLIPS. The call money market rate ?
Mr. WILLIAMS. Yes.
Dean PHILLIPS. The

Federal Reserve Board did raise the call
money market rate.
Mr. WILLIAMS. They had no right to do that, and have no right
to do that now, have they?
Dean PHILLIPS. I think not.
Mr. WILLIAMS. They have no power.
Dean PHILLIPS. NO power over that particular rate; no direct
power.
Mr. WILLIAMS. Not direct power.
Dean PHILLIPS. Not directly.
Mr. WILLIAMS. What did they place the discount rate at?
Dean PHILLIPS, It varied.
Mr. WILLIAMS. HOW high did it go ?
Dean PHILLIPS. I believe that the maximum was fixed at 6 percent. That is my recollection.
Mr. WILLIAMS, Di<J they purchase or sell in the open market at
that time extensively?
Dean PHILLIPS. Rather extensively.
Mr. WILLIAMS. During that period.
Dean PHILLIPS. Yes.
Mr. WILLIAMS. It was their policy, in your opinion, which kept
or sustained the market price during that period.
Dean PHILLIPS. That policy was very important as a factor, highly
important.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. WILLIAMS. It seems to me that adds a great deal of force to the
argument that that could be done now.
Dean PHILLIPS. Witness the results. Witness the apparent results
of maintaining prices at a stationary level and when costs were declining. The results were abnormal profits to industry, abnormal security prices, commitments along business and investment lines that
could not have occurred but for the abundant credit of that period.
Mr. WILLIAMS. However, as I understand your position now, that
was simply bad judgment on the part of the board in permitting the
situation to exist. As a matter of fact, do they in your view have the
power largely to control the price level ?
Dean PHILLIPS. Yes; largely, but not quickly.
Mr. WILLIAMS. What do you mean by that?
Dean PHILLIPS. I mean by that that when prices are low as they are
today, when industry is slack, when the psychology of the people is
pessimistic, when the spirit of enterprise is marked by lassitude, under
those conditions there is not a great deal that can be done. You have
to wait. You have to wait for the patient and his natural powers of
recovery to assert themselves. Make conditions favorable and in
time those favorable factors will be effective.
Mr. WILLIAMS. Your position is that the only thing you would do
or that the Board ought to do in your view is lower the reserve again,
the requirement.
Dean PHILLIPS. I would have done it long ago before things got
so bad.
Mr. WILLIAMS. Would you do it now?
Dean PHILLIPS. Yes; I would do it now and show the good faith as
an illustration of my willingness to say that I had made a mistake.
Mr. WILLIAMS. Would you lower the discount rate any ?
Dean PHILLIPS. NO; I do not think so.
Mr. WILLIAMS. YOU would not buy extensively Government bonds ?
Dean PHILLIPS. N O ; I would not be a heavy purchaser, but from
time to time it would be advisable to feel the way to see what the
results are as an experiment.
Mr. WILLIAMS. In your opinion has the Board all the powers that
they should have in order to accomplish what is desirable in the way
of controlling the monetary policy of the country in the interests of
the people?
Dean PHILLIPS. The only point at which I think additional power
might be conferred has to do with the regulation of the reserve requirements to the other banks. They utilized all of the power that
had been conferred upon them.
Mr. WILLIAMS. One hundred percent ?
Dean PHILLIPS. Yes.
Mr. WILLIAMS. Would you throw down the bars entirely and give
them the complete power ?
Dean PHILLIPS. I would if I as a Member of Congress had confidence in the Board.
Mr. WILLIAMS. YOU said Congress has got to have confidence somewhere^ and you said it has got to have confidence in some other
administrative authority somewhere.
Dean PHILLIPS. Yes.




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Mr. WILLIAMS. In your view has Congress in doing that, in giving
the Federal Board the powers, exercised its duty under the Constitution to coin money and regulate the value thereof ?
Dean PHILLIPS. In my own judgment, Congress has acted in a constitutional fashion.
Mr. WILLIAMS. There is nothing further, or is there anything there
that Congress could do to carry out the constitutional mandate ?
Dean PHILLIPS. NO; it seems to me that there is not. We must
recognize that no form of economic organization is perfect. No form
of economic organization will give us what we regard as maximum
results. Our democracy, it seems to me, has given us excellent net
results. Drawbacks exist, weaknesses appear, but there is weakness
everywhere in all forms of organization.
Mr. WILLIAMS. In your opinion, would the ownership of the Federal Reserve bank by the Government help the situation any ?
Dean PHILLIPS. I think it would make matters much worse.
Mr. WILLIAMS. I agree with you; but I was wondering wThy, if we
had reached the same reason why.
Dean PHILLIPS. Direct Government control that would be augmented in some measure by Government purchase of the banks
would, inject, it seems to me, an undesirable element of a political
nature as opposed to the financial and economic considerations!
requisite.
Mr. WILLIAMS. It would put the Government directly into the
banking business in addition to determining the monetary policy of
the country.
Dean PHILLIPS. Not necessarily. Even France in nationalizing
the Bank of France 18 years ago, as the phrase goes,, nationalizing
the Bank of France, left the ownership in the hands of private stockholders, socialistic France.
Mr. WILLIAMS. Have you given consideration or thought and
study to the stabilization of price levels of the monetary management of other countries ?
Dean PHILLIPS. TO some extent, although I think it would be easy
to exaggerate the benefits that we might derive from a scheme which
would be operated successfully in a country like Norway or Sweden.
Mr. WILLIAMS. I was wondering whether any nation has ever been
able through manipulation or management of their money to regulate
the price level?
Dean PHILLIPS. The United States.
Mr. WILLIAMS. During the period of 1921 to 1929.
Dean PHILLIPS. Surely.
Mr. WILLIAMS. The United States made a better job than any
other nation ever has before or since.
Dean PHILLIPS. I would not wish to comment.
Mr. WILLIAMS. Has any nation ever done it within 1 or 2 percent of
a given level?
Dean PHILLIPS. Over a period of some years, but not under conditions the like of which we had in the United States.
Mr. WILLIAMS, It is not my understanding that has been done
anywhere. I do not think it has. That is not my understanding of
the figures.
Dean PHILLIPS. There are price levels and price levels. If you
take one price level you may have stabilization; if you take another
YOU have not.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Mr. WILLIAMS. I am talking about the general price level.
Dean PHILLIPS. DO you mean wholesale prices?
Mr. WILLIAMS. Yes. Not only here but any other country where
the matter is under consideration. There is some standard every*
where.
Dean PHILLIPS. I think our example is on a parity, as far as success is concerned, with other examples to which one might point.
Mr. WILLIAMS. That success, in your view, finally resulted in disaster.
Dean PHILLIPS. Yes.
Mr. WILLIAMS. On top of that you do not think it is desirable, even
if we could do it, to establish and maintain a stabilization of the price
level, even if it could be done.
Dean PHILLIPS. Not in a country like the United States, where
science with extraordinary success and vigor is being applied to
industry with the result of cost reductions.
Mr. WILLIAMS, YOU are in favor of having a dollar the value of
which would be the same today, yesterday, and forever.
Dean PHILLIPS. I am in favor of having a dollar which is as nearly
as may be stationary in terms of the most immediate consideration,
namely, human effort.
Mr. WILLIAMS. In cost of production.
Dean PHILLIPS. Human effort.
Mr. SPENCE. What do you think the framers of the Constitution
had in mind when they said Congress should have power to regulate
the value of money? What was their motive?
Dean PHILLIPS. I will attempt to answer your question negatively.
I am inclined to think that the framers of the Constitution did not
have in mind the considerations which have grown out of our extensive experience with changing price levels.
Mr. SPENCE. They were dealing with a very fluctuating currency.
Dean PHILLIPS. They had come out of a period of highly fluctuating currency.
Mr. SPENCE. That was an application of the legislative power, was
it not?
Dean PHILLIPS. Legislative power?
Mr. SPENCE. What right has Congress to delegate its power to any
board without direction? If Congress delegates all the powers delegated to them as legislative powers without any definition or without
any direction or without any limitation, it is certainly the delegation
of legislative power to an administrative board. Is not that trup.2
Dean PHILLIPS. Well, I prefer to allow persons who are thoroughly
familiar with the constitutional phases of this matter to testify at
that point. While I have my own notions, I think they are not deserving of your careful attention, and I will ask you to allow me to
refrain from commenting extensively.
Mr. SPENCE. I t would not be unusual for Congress to do that,
because it has been in the habit of doing it, and this would be delegation of legislative power to an administrative board, and it is my
humble opinion that they would be limited in some way or should
be directed in order to make it conform to the Constitution.
Dean PHILLIPS. Congress, of course, had no conception of a situation wherein banking played the part that it plays today.




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Mr. TRANSTJE. What part—it was mentioned by Mr. Williams—
what part is the Government to play in the regulation of the currency
and what part is banking or private business? Do I make my
question clear?
Dean PHILLIPS. I think so.
Mr. TRANSUE. Where is the line of demarcation between governmental regulation of the value of our money in that field and what
part is private banking ?
Dean PHILLIPS. When Congress fixes reserve requirements, Congress sets the bounds within which the bank operates, and in that
very important sense controls the actions. Moreover, when Congress
as it has done makes provision for the existence and the appointment and the work of the Comptroller of Currency and his field
examiners, Congress is again exercising a very positive type of
control.
Mr. SPENCE. Along the line of your prepared statement, you said
a great deal about the changes in the conditions of installment buying. You thought that that had had an effect on our present condition, and I understand that was by a voluntary understanding or
agreement with the purchasers of the goods, and that the Government had no part in changing the conditions under which installment
buying was taking place. Is that true?
Dean PHILLIPS. The Government might have had a very considerable part.
Mr. SPENCE. HOW would the Government regulate the conditions,
within the State, of installment buying?
Dean PHILLIPS. The Government did not exercise any influence
there at the time, but it is an experience which should be instructive
to Congress. I should like to make this further statement, that the
idea of collusion among the financial agencies having to do with
installment credit is not apparent. They undoubtedly were witnessing a great increase in their repossessions. They think that they had
made a mistake, that they had been extending that credit for too
long a period, charging too little as an initial installment. They
recognized their mistake. They corrected their mistake in a way
which it seems to me was inimical to the public interest. Government makes mistakes. Private industry makes mistakes. Let us
both learn from our mistakes.
Mr. SPENCE, My point is that the great majority of those transactions were entirely intrastate traffic. How can the National Government pass any law that would affect the character of transactions
intrastate? If they were in interstate commerce, or something in
which the National Government has jurisdiction, all right, but I do
not see how the Congress could pass a law affecting those
transactions.
Dean PHILLIPS. My own personal preference would be that Congress try something else before passing a law. I would try cooperation as between the Secretary of Commerce and those agencies,
voluntary cooperation. If that does not work, then talk about passing a statute.
Mr. CRAWFORD. I take it the banks have somewhat gone out of
their way in order to absorb this installment financing, and when I
say banks I mean members of the Federal Eeserve system, banks,
and depositaries, and some in the Federal Deposit Insurance Corpo-




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

ration. Would you include in your statement of our working
through the Department of Commerce, that they also think about
the activities on the part of those Government-controlled and Government-directed and Government-regulated banking institutions,
with reference to that particular installment paper ?
Dean PHILLIPS. Yes; I think your suggestion is very good, but it
should be combined with the notion that many State banks are available for handling the paper in competition with the national institution and nonmember banks.
Mr. CRAWFORD. Most of them are insured by F. D. I. C.
Dean PHILLIPS. Most of them.
Mr. CRAWFORD. F. D. I. C. could have some control.
Dean PHILLIPS. It might seek control there.
Mr. TRANSTJE. The fact that a bank has gone into that type of
business which they do not want to do would evidence that there
is no longer the field they used to have in all lines of production.
Dean PHILLIPS. Yes; and evidence of redundancyr of reserves.
Mr. WILLIAMS. DO you think the Federal ReserA e Board made a
mistake in raising the reserve requirements at all ?
Dean PHILLIPS. A judgment after an event is so easy to express
as compared with the difficulty of formulating a sound judgment
before the event. My answer to the question would not have very
much meaning. I will answer it if you want me to.
Mr. WILLIAMS. I would like to have your answer. We have had
a number of different answers and had it both ways. I was wondering from your experience and study of the question whether that
was a wise move or not. No one is going to impute any improper
motives.
Dean PHILLIPS. The increase of reserve requirements added to the
fear of inflation. I did not share that fear. That is my answer.
Gentlemen, I think I ought to step aside, because Professor Bradford is here and has a statement to submit.
Mr. TRANSTTE. Before you finish I just want to have you sum up.
We have the problem of trying to do something to correct conditions
as they are now. Will you sum up and tell us just what we should
do, in your opinion?
Dean PHILLIPS. I should prefer, particularly at this late hour, to
have you take my original statement and brief from that.
Mr. PATMAN. YOU do not have specific suggestions to specific
questions ?
Dean PHILLIPS. In response to some questions from you I made
specific suggestions.
Mr. LUCE. In the matter of regulating money it is to be observed
that Congress delegated to the executive branch our devaluing gold.
Now, in connection with that, the President has recently repeated
the view that he expressed, notably in the case of the ill-fated London Conference, to the effect that we ought to have currency that
will result in fulfillment of contracts, in the transfer of value equivalent. Evidently an essential fact in that matter is to know the average life of the contract in order that as little injustice as possible
may be done. I have seen but one estimate on that point where
Professor Fisher at one time said that the average life of the contracts in this country was 11 months. I should say that I asked him
at a later time if he was still of that opinion, and he said "no"; that




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281

he had changed his view on that matter. Are you aware of any
estimate on that point ?
Dean PHILLIPS. NO ; I am not. I would call your attention to the
fact that there are many different kinds of averages.
Mr. LUCE. Has anyone attempted to say what average would work
the least injustice? I speak of that because this bill follows out previous action of the committee, back in 1926 as a medium point, so to
speak, but 1926 is now 12 years back. Can you suggest any way on
which you can ascertain what ought to be the medium point?
Dean PHILLIPS. I should prefer, if it is agreeable to you, to have
you refer that question to others who may give you joint responses. I
should think that not one response but joint responses would be
desirable. My own personal feeling is that maybe the perfect level of
1926 would be too high to be consonant with contract validity in the
best sense.
Mr. FORD. I should think the Federal Keserve Board could make
that estimate. They have the most volume.
Mr. GOLDSBOROUGH. We explained very fully on Friday the only
thing we could do would be to have a session between 10:30 and 12,
and we have had this session now between 11 and 12: 30. The military
appropriation bill is on the floor, and I think we will have to adjourn.
Tomorrow Mr. Steagall has a matter that is coming up. This committee has no desire—in fact, I think the committee has every desire to
hear in full the opposition to this bill, as well as those who are in favor
of the measure, and no desire to hurry you in any way, but we cannot
do much better than hear one witness a day, and I think I so expressed
it on Friday. As far as I am concerned as acting chairman, after tomorrow we can come here every day until you finish, but I do not
think we can do much better than an hour and a half. I personally
will be here at 10: 30 every meeting where I preside.
Mr. CRAWFORD. DO you think we could finish the E. F. C. bill
tomorrow ?
Mr. GOLDSBOROUGH. That is what Mr. Steagall thought.
Mr. PATMAN. HOW many more witnesses?
Mr. GOLDSBOROUGH. Five.
Mr. FORD. I have a witness from California who would like to be
heard on the subject.
Mr. WILLIAMS. There was some suggestion here that Governor
Eccles would be back here Monday.
Mr. GOLDSBOROUGH. He will be back but he does not have to hurry.
Mr. FORD. I would like to hear some of the Board. I think we
ought to get a joint view of the subject. We listened to Mr. Eccles,
Chairman of the Board.
Mr. GOLDSBOROUGH. We will do the best we can, Professor Spahr.
Mr. SPAHR. Professor Bradford is here and may not be able to
come back. If he could introduce his prepared statement it might
help the committee.
Mr. GOLDSBOROUGH. I do not think the committee would have any
objection to that. Of course, the committee would like to have the
opportunity of discussion as we have had this morning, but if Professor Bradford cannot come back I do not think the committee would
have any objection to the introduction of his prepared statement.




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STATEMENT OF PKOF. FREDERICK A. BRADFORD, LEHIGH
UNIVERSITY, BETHLEHEM, PA.
Mr. BRADFOKD. I thank you, Mr. Chairman, for the opportunity of
submitting my prepared statement, which I would have been glad to
read to the committee, but as I may not be able to come back to
another meeting of your committee I will just submit the statement.
Mr. GOLDSBOROUGH. It will be printed in the record.
Mr. BRADFORD. It is my understanding with respect to the bill
under consideration by this committee that the present inquiry is
chiefly concerned with a proposed amendment to the Federal Reserve Act. This amendment, I understand, would make it the duty
of the Board of Governors of the Federal Reserve System to raise
the commodity price level, as measured by the Bureau of Labor
Statistics index, to 100 (the level for the year 1926). Therefore it
would be the duty of the Board to stabilize this price level within a
range of 2 percent above or below the 1926 level by means of openmarket operations. It is also my understanding that the proposal
contemplates the removal of members of thet Board of Governors by
the President upon resolution by either the Senate or the House of
Representatives for failure to carry out the aforementioned mandate
with respect to the price level.
I am opposed to the incorporation of such provisions in the Federal
Reserve Act, and my purpose in testifying today is to state briefly
the reasons for my position on this question.
My major reason for opposing the passage of the amendments
referred to is that I am convinced from years of study in the field of
money and credit that the proposed mandate to the Board of Governors of the Federal Reserve System is one that the Board would
find impossible to carry out. There are both theoretical and practical reasons to support this conviction. The theory of the relation
between the volume of money and credit and the commodity price
level is extremely complex and it would be well-nigh impossible to
discuss it with any degree of thoroughness at this" time. As indicating in a general way my feeling in the matter, however, I should
like to quote briefly from the Annual Report of the Federal Reserve
Board for the Year 1923. In that report the Board said:
It must not be overlooked that price fluctuations proceed from a variety of
causes, most of which lie outside the range of influence of the credit system.
No credit system could undertake to perform the function of regulating credit
by reference to prices without failing in the endeavor.

And later:
Credit administration must be cognizant of what is under way or in process
in the movement of business before it is registered in the price index. The
price index records an accomplished fact.

That last statement, gentlemen, contains the gist of the whole matter. Prices are the results of business operations that have gone
before. The attempt to maintain a stable price level by reference
only to a commodity price index may be likened to locking the stable
door after the horse is stolen. It is putting the cart before the horse
and confusing cause and effect. Moreover, as the Federal Reserve
Board pointed out in 1923, the business operations which result from
any given level of prices are by no means all amenable to credit control. Many factors other than the expansion or contraction of de-




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

283

posits affect business, employment, and prices. There is, therefore,
no certainty that manipulation of the volume of deposits would attain
the desired results. In fact, such manipulation would be more likely
to unsettle business and bring about wide price fluctuations than to
result in a stable commodity price level.
So much, very briefly, for the theoretical aspect of the problem.
Turning to the practical phase of the question, we have at hand
abundant evidence of the impossibility of maintaining a stable commodity price level through credit control. Not so long ago there
were few more ardent believers in the ability to control business and
prices through credit management than Mr. Marriner S. Eccles,
Chairman of the Board of Governors of the Federal Reserve System.
Although not agreeing with Mr. Eccles' theories, I have always had
the highest respect for his honesty of opinion and for his consistency. I believe that he has done everything in his power first to
raise commodity prices and then to stabilize business and prices
through credit control. The Board of Governors has had fully Tas
great powers as any central banking authority could wish, as w ell
as the will on the part of its Chairman, to carry out the mandate
contained in the proposed legislation.
Yet the result has been failure. According to a recent newspaper
article, Mr. Eccles is quoted as saying:
I think if we look to monetary policy as the sole factor to stabilize an
economy we're going to be terribly disappointed.

I agree fully with Mr. Eccles in this opinion. In opposition to
this viewpoint, the same newspaper article quotes Mr. Patman as
saying:
Everything was going fine until billions of dollars of money were destroyed
by the Federal Reserve Board doubling reserve requirements.

Just how changing the name of a number of billion dollars of
credits on the books of the Federal Reserve banks from "excess reserves" to "required reserves," when these reserve balances were not
being utilized by the banks or business, can be termed "destroying
billions of dollars of money" is difficult to understand. Member
banks of the Federal Reserve System now have a billion and a half
dollars of excess or unused reserves in spite of the raising of reserve
requirements. I t would be well to wait until this excess is utilized
by business before complaining about the policy of the Board of
Governors in raising required reserves. Both that and the Treasury
policy of sterilizing gold imports were fully in the circumstances
and, in my opinion, have had little to do with the present slump in
business and prices.
Other examples of the inability of credit policy to control the
volume of employment and business and the level of prices could be
indicated, but it seems unnecessary to recite them here. The problem
is too complex to permit of any simple means of control, such as that
proposed in the bill under discussion. If this proposal were enacted
into law, and if the House of Representatives or the Senate followed
its prerogative of requiring the President to remove Board members
for failure to maintain a constant commodity price level, I very much
fear that the Board of Governors of the Federal Reserve System
would become a rapidly revolving body. No member could hope to
hold his position for long under such circumstances.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

It is to be hoped that neither of the proposed amendments is enacted into law, and I wish to register my opposition to their enactment as emphatically as possible.
Mr. GOLDSBOEOUGH. The committee will go into executive session.
(Thereupon, the committee went into executive session, and at
12: 45 p. m. adjourned to meet again at the call of the chairman.)




GOVERNMENT OWNERSHIP OF THE 12 FEDERAL
RESERVE BANKS
THURSDAY, MARCH 31, 1938
HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING AND CURRENCY,

Washington, D. G.
Hearings on H. E. 7230 were resumed at 10:47 a. m., Hon. T. Alan
Goldsborough presiding. Other members of the committee present:
Mr. Eeilly, Mr. Williams, Mr. Spence, Mr. Farley, Mr. Ford, Mr.
Brown, Mr. Patman, Mr. Luce, and Mr. Crawford.
Mr. GOLDSBOROUGH. The committee will come to order.
Gentlemen, Professor Spahr is with us this morning to discuss H. R.
7230.
I think that Professor Spahr has a statement to make concerning
the other witnesses who were to appear before the committee, but wTho
were prevented from appearing by the committee's action on the
Reconstruction Finance Corporation bill.
We would be very glad to hear you, Professor Spahr.
STATEMENT OF PEOF. WALTEE E. SPAHK, REPRESENTING THE
ECONOMISTS' NATIONAL COMMITTEE ON MONETARY POLICY
Professor SPAHR. Mr. Chairman and members of the committee,
w^e realize the difficulties that this committee has faced and the pressure
of other duties, and we are not desirous of asking for any more time.
But it occurred to me that this morning I might close the testimony
so far as the membership of our committee is concerned.
Mr. GOLDSBOROUGH. May I say at this point that there are several
members ofTthe committee who have expressed interest in hearing the
witnesses w hose names you previously sent in. If they would like to
be heard, the committee would certainly hear them, I am sure.
Professor SPAHR. We appreciate that, and if the committee should
like to call them, naturally that is the committee's privilege.
I have with me this morning testimony by Dr. Beckhart, of Columbia, which I should like to introduce in his absence at the close of my
testimony, if that is agreeable to the committee.
Mr. GOLDSBOROUGH. Without objection, that may be done.
Professor SPAHR. AS for myself, I did not prepare any formal
statement, because I had prepared a brief statement in this little
pamphlet, which includes the statement of 36 members of our
economists' committee, and I should merely repeat what is in there,
and all of you, I think, have copies of this pamphlet. It seems to me
69972—38

19




285

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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

that it would be a great saving of time if I were permitted to insert
in the record the statements of these 36 members.
Mr. GOLDSBOROUGH. Without objection, that may be done; but,
Professor Spahr, I do not know whether you have tried cases before
an appellate court or not, but my experience of many years is that the
verbal statement brings about much better results than the written
brief.
Professor SPAHR. May I add, Mr. Chairman, that there is a statement in here of 72 members of the committee, in which they merely
signed a general statement regarding the bill. I should like to introduce that as well as the 36 analyses.
Mr. GOLDSBOROUGH. Without objection, that may be done.
(The statements of the 36 and the 73 economists referred to are
reproduced below.)
THE PATMAN BILL (H. R. 7230) WHICH PROVIDES FOR GOVERNMENT
OWNERSHIP OF FEDERAL RESERVE BANKS AND CHARGES THEM
WITH THE RESPONSIBILITY OF STABILIZING THE PURCHASING
POWER OF MONEY
Opinions of 36 members of the Economists' National Committee on MonetaryPolicy, 70 Fifth Avenue, New York, N. Y., March 1938
Opinions by—
Agger, Dr. Eugene E., Rutgers University.
Arbuthnot, Dr. Charles 0., Western Reserve University.
Barrett, Dr. Don C, Haverford College.
Bogart, Dr. Ernest L., University of Illinois.
Bradford, Dr. Frederick A., Lehigh University.
Bratter, Herbert M., Washington, D. C.
Cable, Dr. J. Ray, Washington University.
Calhoun, Prof. Wilbur P., University of Cincinnati.
Chapman, Dr. John M., Columbia University.
Comstock, Dr. Alzada, Mount Holyoke College.
Cox, Dr. Garfield V., the University of Chicago.
Cumberland, Dr. William W., Wellington & Co., New York.
Dowrie, Dr. George W., Stanford University.
Dunkman, Dr. William E., the University of Rochester.
Ennis, Dr. William D., Stevens Institute of Technology.
Fisher, Dr. Clyde Olin, Wesleyan University.
Fitzgerald, Dean J. Anderson, the University of Texas.
Fraser, Prof. Herbert F., Swarthmore College.
Haney, Dr. Lewis H., New York University.
Kemmerer, Dr. Edwin W., Princeton University, president of the committee.
Leffler, Prof. Ray V., Dartmouth College.
Leonard, Dr. J. L., University of Southern California.
Patterson, Dr. Ernest Minor, University of Pennsylvania.
Preston, Dr. Howard H., University of Washington.
Reed, Dr. Harold L., Cornell University.
Robinson, Dr. Leland Rex, 50 Pine Street, New York City.
Spahr, Dr. Walter E., New York University.
Sprague, Dr. Oliver M. W., Harvard University.
Steiner, Dr. William H., Brooklyn College.
Tippetts, Dean Charles S., University of Pittsburgh.
Tostlebe, Dr. Alvin S., the College of Wooster.
Trant, Dean James B., Louisiana State University.
Tucker, Dr. Rufus S., Westfield, N. J.
Weisman, Prof. Russell, Western Reserve University.
Wright, Dr. Ivan, University of Illinois.
Young, Dr. John Parke, Occidental College.
Committee statement signed by 72 members.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

287

ASSUMPTIONS TO W H I C H VERY FEW SPECIAL STUDENTS OF THE SUBJECT WILL
SUBSCRIBE

Dr. EUGENE E. AGGER, Rutgers University

While I do not seriously disapprove the governmental ownership of the Reserve System, considered as an isolated question, I object to its being done for
the purposes specified in the proposed bill.
The ownership of the Federal Reserve banks is essentially a small matter in
this bill,.but, in any event, it should be considered on its individual merits without involving it with theories of central bank policy. In its implications concerning such policy, the bill makes assumptions to which very few special
students of the subject will subscribe. Within limits, central banking policy
can be used to influence prices and the developing business situation, but it is
fantastic to assume that such policy could alone assure a stable money unit. It
would appear undesirable also, to maintain "dualism" in banking control as
between the Federal and State Governments, if integration of the banking system is desired. Such integration is indispensable to banking organization even
if the objectives sought be only those limited possibilities of control that modern
experience indicates to be attainable. The enlarged Board of Governors appears
to me unnecessary. It is expertness and understanding that is needed in the
Board. Its size should be determined by such a need and not by a desire to
make the Board "representative" of either geographic or functional interests.
No member of the Board should "represent" any "interest." Whether or not
the ownership of the Reserve banks be vested in the Government, the responsibilities of the Board of Governors should be expressed in broad general terms
without attempting to specify objectives and leaving to the Board to do its job
as changing circumstances make necessary.
IMPOSSIBLE TO STABILIZE PURCHASING POWER

Dr. CHARLES C. ARBUTHNOT, Western Reserve University
Government ownership of the 12 Federal Reserve banks would not prevent,
but rather increase, the probability of injurious expansion of credit and currency. The way the Treasury Department has used its control over the banks
of the country to serve its own purposes rather than to maintain sound credit
and currency conditions indicates that Government ownership of the Federal
Reserve banks would leave the Treasury Department still freer to save its face
in unsound fiscal policies to the neglect of wholesome conditions for business
and the general public.
It is an economic impossibility to stabilize the purchasing power of the dollar
by banking control. It would be a political blunder to lead the people to believe
that this is possible. The inevitable failure might lead to public resentment so
strong as to result in wrecking the Federal Reserve System. Public men who
create expectations that cannot be fulfilled are sowing the wind. They or their
successors will reap the whirlwind. The extreme manipulations that would be
resorted to before the public would be convinced that the scheme was unworkable, would upset the productive business of the country.
The proposal in section 2 that shares of stock of the Federal Reserve banks
held by member banks shall be bought by the Secretary of the Treasury by the
simple process of establishing a credit for these member banks on the books of
the Federal Reserve banks, indicates the dangerous conception of bank credit
in the minds of the authors of this bill. Such creation of purchasing power is
magic, not economics. This "bookkeeping money" is in a class with "printingpress money." This attitude toward bank credit has been the cause of most of
the banking troubles in this country.
BANKING SYSTEM SHOULD B E SCIENTIFIC

Dr. DON C. BARRETT, Haverford College
Our banking system should be owned and managed with strict regard for the
economic and scientfic principles and practices involved. Therefore, I am< opposed to the Patmaji bill (H. R. 7230). The Congress and the administration are
far more capable of compelling a privately owned and managed banking system
to maintain excellent principles and practices of good central banking than they
are of holding themselves, as owner and manager, to a high level of accomplishment for the public welfare in this important field.




288

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS
No REASON I S APPARENT TO WARRANT TAKING THE STEP PROPOSED

Dr. ERNEST L. BOGART, University of Illinois

When the Federal Reserve Board was reorganized and the Secretary of the
Treasury and the Comptroller of the Currency were eliminated as ex officio
members of the Board, a wholesome step was taken in removing governmental
interference. The unfortunate experiences of the central banks in France, Germany, Austria, Russia, Italy, and even in Great Britain during and after the
World War showed how the banking, commercial, and industrial interests of
the country could be sacrificed to the temporary and often mistaken policies
of the Government. Only the most pressing and urgent emergency could justify
such action. Such a condition does not exist in the United States and no reason
is apparent to warrant it now.
OPPOSED TO SOUND PRINCIPLES OF CENTRAL BANKING

Dr. FREDERICK A. BRADFORD, Lehigh University

The bill is opposed to sound principles of central banking. If the Board of
Governors should be increased to 15 members, in my opinion, one should be
appointed by the board of directors of each Reserve bank and the other three
by the President. This would give a Board of Governors not greatly different
from the Federal Advisory Council, which has shown itself to be a body of
sound judgment in central banking matters.
I object to the proposal that the Board of Governors should maintain a
constant purchasing power of the dollar for a generation, as I consider it impossible for the Board to do this.
As to Government ownership of the Reserve banks, I approve of the statement quoted in one of the committee's proposed pronouncements on the Patman
bill, H. R. 5010:
"The provision that the Federal Government should purchase the Federal
^Reserve banks probably would be a long step in the direction of greater financial
control in commercial affairs by the Federal Government. This power would,
in turn, give the Federal Government a greater amount of an undesirable type
of control over our entire economic structure, and in time would very probably
lead to an unfortunate type of central banking. In short, the provision runs
counter to the principles of good central banking, and provides a potent instrument for jeopardizing the economic welfare of this country."
Under present circumstances, the Government practically controls the Federal
Reserve System, but if no change is made in the present law, the situation in
this regard should alter for the better in the course of time.
WOULD CHANGE A MECHANISM ALREADY FUNCTIONING SATISFACTORILY
HERBERT M. BRATTER, Washington, D. C.

Not a few earnest and sincere Congressmen hold the view that the Federal
Reserve System is being run by the country's bankers in their own personal
interests and against the country's best interests. They therefore propose that
the ownership of the 12 Federal Reserve banks be acquired by the Government
so as to insure the banks being run in the interests of the Nation.
The proposal that the Government nationalize the Federal Reserve banks is
not only unnecessary, but contains important elements of danger to the country's
best interests. In full Government control of the policies of the Federal Reserve
System is the object being sought, then nationalization of the Reserve banks is
-quite unnecessary, for there already exists Government control, de jure and
defacto, in all matters of policy. The Federal Reserve System is today a public
Institution, privately financed by its members, but publicly directed.
Under the law, the Board of Governors is a public body appointed by the
President of the United States. Three of the directors of each of the 12 individual Reserve banks are appointed by the ,Board of Governors of the Federal
Reserve System sitting in Washington. Of the remaining six, three must be
nonbankers. Only three need to be bankers. The chairman and deputy chairman of each bank are appointed by Washington, and the president and first
vice president by each bank's board of directors, who are all subject to removal
by Washington for cause.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

289

Through controlling not only the banks' personnel, but also their credit
policies, the Government, through the Board of Governors at Washington,
controls the System. The Board of Governors of Washington not only previews
proposed changes in discount rates, but it may initiate them. It controls, for
example, reserve requirements, open-market operations, maximum interest rates
paid by member banks on time deposits, and the volume of loans by member
banks against a given amount of security. All the System's policies which
influence national monetary conditions are already subject to complete governmental control.
The 12 Reserve banks are creations of Congress. Stock ownership in them
by the member banks is compulsory, and moreover does not rest on the profit
motive. The rate of return on the stock is determined and limited by Congress.
Protfits to the stockholders play absolutely no part in determination of the
System's policies, which, being made by public bodies, are in the general
public interest, not in the interest of the member banks. In any case, only a
very small part of the resources of the Reserve banks are derived from the
capital stock. Mostly, these resources are derived from powers conferred byCongress.
Thus, ownership of the stock of the Federal Reserve banks by the Treasury
is far from the only way for the Government to control the Federal Reserve
System. The fact that the System, is nominally owned by its member banks
does not mean that it is controlled by them. Ownership of the stock by the
member banks is merely a method of raising capital for the Reserve banks. As
to the policies of the System, the member banks, despite their ownership of
stock, have very little to say on anything but local matters.
The functions of the Treasury and the Federal Reserve System are entirely
separate and distinct, as is proper and desirable. The Treasury's business
is to raise money and disburse funds for governmental purposes. The business
of the Federal Reserve System is to regulate the supply and cost of money,
adjusting them to the needs of trade and industry. It is very desirable to
have these two independent bodies work harmoniously together, but, because
of their different purposes, it is distinctly undesirable that they be merged.
Although two separate entities, the Treasury and the Federal Reserve System are in reality still but two arms of the same Government. But, being
separate organizations, the two should and now do represent separate viewpoints. This should not be changed.
It is desirable that the Federal Reserve System as an institution continue
to have local roots all over the country, as it has today. Were the System to
become federally owned, it would naturally reflect national political rather
than local business views. In a proper distribution of powers, the 12 banks
should have^ the fullest possible say as to policy on local matters, while the
Board of Governors in Washington should have full say on matters affecting
monetary management.
Rigid civil-service rules, which under Government ownership would undoubtedly be applied to the System, would handicap the efficient functioning of the
latter. At present the personnel is nonpolitical, and its activity businesslike.
There is no use making a far-reaching change of such importance in a mechanism which is already functioning very satisfactorily in the public interest.
If at any time it does not so function, the Government always is endowed with
full and adeauate powers to change the System's administrators or its policiesOPENS WAY TO POLITICAL PRESSURE OF AN UNDESIRABLE SORT

DR. J. RAY CABLE, Washington University
I am opposed to Government ownership and operation of the Federal Reserve
System. It would open the way to greatly increased political pressure of an
undesirable sort. It would make close contact between business and banks
more difficult to attain. It would tend to emphasize political expediency rather
than financial solvency. The most fundamental need of any banking system is
sound assets. This is a business and not a political problem. In my opinion,
the passage of the proposed H. R, 7230 would disturb seriously the confidence of
the business interests of the Nation. And in banking there is still no substitute for confidence.




290

GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

WRONG IN PRINCIPLE, THREAT TO BANKING SYSTEM, DANGEROUS FOR COUNTRY

Prof. WILBUR P. CALHOUN, University of Cincinnati
I am opposed to the enactment of the Patman bill (H. R. 7230) entitled, "A
bill providing for Government ownership of the 12 Federal Reserve banks, and
for other purposes." It is wrong in principle, is a serious threat to the integrity of our banking system, and is exceedingly dangerous to the economic future
of the country.
The proposal that the Federal Government purchase the Federal Reserve
banks and thus gain complete control over them is contrary to sound principles
of central banking. It disregards completely all past experience with centralbanking institutions. When considered against the background of recently
adopted legislation, it is impossible to escape the conclusion that a very important consideration in the minds of many of the advocates of the bill is that
is makes possible a very detrimental type of control over all economic activities
by the Federal Government.
The bill would make this Government-owned, politically controlled central
bank responsible for maintaining a stable price level. In my judgment this objective could not be achieved by any known type of monetary or banking
manipulation.
Even if it were possible to stabilize the general price level, this accomplishment would not produce business stability or "prevent injurious expansion and
contraction of credit and currency." The experience of the 1920's, when we
supposedly had a relatively stable price level, is a practical refutation of any
such belief.
Delegation of unlimited discretionary control over the reserves of member
banks is a power which should not be entrusted to any small group of men.
Possession of such power results in a strong urge to use it. The possibility
of pronounced and unpredictable changes in reserve requirements for banks
introduces into the credit system a dangerous element of uncertainty and
instability.
COULD NOT STABILIZE CURRENCY AND CREDIT

Dr. JOHN M. CHAPMAN, Columbia University

The provision that the Federal Government should buy the stock of the Federal Reserve banks would undoubtedly be a step toward a greater centralization of financial control over the banking system as well as economic system.
This would be another step toward the nationalization of our financial system
which would be most unfortunate at this time. Moreover, it is not now possible
for the Board of Governors or any other organization to give us such a stabilized
currency and credit system as is contemplated in section I of H. R. 7230.
Neither the management of Government finances nor the supervision and regulation of our banking system in the past two decades lends support to the idea
that the Board of Governors of the Reserve System would be able to give us
such a currency system as is proposed in H. R. 7230. We do not now have
the basic facts to make such control possible.
EXPERIENCE AGAINST IT

Dr. ALZADA COMSTOCK, Mount Holyoke College
Experience of other countries shows dangers of too close connection of Government with central-banking system.
NOTHING TO B E GAINED, WOULD DISTURB BUSINESS MORALE

Dr. GARFIELD V. Cox, the University of Chicago
I see nothing to be gained by Government ownership of the Federal Reserve
banks, and I am sure that any serious threat now of the passage of such a measure would further disturb business morale at a particularly critical juncture.
Also, I can think of no good reason for so great an enlargement of the Board.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

291

WOULD PROVIDE A POLITICAL BANKING SYSTEM CHARGED WITH AN IMPOSSIBLE! AND
UNDESIRABLE TASK

Dr. WILLIAM W. CUMBERLAND, Wellington & Co., New York
Mr. Patman has introduced a bill in the House of Representatives (H. R. 7230)
which is principally designed to change the Federal Reserve System from a
bankers' bank to a Government bank and, when this is done, to use such Government bank as an experimental laboratory for establishing and maintaining
commodity price levels.
Both economic history and economic logic cry out against both proposals in
Mr. Patman's bill. Competent students of currency, banking, and finance are
rather well agreed that such shortcomings as the Federal Reserve System has
exhibited in its 25 years of life have been due to excessive influence by the
Treasury. On numerous occasions its has seemed reasonably clear that the Federal Reserve Board and the Federal Reserve banks have taken action or refrained
from taking action because of the interests of the United States Treasury.
Sometimes the clear interests of agriculture, industry, and labor have been
subordinated to the convenience of the Federal Treasury.
In short, the influence of the Government over central banking is already too
great, and constructive reform would be in the direction of completely separating
the central banking system from Government influence or control. Mr. Patman's
bill is headed in precisely the wrong direction.
Price fixing has been a favorite pastime of inexperienced reformers throughout
the course of history. It has been attempted by government, by labor guilds, by
trade associations, and by economic dilettantes. Permanent success in price
fixing has never been achieved, and usually the attempts have resulted in serious
loss both to those immediately concerned with the fixed prices and to the community at large. Price fixers have to be human beings, and since they are human
beings they are affected by the frailties of human nature. Few people propose
price fixing except with the motive of raising prices before they are stabilized.
Price fixing is thus a protest against the verdict of economic forces. Since that
verdict is by definition, correct, the futility of attempting to set it aside by means
of artificial agencies should be apparent.
Not only does Mr. Patman propose to substitute a political engine for a scientific central banking system but he also proposes to charge that political engine
with a task which has proved to be impossible throughout the course of history
and in addition is undesirable, even if it could be accomplished.
GOVERNMENT SHOULD BE OFFICIAL—NOT PEINCIPAL PLAYER

Dr. GEORGE W. DOWRIE, Stanford University
While it is highly desirable in a system of banking like ours that there
should be set up machinery of public regulation and supervision, the Government's position should be that of an official in the game and not that of its
principal player. The objections to this proposed act and others of the kind
are that: (1) There are injected politics and Treasury domination; (2) individual initiative on the part of Federal Reserve and member banks is to be
destroyed; (3) it sets up an unwieldy and Government-dominated Board and
bank directorate.
BILL IS A STEP BACKWARD

Dr. WILLIAM E. DUNKMAN, The University of Rochester
This bill is a step backward in banking control. This is indicated by enlarging the Board of Governors, putting the Secretary of the Treasury and
Comptroller of the Currency on this Board, and encouraging small scale local
banking. "Money" and "banking" are seriously confused when the purpose
"to stabilize and maintain a dollar of uniform purchasing power" is to be obtained through centralized banking control.
BILL PROPOSES A STEP TOWARD A DANGEROUS SITUATION

Dr. WILLIAM D. ENNIS, Stevens Institute of Technology
This bill proposes one more long step toward the kind of situation which is
illustrated today in Germany, Italy, Russia—a situation which endangers the
peace and security of the world.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

The central banking system is the nerve center of business. By business
we understand the aggregate of accomplishment by the country's productive
workers. Its successful conduct and long-run growth depend on stimulation
(which comes from within) and on fair interplay, which it is the function of
government to assure.
Government's job—whatever else we may properly or improperly expect of
it—is that of a referee. When deliberate fouling is practiced by those who
play, it is government's place to interfere. But this does not mean that government should leave its post on the side line and enter the game itself. For
it to do so leads to confusion and waste.
Public-utility regulation, railroad regulation—these are appropriate fields for
government. In other fields, also, government has power and responsibility,
but has failed to protect or punish. Our history of bank failures, swindling
in securities, monopolistic practices, proves this. Government made the laws
and hired the men to enforce them. But the laws were not enforced, the
fouling went on. and the collapse came. Governmental processes have failed,
in general, even to punish the outstanding offenders.
Such extreme degree of Government participation as was attempted in the
National Recovery Act, Agricultural Adjustment Act, and so forth, tends toward
and succeeds only under a system of absolutism. In particular, government
control of the central-banking mechanism frees it of the last restraint. It
makes possible a perpetual program of deficit financing, irrespective of popular
mandates or controls. The taking over by Government of the Federal Reserve
System, in my opinion, means an unbalanced Federal Budget in perpetuity—
until the final crash comes.
A PANDORX\'S BOX OF PROBLEMS

Dr. CLYDE OLIN FISHER, Wesleyan University

The enactment of this bill would open a literal Pandora's box of problems
more serious than those it is designed to solve.
FEARS POLITICALLY MANIPULATED CREDIT EXTENSION

Dean J. ANDERSON FITZGERALD, the University of Texas
Time after time the President of the United States has explained an action of
the Federal Government by stressing that it was necessary because the need was
not met by private industry. I oppose the purchase of the Federal Reserve
banks by the Federal Government because there is no need for such purchase.
The public interest is sufficiently safeguarded by the regulatory powers of the
Congress and the Board of Governors of the Federal Reserve System. No institution has come through the trying years since 1929 with more praise or less
criticism than the Federal Reserve banks. Why further nationalize them? A
time-worn test of governmental operation has been, "Can the Government do it
better?" In this case, pray, how?
The objective of price stabilization is impossible of attainment by the powers
of a central banking system. Credit is only one of many price factors.
One looks forward with apprehension to any day that credit extension becomes
subject to political manipulation. Credit has many differences in its techniques
from businesses where the only problems are those of efficient nondiscriminating
uniform service to all applicants, such as postal facilities and waterworks, which
many have held to be particularly suited to Government ownership. The movement to nationalize central banking is just one phase of the agitation for the
nationalization of commercial and investment banking. The United States
should refuse to take this step.
SYSTEM SHOULD B E FREE FROM POLITICAL PRESSURE—COULD NOT STABILIZE
PURCHASING POWER OF THE DOLLAR

Prof. HERBERT F. FRASER, Swarthmore College
The objections to this bill fall principally under the head of Treasury-Central
Bank Relationships. It has long been the accepted view among monetary
theorists and also the practitioners of the art of central banking that the
functions of the central bank can be more affectively performed if the bank
is moderately free from the pressure of Treasury financing. It is also desirable




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to keep the bank free from the pressure of party politics. Nothing in the present
situation in the United States, nor in the recent history of other central banks,
seems to warrant or support any change in this view.
It seems to me that cooperation between the Federal Reserve banks and the
Treasury is very much to be prefered to domination of the banks and the
financial situation by the Treasury alone. We have already gone far enough
in giving governmental agency control over the credit situation. Through the
stabilization fund the Treasury is in effective control of foreign exchange;
through the concentration of gold in the Treasury the ultimate monetary reserves
are already in Government hands; through the large powers and place of the
Treasury in the money market the Government is an important if not the dominating element; through numerous and large banking enterprises and agencies
the Government is doing directly much important financing. I think that the
Federal Government has all the financial powers that it can wisely and successfully use. If it owned the Reserve banks, the Reserve Board would in time
become merely the agents of the Treasury. It is better that the Board should
retain a considerable measure of independence, and that the Treasury should
win its cooperation in the future as it has done in the past. It is equally desirable that the Board and the banks should consider the position of the members
as well as that of the Treasury. Such consideration will disappear when the
Government owns the banks and the Board sinks to the level of Treasury agents.
Finally, it is difficult to see what advantage would accrue to the Nation in
having the ownership of the Federal Reserve banks transferred to the Government. The chief effect would undoubtedly be the elimination of whatever
checks there now exist upon the utilization of Federal Reserve credit as a
means of financing governmental Budget deficits. The Government has now
sufficient regulatory powers over the Federal Reserve banks, and they can serve
the Nation better as checks upon loose governmental financing so long as they
remain quasi independent institutions, instead of becoming mere adjuncts of the
Treasury.
One of the declared purposes of the Patman bill is the stabilization of the
purchasing power of the dollar. There is no reason to believe that this is any
more possible of achievement by the Treasury than by existing agencies. If it
could be achieved it does not mean the stabilization of business; our greatest
depression occurred after several years of a fairly stable price level. Finally,
to suppose that it is possible of achievement by monetary and banking controls
is to misconceive the causes of changes in the price level and their fundamental
importance.
SUBSTITUTION OF POLITICAL FOB ECONOMIC VALUES WOULD B E HARMFUL

DR. LEWIS H. HANEY, New York University

In my judgment, any measure that would substitute political values for
economic values would be harmful. A politically "balanced system" means
politics: (1) Bank credit should be closely correlated with local business conditions. (2) Money must have nonarbitrary objective value, to serve as a
measure of economic value and a standard for credit. Neither could be possible
under this bill.
WOULD FORCE POLITICS INTO BANKS AND BANKS INTO POLITICS

DR. EDWIN W. KEM MERER, Princton University, President of the committee
Briefly stated, my principal objection is the following: This bill gives complete ownership of the 12 Federal Reserve banks to the Federal Government,
and gives to the President of the United States the power to appoint, subject to
Senate ratification, all 15 members of the proposed Board of Governors of the
Federal Reserve System (3 of whom are ex-officio members) and all of the 9
members of each of the Federal Reserve bank boards. The bill even abolishes
the Federal Advisory Council, which has existed since the enactment of the
original Federal Reserve law, a council consisting of one member chosen annually by each Federal Reserve bank from its own district, and whose powers
and duties are limited merely to conferring with the Board of Governors, to
calling for information, and to giving advice which the Board itself is under
no obligation to follow. The Federal Open Market Committee, which has large
powers over the expansion and contraction of the Nation's money and circulating bank credit, and of whose 12 statutory members at present 5 are selected by




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the Federal Reserve banks and 7 consist of members of the Board of Governors,
is by this bill made to consist exclusively of members of the Board of Governors.
Under the Federal Reserve Act this Presidentially appointed Board of Governors, and the 12 Presidentially appointed Federal Reserve bank boards of
directors, acting under its supervision and direction, would possess large dictatorial powers over the loan and investment policies and practices, note circulation and deposit currency of our 12 Federal Reserve banks and of practically all
of our fourteen-thousand-odd commercial banks.
The bill, if enacted, coupled with laws already on our statute books, would
give to the President almost complete authority over the country's currency and
banking system. On a scale never before known in our history or the history
of any other Anglo-Saxon nation, it would force politics into the banks and the
banks into politics. One of the outstanding lessons of history is the danger of
this mixture of currency and banking with politics. The mere suggestion of it
calls to mind memories of such American financial and economic disasters as
those growing out of our continental paper money issues of about a century
and a half ago; of Andrew Jackson's unfortunate war with the Second United
States Bank, and the subsequent crisis of 1837; of the Civil War greenbacks,
which remained unconvertible for 17 years, and depreciated at one time to as
low as 35 cents on the dollar; and of the inflationary silver-purchase measures
of the latter part of the last century and resulting panic of 1893-94.
Any turning over of our banking system on such a wholesale scale to Government control and management would, in my judgment, soon lead to its
political exploitation, make it a football of party politics, and ultimately end in
disaster.
The banking system of the country is affected with a very great public
interest, and should always be administered with a keen reference to public
welfare. To this end, it should be subject to effective Government supervision.
With such supervision, however, conducted under the limits of sound statutory
law, the banking system should be operated by bankers on banking principles
and not by Government officials largely on the principles of political expediency.
WOULD CREATE A DANGEROUS CASE OF POLITICAL ENTRANCE INTO BANKING SYSTEM

(Prof. RAY V. LEFFLER, Dartmouth College)
The Patman bill to provide for Government ownership of the 12 Federal Reserve banks, and for other purposes, is unacceptable to the citizens of the
United States because (1) it confuses the fields of public and business finance,
(2) it aims at purposes which are hardly within the influence of bank-credit
policies, and (3) it is very ambiguously stated and subject to different interpretations.
Government ownership of the Federal Reserve banks creates a dangerous
case of political entrance into the banking system of the Nation. The chief
danger of Government ownership of these banks is that these institutions would
easily become the special mechanism of Government finance and cease to be
central banks for commercial credit funds. The public welfare in matters of
credit supply and policy would be submerged in the desires and financial needs
of public officials. Political pressure and selfish aims would influence bank
policies and the use of bank funds. The public interests are best obtained by
privately owned central banks which are operated under carefully designed laws.
This bill is very vague and general, in its statements, but the inference is
clear that Government ownership of the Reserve banks would "prevent injurious expansion and contraction of credit and currency, stabilize and maintain a dollar of uniform purchasing power, and encourage the sound local
bank." These aims of central-bank credit policy are very indefinite. Even a
superficial study of the banking organization of this country and the effects of
the different credit policies will show that the ideals stated in this bill are not
simply matters of central-Jmnk ownership or policies. It will be as impossible
for Government-owned Reserve banks to achieve these ends as for privately
owned ones. The banking! system is only a part of a complicated economic
mechanism, and we cannot obtain any desired result by merely changing bank
ownership or policy. For this reason, it would be quite natural and necessary
for politicians to advocate the next step—Government ownership of all local
banks, and finally Government ownership of all industrial concerns. Our citizens should consider the nationalization of the Reserve banks and our industrial
life with full understanding of the possible consequences.




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295

This bill moves in the wrong direction when it permits any State bank in
the Federal Deposit Insurance Corporation, under certain rules, to enjoy( all
the rights and privileges of the Federal Reserve System. In order to obtain a
sounder and more effective banking system for the country, it is highly desirable that all commercial banks operate under a single national law. This bill
would perpetuate and encourage great confusion in the operation of commercial banks and tend toward lower standards of banking.
The provision of the bill relating to the composition of the Board of Governors is another step backward. It would include the political officials in charge
of Government finance. This provision was included in the original Federal
Reserve Act and changed under the present administration because the influence of these officials on credit policies was considered as undesirable. This
bill would also increase the size of the Board. This amendment is of doubtful
value when efficiency and quickness of action may be desired in matters of
credit problems.
Two other weaknesses appear obvious in the proposed legislation. The first
relates to the provision that all of the directors of each Federal Reserve bank
shall be appointed by the President of the United States. This method of appointment would certainly lend itself to political influence and packing of the
boards. There would still seem to be good reason to have the representatives
of the public and business interests chosen in some other way, even though the
Government might think it desirable to choose the class A directors as suggested. The second weakness relates to the abolition of the Federal Advisory
Council. This organization does not determine policies or participate in the
operation of the banks. But it has been especially useful in making suggestions for changes in the law and other matters relating to the banks. Such a
council would continue to be of service even under Government ownership of
the Reserve System. Incidentally, it is doubtful if a maximum salary limit
should be prescribed by law. Salaries must be paid according to the market
for capable bank executives. In general, the maximum figure stated would be
sufficient, but it would be more desirable to leave this matter to the board of
directors of each Reserve institution.
In conclusion, this banking bill is designed to appeal to the masses who have
been bewildered by the rapid changes in our economic structure and the many
problems which have arisen. This proposed legislation is based on the simple
fallacy that central banks, owned by commercial banks, have been primarily
responsible for our economic ills. With this naive assumption, it is now proposed to bring Utopia by changing the ownership of the Reserve institutions.
Certainly our citizens and Members of Congress will not be deceived into supporting such a simple and vague bill for the relief or correction of our economic
difficulties. If this bill is given thorough publicity and study, its defeat will be
inevitable.
IN LINE W I T H BUSINESS REGIMENTATION

Dr. J. L, LEONARD, University of Southern California
The proposals of the Patman bill to create a new and larger Federal Reserve
Board, to manipulate the currency and through it to establish and regulate a
proposed price level, reaches a new height in legislative absurdity. It proposes
an imaginative experimentation as a means of business regimentation and, if
enacted, would lead only to confusion.
With reference to the bill: Page 3, lines 7, 8, 9. Bank control alone will not
do it. It is a step in line with business regimentation.
Page 4, lines 18, 19, 20. Should not be a profit bank for Treasury. Greater
surplus should be accumulated.
Page 5, lines 19, 20, 21, and so forth. Too large a Board. Inclusion of Secretary of the Treasury and Comptroller of the Currency on the Board is a return
to a former weakness.
PROPOSAL HAS MANY OBJECTIONABLE FEATURES

Dr. ERNEST MINOR PATTERSON, University of Pennsylvania

The Patman bill seems to me objectionable in certain ways, notably as follows:
1. In its provision, page 3, lines 9ff, to permit all banks to receive all rights
and privileges of the system.
2. Its statement that it is to be the policy of Congress to stabilize and maintain a dollar of uniform purchasing power. With our present knowledge this




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

cannot be done and it is highly inadvisable to pass monetary legislation of this
sort which can merely lead to disappointment.
3. I dislike the provision in section 5 which provides for the inclusion of three
ex officio members, all of whom have functions which may not harmonize with
their duties as members of the Board of Governors. In the same section it
seems to me inadvisable to specify that there shall be no more than one appointed from any one Federal Reserve district. This specification is inserted, I
take it, for political reasons, but would undoubtedly compel a President at
times to appoint members for geographical reasons rather than merely because
of ability.
4. The provision in section 6 that all of the directors are to be appointed by
the President may also be questioned. It is, of course, true that the President
has a similar power of appointment to the Supreme Court of the United States,
but the fact that the appointments to the directorships in question are for
limited terms is a difference of importance.
5. I regret the proposal in section 7 to eliminate the Federal Advisory Council.
Their advice can be and in the past has been most salutary and furnishes a
valuable restriction on unwise decisions.
6. Finally, the proposal in section 8 is one which makes the Open Market
Committee too large a body. I would suppose that in prac :ice the decisions
of such a body would be made by a smaller number, and it would be much
better to provide for the smaller number to start with.
In general, the bill contains so many features that are objectionable that I
strongly oppose its passage.
HISTORY SHOWS DANGERS OF MIXING POLITICS AND FINANCE

Dr. HOWARD H. PRESTON, University

of

Washington

No condition has arisen which calls for such a sweeping change in Federal
Reserve ownership and control. The Banking Act of 1935 centralized responsibility for credit policy, but at the same time preserved some measure of district
autonomy and retained the advantages of operation of the banks by directors
selected because of business and banking experience.
In my opinion, Government ownership and operation of a central banking
system is undesirable as a general principle. Wartime experience in Europe
indicates that currency mismanagement and inflation were greatest in countries
where the central bank was most subservient to the government. The Bank of
England furnishes a good example of the satisfactory results of private ownership and control exercised in the public interest by a private board of directors.
Our own financial history is replete with illustrations of the dangers of mixing
politics and finance.
Specific objections to H. R. 7230 (75th Cong., 1st sess.) include:
(1) Member banks are required to carry reserve with the Federal Reserve
banks and otherwise assume the responsibilities of membership. Affiliated
banks, on the other hand, may enjoy all the rights and privileges of membership,
but may withdraw from affiliation at any time. Presumably they would not
forfeit their right to deposit insurance. This is discrimination and also weakens
the power of regulation by the Board. An increase in reserve requirement, for
example, might well be the signal for general withdrawal by affiliated banks.
(2) A board of 15 is unwieldy. Inclusion of the politically appointed Secretary of the Treasury, Comptroller of the Currency, and Chairman of the Federal
Deposit Insurance Corporation is a backward step.
(3) Excluding all bankers and bank stockholders from the directorate of the
Reserve banks is certainly restrictive and unjustified.
HIGHLY ERRONEOUS THEORIES OF ROLE THAT MONEY AND CREDIT SHOULD PLAY

Dr. HAROLD L. REED, Cornell University

The existing Federal Reserve statutes, particularly after amendment by the
Banking Act of 1935, go at least as far as is desirable in recognizing the public
responsibilities of the Federal Reserve banks. Proposals to change the System's
structure are also objectionable in that they keep the managing authorities in a
state of mental turmoil and thus divert energy from the solution of pressing
current problems. Improvement of Federal Reserve policies is to be obtained
more by concentrating thought upon these problems than by getting involved in
questions related to the forms of administration and control. The passage of




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297

such a bill as Mr. Patman introduced (H. R. 7230) would inevitably be interpreted by a large faction of Congress as evidence of intent to apply currently
fashionable, and, very likely, highly erroneous theories, of the role that money
and credit should play in an ideal economy. What we need most of all is to
create an atmosphere conducive to the building of sound traditions on the
experiences of the Reserve banks. Some degree of independence for the System's management is necessary to develop such traditions.
Eventually, membership in the Reserve System should be required of all
banks whose deposits are insured by the Federal Deposit Insurance Corporation.
To accomplish this improvement, however, it is not necessary that there be
Government ownership of the 12 Federal Reserve banks.
POLITICAL CONTROL OF BANKING PROCESSES HAS PROVED A MOST DANGEROUS
PRACTICE

DR. LELAND REX ROBINSON, 50' Pine Street, New York City
Political control of banking processes has proved a most dangerous practice.
More than any other single factor it has been responsible for debauching currencies, skyrocketing living costs, and destroying business confidence throughout modern times. The reason is evident. Sound banking requires repayment
of loans which are granted under conditions giving prospect of reimbursement
from commercial, tax, or other sources of anticipated income. On the other
hand, banking politically controlled easily degenerates into loans of dubious
quriity in answer to "pressure group" demands, and into the financing of
government deficits through advances which are repaid, if at all, in a depreciated
medium. Whether coins are clipped, as in earlier centuries, whether unsecured
paper money overflows, as during our Civil War, or whether serious bank deposit inflation threatens, as at present, the result is just the same—costly
inflation.
This does not mean that the central bank or banks should be entirely free
of Government supervision. On the contrary, a considerable measure of such
control is at present directly and indirectly exerted over the Federal Reserve and
member banks. The Federal Reserve Board members are Presidential appointees. A greater control has been established than the Board has ever heretofore had over the member banks, and through them over the entire banking
system. Unprecedented peacetime Government deficits have been financed by
the banks to a point where the Nation's business is seriously threatened. The
imperative requirement now is to disentangle banking from Treasury dominance
and political pressure, and to let the banks fulfill their proper purpose of
financing business needs under general standards of function and of conduct determined by the regulating authorities.
T H I S BILL VIOLATES THE LESSONS AND PRINCIPLES OF GOOD CENTRAL BANKING

DR. WALTER E. SPAHR, New York University

The Patman bill (H. R. 7230) runs counter to the lessons and principles of
good central banking, and it would charge the Federal Reserve authorities with
a responsibility for stabilizing the general purchasing power of money which
could not be fulfilled.
The lessons of central banking teach unmistakably that the administrative
board of the central banking system functions in the best interests of the Nation as a whole when it is free from all pressure, whether that pressure come
from the local commercial banks, the Government, or any other group. When
this principle has been violated, trouble has invariably arisen, and the best
interests of the Nation have been sacrificed.
It is the duty of the central government to prescribe in the organic law, providing for the central banking system, the conditions under which the system
may operate, and also to create the necessary supervisory authority to see that
the law is obeyed. But supervision is one thing, bank ownership and management are something else. Government ownership, involving bank management,
prevents the central banking system from acting as that neutral agent with respect to all interests concerned and, consequenly, from acting in the best interests of the Nation as a whole.




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Kisch and Elkin, in their book Central Banks (Macmillan and Co., Ltd.,
London, 1932 ed.), pages 20, 23, have summarized well the principles and lessons
of good central banking in the following words:
"Just because the decisions of the bank react on every aspect of the economic
activities of the country, it is essential that its direction should be as unbiased
as is humanly practicable and as continuous as possible. But clearly, if the
bank is under State control, continuity of policy cannot be guaranteed with
changing governments, nor can freedom from political bias in its administration
be assured * * *. But if the Government has a controlling influence over
the bank, there are obvious ways by which the most powerful interests in the
country can try to enforce their wishes. The road is open for political intrigue,
and there can be no safeguard that the policy of the bank will be carried on
without bias as the national interests require. It seems a paradox that when
the object is to secure the execution of a national policy, that should not
most readily be achieved by the creation of a State bank under official control;
but even in the countries where the capital of the bank is held by the State,
steps have been taken in certain instances to remove its administration from
political influence and to give it a measure of independence from the Government."
Reflecting upon the world's experiences with government-dominated central
banks, Kisch and Elkin say (p. 22) :
"* * * If the control of the operations of the central bank lies directly or
indirectly with the Government, it becomes fatally easy for the Government to
finance itself for a time by means of book entries and short loans from the
bank, a course which is the first step toward currency depreciation and
inconvertibility."
In considering the encroachments of governments upon central banks in the
former's raising of funds, Kisch and Elkin say (p. 37) :
«* * * it is of cardinal importance that it should be made as difficult as
possible for the Government to resort to the expedient of borrowing from the
bank, a practice which, if continued, can only lead to a repetition of past
disasters."
There is a definite and overwhelming consensus of opinion among the most
competent authorities that the control of the note and deposit currencies of
a country and of the price level is not improved but definitely weakened and
endangered when governments assume or dominate the functions of central
banks.
The fact that nearly all leading nations of the world, excepting those that
have turned Socialist or Fascist and seek to dominate all major economic
activities of their people, have generally avoided such a device should provide
strong evidence in support of the accuracy of the preceding statement.
The second major feature of the bill—that charging the Reserve authorities
with the responsibility of stabilizing and maintaing a uniform purchasing
power—is unwise because the aim could not be fulfilled, and there are times
when a stable price level is undesirable. Our experiences with the consequences
flowing in part from the relatively stable price level of 1923-29, which rested
upon a multitude of economic maladjustments, should provide a valuable lesson
to us with respect to the latter point.
If a central banking system is to have the power to control the price level,
it must also be given power to regulate Government spending, the Government's
deficit, foreign trade, tariffs, inventions, discoveries, famines, floods, and, above
all, wars. Furthermore, it seems clear that a very large proportion of the great
fluctuations in prices arise more from unwise governmental action than from
any other single source except war; and, of course, wars are almost entirely
the result of Government policies and actions.
It is hardly worth while to comment upon the other features of the bill which
are, after all, incidental to these two fundamental and most dangerous features.
I t might be pointed out, however, that section 4 would permit the introduction
tof the very unsound scheme, now being urged by some, of 100-percent reserves
composed entirely of inconvertible paper money.
SEEMS TO B E A SMOKE SCREEN FOB CURRENCY MANAGEMENT

Dr. OLIVER M. W. SPRAGTJE, Harvard University

It is undesirable to be making continual changes in the organization of the
Reserve System. A somewhat radical change was made 3 years ago, a change
giving the Board of Governors practically complete power in the determination




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299

of policies. The proposed change steems to me to be somewhat in the nature of
a smoke screen—not really designed to give the Government more power, but
to insinuate into the Reserve Act a provision regarding currency management.
I should suspect that if section 1, on page 3, were deleted, Mr. Patman and his
friends would have no very keen interest in the measure.
A NONPARTISAN SYSTEM NEEDED ; STABILIZATION OBJECTIVE COULD NOT B E
ACHIEVED

Dr. WILLIAM H. STETNER, Brooklyn College

I am opposed to the Patman bill on several counts. Government ownership
of the Reserve banks is objectionable; what is needed is a nonpartisan system,
operated in an objective manner for the public good by a body divorced from
day-to-day exigencies of political life. Against this, Government ownership
would militate. This objection is fundamental.
Again, the procedure proposed smacks of "lifting one's self by his own bootstraps," by crediting the members on the books of the Reserve banks with the
amount of the stockholdings.
Moreover, the objective of stabilizing purchasing power assigned to the Reserve System cannot be achieved, even if it were desirable that it be achieved,
which is doubtful.
The bill proposes a board of 15 members, drawn from the 12 Reserve districts,
and, as drawn, would seem to invite dangers of sectional conflict, with members
regarding themselves as representatives of sections rather than of the public at
large.
The bill also suggests opposition to branch banking, which is desirable for
continued progress.
A DANGEROUS CHANGE

DEAN CHARLES S. TIPPETTS, University of Pittsburgh

I do not see what is to be gained by Government ownership of the Federal
Reserve banks. It would mean that the System would become, even more than
it is now, an agency for the accomplishment of the Government's political
aims—a very dangerous change in central banking practice. A central banking system must be independent; it must be responsive to economic rather than
political conditions. It is also unwise to enlarge the Board as it would make it
too unwieldy, and hard to get a concensus of opinion.
There is no good reason why nonmember State banks should have the rights
and privileges of members.
While I am in favor of preventing injurious expansion and contraction of
credit and currency, I do not believe we know enough yet to be able to accomplish it through central bank policy. A stabilized dollar may be desirable, but
the case for it is not yet proved. We need to know when to act and how to
act. This I do not believe is yet certain. I formerly believed that the problem
was not so difficult. But, in view of our experiences during the past 10 years,
it is a foolhardy person who asserts that he knows the answer to it. Money
and credit management may easily become money and credit mismanagement.
REMEDY MAY B E WORSE THAN DISEASE

Dr. ALVIN S. TOSTLEBE, the College of Wooster

I disapprove strongly of the provisions contained in the Patman bill that
would change the ownership of the Federal Reserve banks. I cannot think
of any possible advantage to be realized thereby that does not carry with it
offsetting disadvantages that are numerous and very grave. Under present law
the Federal Government has important powers of appointment wherewith it
can exert an influence on Federal Reserve policy that is very substantial. This
is as it should be, for banking policy has a profound effect on the general welfare. On the other hand, existing law has made provision whereby practical
bankers and businessmen share with the Government the responsibility of selecting those who will make Federal Reserve policy. This it seems to me
makes for a highly desirable balance in point of view, which, if destroyed by
the Patman bill, will cause banking policy definitely to suffer.
The declarations of congressional policy contained in the Patman bill respecting prevention of injurious expansion and contraction of credit and currency




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

and of currency stabilization are unobjectionable to me, provided that, in pursuit of these policies Congress will act only in full realization of the limits
of usefulness of any controls that it may wish to exercise, and of the difficulties that beset all such attempts. Since there is wide difference of opinion
as to how money and credit control is best achieved, this approval of general
policy must not be construed as a blanket endorsement covering every plan that
might gain congressional favor. As a counsel of perfection the policy to stabilize the dollar is praiseworthy, but practically the obstacles to its complete
realization are insurmountable. There is grave danger that Congress, in attempting to reach the unattainable, will be led to approve legislation which, as
a remedy, will be worse than the disease.
WOULD REVERSE REFORMS BROUGHT ABOUT BY RESERVE SYSTEM

Dean JAMES B. TRANT, Louisiana State University
One of the purposes of doing away with the old subtreasuries and in organizing
the Federal Reserve System was to prevent governmental financing from having
a bad effect on the money market, and to allow credit policies to be based on
commercial, agricultural, and industrial needs. The ownership of the Federal
Reserve banks by the Government would reverse this notable reform and cause
credit policy to be based on governmental financing.
If by stabilizing the purchasing power and debt-paying power of the dollar is
meant the stabilizing of the general price level, it is unsound in both theory and
practice because the consumer would not be given the advantage of reduced costs
of production.
WOULD LEAD TO GOVERNMENT MONOPOLY OF MONEY-LENDING AND TO COMMUNISM
OR FASCISM
Dr. RUFUS S. TUCKER, Westfield, N. J.

I am opposed to Government ownership of the Federal Reserve banks because
I believe it would lead to worse and perhaps more frequent depressions than we
have had. In my opinion, the chief cause of every serious depression in the last
century has been the excessive use of bank credit, either to finance Government
deficits or to provide a substitute for investment capital. In other words, bank
credit has been called upon to do the work that should have been done by taxation
and saving. Since credits are debts and have to be repaid, each period of
credit inflation has to be followed by a period of debt deflation. A Governmentowned banking system would certainly be more liable to be used to finance
Government deficits and to finance the enterprises of private groups that have
political influence. Easy credit is always an easy device to obtain temporary
popularity with voters. Only private bankers can be relied upon to refuse loans
for unsound projects, and even private bankers have in the past lent too much
for projects which were individually sound enough but excessive in amount.
Bank credit is a necessary fuel for the engines of commerce, but it is dangerous
when used in excess. It is essential that the total supply of this fuel be kept
below the clanger point by some authority that does not stand to benefit either
financially or politically by allowing it to be used in excess. If the Government
does not own the banks, it may be willing and able to prevent excessive bank
credit, but if the Government does own the banks all restraints are off, for very
few public officials can be expected to have the intelligence, the courage, and the
power to resist pressure for loans during business booms. Moreover, aside from
its effect in causing depressions, Government ownership of the Reserve banks
would be a long step toward a Government monopoly of money lending, which
would give Government officials the power to determine what businesses should
be carried on, and by whom. Such power has long been desired by Socialists as
a step toward State socialism. I believe it would inevitably lead to corruption
and a lower national standard of living, and eventually cause our democratic
system to be superseded by either communism or fascism, to both of which I am
opposed.




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BILL I S UNSOUND ; ITS IMPLICATIONS ARE DANGEROUS

Prof. RUSSELL WEISMAN, Western Reserve University
The Patman bill is unsound; its implications are dangerous.
Nationalization of the Federal Reserve banks at this time when the Budget
is still heavily unbalanced might very well be the spearhead of a new drive
for credit expansion which in the present position of the public credit might
undermine confidence in the Nation's financial structure and culminate in the
dangerous inflation which so long has threatened.
The bill in question is dangerous, furthermore, on the score that it would
impose upon the Federal Reserve System an obligation to stabilize prices and
to control the purchasing power of money. In the light of the experience of the
last 5 years, such efforts are foredoomed to failure; in any event, they should
not be undertaken by the Federal Reserve System, which should have no part
in Governmental efforts to control prices and production and to manage the
entire economy.
SUCH CONTROL HAS ALWAYS LED TO ECONOMIC AND MONETARY CHAOS

Dr. IVAN WRIGHT. University of Illinois

The Patman bill is unsound and would lead to Government control of all
banking and its bad consequences politically.
Such control has always led to economic and monetary chaos in other countries. It makes political expediency the guide to monetary policy, and sound
policies are cast aside.
The unsoundness of the Patman bill and the impractical purposes of it lead
me to doubt whether Congressmen will give it serious consideration. I cannot
see how such a measure could be applied without placing all economic matters
under the strictest dictatorial control. Certainly we are not ready for that yet.
WOULD OPEN THE DOOR TO POLITICAL MANIPULATION OF THE RESERVE SYSTEM

DR. JOHN PARKE YOUNG, Occidental College

The proposal to have the Government own and operate the Federal Reserve
System contains to my mind certain distinct disadvantages. In the first place,
Government ownership is unnecessary since, at the present time, final control
over the System already rests with the Federal Government through its power
of appointment of the members of the Board of Governors of the Federal Reserve System. This control over the Board provides against the possibility that
the System might be used contrary to the public interest. If the Government
were to participate more actively in the detailed operations of the System, this
would not improve the quality of management nor serve any apparent useful
purpose. It would, however, open the door to political manipulation of the
System and permit the personnel to be selected on a political basis.
The Board of Governors of the Federal Reserve System possesses a very large
amount of power over the economic conditions of the country. It can do a
great deal to make conditions prosperous or depressed. Its mismanagement or
inefficient management can be the source of serious difficulty, in fact, of disaster, for the country as a whole. Government ownership and operation would
provide a strong and probably irresistible temptation for the party in power to
use the System for its own ends, to the great detriment of the country. The
System should, therefore, be placed upon as high a plane as possible, and, like
the Supreme Court, be completely out of politics.
The System is progressing satisfactorily and, I feel, should be left substantially as it is, at least for the present.
[Released for publication Monday, March 14, 1938]
STATEMENT IN OPPOSITION TO PATMAN BILL, H. R. 7230

Signed by 72 members of Economists' National Committee on Monetary Policy
We, the undersigned members of the Economists' National Committee on
Monetary Policy, wish to register our opposition to the Patman bill (H. R. 7230),
entitled "A bill providing for Government ownership of the 12 Federal Reserve
banks, and for other purposes."
69972—38——20




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The purchase by the Federal Government of the Federal Reserve banks
would be a long step in the direction of an undesirable type of control over
our economic activities by the central government.
The Patman proposal runs counter to the principles of good central banking
and might easily jeopardize the economic welfare of this Nation. The bill would
permit the substitution of politically manipulated banking for what should be
a nonpolitical, scientific central banking system. Furthermore, the bill would
charge this Government-owned banking agency with a responsibility for maintaining a stable average of prices which, in all probability, could not be fulfilled.
(Signed:) Eugene E. Agger, Rutgers University; Charles C. Arbuthnot, Western Reserve University; Leonard P. Ay res, the Cleveland Trust
Co.; George E. Barnett, the Johns Hopkins University; Don C.
Barrett, Haverford College; Benjamin Haggott Beckhart, Columbia University ; James Washington Bell, Northwestern University;
Ernest L. Bogart, University of Illinois; Jules I. Bogen, the Journal of Commerce and New York University ; Frederick A. Bradford, Lehigh University; Herbert M. Bratter, Washington, D. C.;
J. Ray Cable, Washington University; Wilbur P. Calhoun, University of Cincinnati; Neil Carothers, Lehigh University; John
M. Chapman, Columbia University; Edward H. Collins, New
York Herald Tribune; Alzada Comstock, Mount Holyoke College;
Garfield V. Cox, the University of Chicago; William W. Cumberland, 120 Broadway, New York City; Charles A. Dice, the Ohio
State University; George W. Dowrie, Stanford University; William E. Dunkman, the University of Rochester ; D. W. Ellsworth,
The Annalist, New York City; William D. Ennis, Stevens Institute
of Technology; Clyde Olin Fisher, Wesleyan University; J. Anderson Fitzgerald, the University of Texas ; Herbert F. Fraser,
Swarthmore College; Roy L. Garis, Vanderbilt University; Harry
D. Gideonse, the University of Chicago; Earl J. Hamilton, Duke
University; Lewis H. Haney, New York University; E. C. Harwood, American Institute for Economic Research; Frederick C.
Hicks, University of Cincinnati; John Thorn Holdsworth, the
University of Miami; Jacob H. Hollander, the Johns Hopkins
University; Edwin W. Kemmerer, Princeton University; William
H. Kiekhofer, the University of Wisconsin; David Kinley, University of Illinois; Frederic E. Lee, University of Illinois; Ray V.
Leffler, Dartmouth College; J. L. Leonard, University of Southern
California; James D. Magee, New York University; A. Wilfred
May, New York City; Mark C. Mills, Indiana University, Margaret G. Myers, Vassar College; Alexander Dana Noyes, the New
York Times; Melchoir Palyi, the University of Chicago; Ernest
Minor Patterson, University of Pennsylvania; Clyde W. Phelps,
Chattanooga University; Chester A. Phillips, the State University
of Iowa; Charles L. Prather, Syracuse University; Howard H.
Preston, University of Washington; Harold L. Reed, Cornell University ; Leland Rex Robinson, 30 Pine Street, New York City;
R. G. Rodkey, University of Michigan; Olin Glenn Saxon, Yale
University; Joseph A. Schumpeter, Harvard University; James
G. Smith, Princeton University; Walter E. Spahr, New York University ; Oliver M. W. Sprague, Harvard University; William H.
Steiner, Brooklyn College; Charles S. Tippetts, University of
Pittsburgh; Alvin S. Tostlebe, the College of Wooster; James B.
Trant, Louisiana State University; Rufus S. Tucker, Westfield,
N. J.; Leonard L. Watkins, University of Michigan; Russell Weisman, Western Reserve University; William O. Weyforth, the
Johns Hopkins University; Nathaniel R. Whitney, the Proctor &
Gamble Co., Cincinnati; Max Winkler, College of the City of
New York; Ivan Wright, University of Illinois; John Parke
Young, Occidental College.

Mr. PATMAN. I want to ask him a question or two.
Who is this committee composed of?
Professor SPAHR. The membership today is about 88 economists,
and nearly all of them are academic men.
Mr. PATMAN. When were they organized?
Professor SPAHR. They were organized in October 1933.




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Mr. PATMAN. Who inspired the organization? Was it spontaneous ?
Professor SPAHR. It was rather spontaneous.
Mr. PATMAN. What was the cause of it ?
Professor SPAHR. There was a statement signed by approximately
44 men in September 1933 in protest of some inflationary proposal of
the administration. I would have to check back on that to get the
details of it, but that group of 44 provided the nucleus to which the
other members were invited to join. After they issued that statement a group of us thought that it was a good idea for these men to
put themselves at the disposal of the country for any value that they
might have. So a group met in New York early in October or late
in September to discuss the matter of whether or not it would be
appropriate and fitting for a group of college men to organize. They
thought that it might be well worth while, their idea being to be of
such service as they might be. Their thought was, further, that
there is not much use to confine their teaching to the classroom when
the country might profit by their advice, if it had any value. Since
then they have commended what they thought was good and protested against what they thought was bad.
Mr. PATMAN. Have you commended anything yet?
Professor SPAHR. Yes.
Mr. PATMAN. What did you commend ?
Professor SPAHR. We approved the President's veto of the soldiers'
bonus bill, and we approved the Bacon bill.
Mr. PATMAN. What was that?
Professor SPAHR. TO repeal the Silver Purchase Act, we also approved the Townsend resolution, and the Bridges resolution.
Mr. PATMAN. And you condemned what?
Professor SPAHR. There are 22 statements. I would have to check
them to be specific, and
Mr. PATMAN. Anything that has a tendency toward expansion?
Professor SPAHR. Toward inflation.
Mr. PATMAN. YOU call expansion inflation, do you not?
Professor SPAHR. I should not.
Mr. PATMAN. I know, but anything in the direction of expansion
you think will result in inflation ?
Professor SPAHR. NO.
Mr. PATMAN. YOU do not think so?
Professor SPAHR. NO.
Mr. PATMAN. Name something that you approved, that was expansion but that was not inflation.
Professor SPAHR. That question is of such a nature that I would
have to take the specific statements that we have issued.
Mr. PATMAN. DO you have those statements?
Professor SPAHR. Yes.
Mr. PATMAN. Would you mind filing them?
Professor SPAHR. I would be very happy to do that.
Mr. PATMAN. TO show what you have favored and what you have
^opposed.
Professor SPAHR. Surely.




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(The statements are as follows:)
STATEMENTS OF THE ECONOMISTS' NATIONAL COMMITTEE ON
MONETARY POLICY COVERING THE PERIOD NOVEMBER 24, 1933MAY 23, 1935
Issued through the office of the secretary-treasurer, 100 Washington Square,
New York City
I. INFLATION AND THE GOLD STANDARD

The significant portion of a statement issued by the executive committee of
the Economists' National Committee on Monetary Policy at the close of its
meeting at the Hotel Pennsylvania, New York City, November 24, 1933 :
"We believe:
"1. That the country is today being threatened with serious inflation.
"2. That inflation would be harmful to the Nation.
"3. That the interests which would suffer most ftfom serious inflation are:
(a) Our working people whose wages would rise less rapidly than their costs
of living; (&) the beneficiaries of life-insurance policies; (c) our bank depositors; (d) hospitals; (e) colleges; and (f) other great scientific and publicwelfare institutions, most of whose endowment funds are invested in bonds and
mortgages.
"4. That while we recognize that the gold standard, as it has heretofore
existed, is far from being a perfect standard, it is the best standard with which
the world has had any extended experience, and is the only standard which
offers any immediate hope of becoming an international standard.
"5. That an early return to the gold standard and cooperation with other
nations for the improvement of that standard are desirable in the interest of
a restoration of public confidence and of an orderly and enduring economic
recovery."
(Signed:) James W. Angell, Columbia University; Neil Carothers,
Lehigh University; Ray B. Western"eld, Yale University; Edwin
W. Kemmerer, Princeton University; Wesley C. Mitchell, Columbia University; Ernest Minor Patterson, University of Pennsylvania ; Walter E. Spahr, New York University; H. Parker Willis,
Columbia University.
II. T H E EXECUTIVE COMMITTEE ANNOUNCES ITS GENERAL PURPOSES

The significant portions of the statement issued by the executive committee
on December 15, 1933, are:
"The executive committee of the Economists' National Committee on Monetary Policy met at the Hotel New Yorker to carry toward completion the plans
of the monetary economists of this country to combat unsound monetary programs which they deem unwise, and to enlighten the public as to the economics
of the monetary issues before this country * * *.
"The national committee is being restricted to approximately 100 members,
all of whom are recognized authorities in the field of money.
"The executive committee * * * proposes to issue statements as circumstances seem to warrant. The members of this committee are definitely advocating the abandonment of the present monetary policy. The committee holds
that the policies of the inflationists and devaluationists will injure the very
classes they are endeavoring to help.
"It is also the purpose of the committee to make it clear to the country that
the monetary advice now being given to the President is not representative of
the opinions held by the great majority of the leading monetary authorities
of this and other countries."
(The members of the executive committee present at this meeting did not
sign their individual names to this release.)
III.

A STATEMENT OF DISAPPROVAL OF THE MONETARY POLICIES OF THE
GOVERNMENT

On December 27, 1933, certain members of the executive committee at a
meeting in Philadelphia drafted a statement on the monetary policies being
pursued by the Federal Government and submitted it to a meeting of the general committee at the same place on December 28. After certain modifications




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were made, those present—about 40—voted to issue the following statement to
the press in the name of the committee but without individual signatures. The
release which appeared in the press, December 28, 1933, stated:
"We disapprove those aspects of the monetary policy pursued by the Government which are destroying public confidence in the value of the dollar, are distorting the normal movement of investment funds, and discouraging sound investments, thereby retarding an orderly and enduring recovery. It is undesirable to subject the money, the savings, and the trade of the American people
to the uncertainties of arbitrary political policies.
"The present policy of monetary experimentation should be abandoned immediately.
"Efforts to depreciate the value of the United States dollar by manipulation
should be stopped. A definite policy of returning to a gold standard should be
adopted immediately.
"Announcement of the adoption of this policy would tend to dissipate the
widespread fear of inflation and reduce the financial demoralization now retarding recovery. The necessary amount of money will flow into circulation with
the increase in production activities.
"Criticism of the monetary policy of the Government is not to be interpreted as an attack upon the general recovery program of the administration.
"The Economists' National Committee on Monetary Policy, as the name of
the organization would indicate, is composed of leading monetary economists
of the Nation who are advocating a monetary policy in harmony with sound
principles and the experiences of history.
"Membership of the national committee is composed of a large proportion of
the 44 signers of the Bradford-Carothers letter sent to the President on October
22, who were invited to join, and of others nominated by these 44 and accepted
by the executive committee. The membership is practically complete and will
be restricted to approximately 100.
"This body of economists wishes to make it clear to the public that this
organization is operating independently of all other groups and solely as a
body of monetary economists. It is an educational organization, it has no ax
to grind, it intends to do all in its power to inform the public on the current
monetary issues, to go on record against monetary policies which it considers
unwise in the light of monetary principles and history, and to offer constructive suggestions to the administration whenever the Government will entertain
them.
"Since the committee represents no particular interests, it stands in reed of
funds to carry on its work and will gladly accept support from those who wish
to contribute to its work, provided the funds are given without reservations and
are placed at the disposal of the executive committee to be used as it sees fit.
No funds have been or will be accepted on any other basis.
"The executive committee expects to publish, in the near future, a national
roster of speakers, which will be placed at the disposal of the public, and to
publish from time to time information which it believes the public and the
Government should have."
I V . A SURVEY OF T H E O P I N I O N S OF 2,560 MEMBERS OF T H E AMERICAN ECONOMIC
ASSOCIATION ON CURRENT MONETARY I S S U E S BY T H E ECONOMISTS' NATIONAL
COMMITTEE ON MONETARY POLICY

(Published by the Independent Journal of Columbia University, February 19, 1934)
A STATEMENT TO THE AMERICAN PUBLIC

By a group of distinguished economists
In behalf of the Economists' National Committee on Monetary Policy, the
executive committee has asked its president to draft the accompanying analysis
of the replies to the questionnaire recently submitted to the individual members
of the American Economic Association.
The growing demand for placing the banking system of the country in the
hands of the Government, and the recommendation of the chairman of the
Reconstruction Finance Corporation that nonliquid loans be freely made by
the banks, emphasize the importance of the views expressed by the majority
of those answering the questionnaire. They forcefully call attention to the




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

dangers of unrestrained credit expansion now making itself felt in numerous
ways.
The call for action designed to absorb more and more silver in an effort
to raise prices, perhaps by some form of bimetallism, draws attention to the
views of the economists on the silver danger. It appears clearly to be the
opinion expressed by the large majority of those who responded that the policy
of the United States tends toward further debasement of the currency by the
injection of a larger element of that metal into the monetary system.
Events have further shown that in large portions of the country the present
credit expansion policies are lightly regarded, as evidenced by the increasing
feeling that in case of threatened default, repudiation may be employed as a
method of disposing of Federal indebtedness, either through payment in fiat
money, or through reduction of rates of interest to a vanishing point.
The statement, embodying as it does the views of a large number of professional
students of economics, is thus of great significance, since it has already been
partially borne out by developments. These seem to show that there is likely,
during the coming months, to be a further substantial trend toward placing more
and more of the Treasury deficit among bank portfolios.
For the Economists' National Committee on Monetary Policy, by the executive
Committee:
Edwin W. Kemmerer, honorary chairman, professor of international Finance*
Princeton University.
Ray B. Westerfield, president, professor of political economy, Yale University.
Walter E. Spahr, secretary-treasurer, professor of economics, New York
University.
Arthur B. Adams, dean of College of Business Administration, University of
Oklahoma.
James W. Angell, professor of economics, Columbia University.
James WT. Bell, professor of money and banking, Northwestern University.
Neil Carothers, director, College of Business Administration, Lehigh University.
George D. Dowrie, professor of finance, Stanford University.
J. Franklin Ebersole, professor of finance, Harvard University.
John T. Holdsworth, dean, School of Business Administration, University
of Miami.
David Kinley, president and professor of economics emeritus, University of
Illinois.
Wesley C. Mitchell, professor of economics, Columbia University.
Ernest Minor Patterson, professor of economics, University of Pennsylvania..
Harold L. Reed, professor of economics, Cornell University.
William A. Scott, professor of economics emeritus, University of Wisconsin.
Oliver M. W. Sprague, professor of banking and finance, Harvard University.
H. Parker Willis, professor of banking, Columbia University.
John Parke Young, professor of economics, Occidental College.
STATEMENT OF THE INDEPENDENT JOURNAL OF COLUMBIA UNIVERSITY

February 19, 1934 *
The Independent Journal, hitherto concerned only with the comments of
Columbia scholars upon contemporary public affairs, takes pleasure in devoting
this entire issue to a study of what the Nation's economists think of the monetary policies of the administration.
This study was made by means of a questionnaire, formulated and sponsored
by the Economists' National Committee on Monetary Policy, and sent to the
great majority of responsible economists in the country. The part of the Independent Journal has been simply to issue the questionnaire and print the
results, as follows:
1. A Statement to the American Public, in which the sponsoring committee
points out the national importance of the study.
2. An interpretation of the results by Prof. Westerfield, of Yale, in National
Monetary Policy.
3. A comment, An Appraisal, by Dr, Willford I. King, the noted statistician
under whom the results were tabulated.
4. The statistical tables on these pages.
5. A factual summary of the successive steps in the administration's monetary policies, by Mr. Saulnier, The Record to Date.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

307

The Independent Journal is indebted to Prof. Patrick M. Malin, of Swarthmore College, and to his associates, for the original conception of such a
questionnaire.
This issue of the Independent Journal, delayed by the extensive statistical
study to which it is devoted, was originally scheduled for January 18. The
next issue will appear March 1.
1
The Economists' National Committee on Monetary Policy wishes to acknowledge its
debt to Dean Carl Ackerman and to Prof. Herbert Brucker, of the Columbia School of
Journalism, for the splendid and generous aid which they gave this committee in preparing
and mailing the questionnaire and in publishing the tabulated results and various
analyses.
QUESTIONNAIRE

Following is the text of the questionnaire sent to individual members of the
American Economic Association.
In addition to the 13 questions given here, the questionnaire contained 3
further items asking information as to teaching experience, degrees held,
residence, and the like of those who responded to the questionnaire. This
information will be found, in its relation to the replies to the questions below,
under the headings printed vertically at the top of these pages.
1. Do you believe that the present trend in the United States is toward
dangerous expansion of—
(a) Money?
(6) Credit?
2. Do you favor further administrative efforts to raise prices by monetary
devices?
3. Do you favor the present (as in November to December) gold-buying policy
of the United States Government?
4. Do you believe that inflation can be controlled under existing conditions?
5. Do you believe that inflation is likely to be controlled?
6. Do you favor an increase in the silver base of our currency—
(a) By additional purchases of silver?
(6) By bimetallism?
(c) By symmetalism?
(d) By using more silver and less gold in our Federal Reserve bank
reserves ?
7. Do you believe that American money and credit policies should be directed
toward restoring prices to some predetermined level—for example, that of
1926?
8. Do you believe that the United States should in the near future take steps
toward the return to a gold standard?
9. Do you believe that the United States should return to a gold standard—
(a) Immediately ?
(&) Ultimately?
10. Do you favor returning to a gold standard with a dollar of—
(a) The former gold content (23.22 grains fine) ?
(&) As near the 23.22 grains as practicable?
(c) A gold content corresponding, roughly, to present foreign exchange rates
in gold-standard countries (about 15 grains) ?
(d) A gold content substantially lower than that indicated in the preceding
subquestion (say about 11 grains)?
11. Do yon think it politically possible to return to 23.22 grains of fine gold
(the old standard) within a reasonable length of time?
12. Do you favor a gold bullion standard?
13. Assuming that success is realized in effecting a return to a gold standard,
would you then advocate a policy of altering the gold content of the dollar for
the purpose of stabilizing the general price level?
NATIONAL MONETARY POLICY

An analysis, by Professor Westerfield of Yale University, of a questionnaire sent
to American economists
The Economists' National Committee on Monetary Policy consists of 90 prominent American economists who now teach or have taught the subjects of money
and banking in our universities or who have written meritorious works in this
field; and there are a few who, after academic training, became economic counselors to large financial institutions. The membership was selected and limited




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in this way with a view to getting as authoritative opinions as possible on the
monetary question.
The committee is operating independently of all other groups that are opposing or supporting the administration's monetary policies, and solely as a body
of monetary economists. Except incidentally, it does not concern itself with
the transportation, labor, tariff, or other policies of the administration, or with
such instrumentalities as the Agricultural Adjustment Administration, Public
Works Administration, Civil Works Administration, National Recovery Administration, and Reconstruction Finance Corporation. It is an educational organization, without obligation to anyone, and intends to do all in its power to inform
the public on the current monetary issues, to go on record against monetary
policies which it considers unwise in the light of monetary principles and history,
and to offer constructive suggestions as opportunity offers. It is financed by
contributions from interested persons, but no funds have been or will be accepted on any other basis than that they be given without any reservation whatever and be placed at the disposal of the committee to be used as it sees fit.
An activity upon which the committee is now ready to report is the elaborate
questionnaire which, through the good offices of the Independent Journal of
Columbia University, was recently sent to 2,560 members of the American Economic Association resident in the United States, covering the various aspects
of the monetary question. The reasons leading the committee to sponsor this
questionnaire were:
1. That it was felt that the administration was following a course advised
by a narrow minority of the economists and it was deemed important to know
the facts on this point;
2. That, except for the relatively few who speak and write on the subject,
little opportunity is given to learn the views of the economists;
3. That it was thought, maybe presumptuously, that the administration would
be interested in knowing how the economists stood on this question; and
4. That the committee was anxious to know how representative their views
were of the economists in general.
Knowing that there would be a propensity to discredit the findings of the
committee on the basis of bias, it has taken pains to have the whole conduct of
the questionnaire in impartial hands. The selection of the list of addresses, the
mailing of the questionnaires and the receiving and opening of the responses
have been done by the Independent Journal of Columbia University, which,
incidentally, generously shared the expense of the project. The tabulations and
analyses were made by Prof. Willford I. King, secretary and treasurer of the
American Statistical Association. Professor King, furthermore, is not a member
of the Economists' National Committee on Monetary Policy. The public may
rest assured that the tabulations and analyses as done by him are scientific and
impartial.
Not only has our committee tried in every way to win approval of the findings
of the questionnaire by freeing them from bias of the committee, but it is now
publishing those findings in detail and not suppressing them. This contrasts
with the action of the Committee of the Nation, with their somewhat similar
but smaller questionnaire, the results of which were never revealed, on, the
ground that there was no unanimity of opinion among economists. The real
reason for this suppression undoubtedly was the overwhelming opinion against
the policies which they were advocating. Our committee believes that the
administration, the general public, and the economists themselves should know
where the economists stand on this vital issue.
The committee is fully aware of the difficulties and shortcomings of the questionnaire method of obtaining information on such a question. At the time of
analysis by Dr. King 845 responses had been received; there is no way of telling just how representative those who replied may be of the total membership;
it is probable, however, that they are the ones who are most alive to the question, who have been thinking most and who have the most decided views on the
question. It was difficult to frame the questionnaire so as to bring out the
varying shades of opinion and yet reduce it to the yes-or-no type of questions;
but, with a view to easier tabulation and impartial interpretation, questions of
this order were necessary. Most of the questions were framed with such detail
as gave opportunity for expressing opinion with considerable precision. The
time for submission of the questionnaire was none too good, for the Congress
and the President were during that fortnight devaluing gold and giving a sense
of finality to the administration's monetary policies.
As for public esteem, it is probably unfortunate for their profession that the
economist shave not been unanimous in their opinion on the monetary and




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other big questions in recent years. And those who are so willed will say
that the results of our questionnaire reveal but one thing, namely, that the
economists are divided, that the administration is warranted in choosing between them, that there are as good arguments on one side as on the other.
This is a specious position. By the very nature of things unanimity on
such questions is not to be expected or even desirable. The prerequisites to
unanimity are that the question be naively simple, that the facts be fully
known by all, that economic causation follow rigid scientific laws determined
by previous experience, and that economists be devoid of sentiment; whereas
the monetary question is frightfully involved and complex, the conditions are
unprecedented, the number of functions involved defies mathematical formula
and prediction, and the economists differ in information, mental capacity, and
sentiments. Let him be as scientific as he will, a learned and capable economist is still influenced, when it comes to the interpretation of our confused
situation and to the formulation of national policy, by his conservative or
liberal feelings, by his patriotic, religious, or other bent. Under these circumstances it i:j too much to expect unanimous opinion from economists on the
money question.
This want of unanimity is, however, no warrant for the careless discard of
the majority opinion, unless, perchance, it can be conclusively determined that
the minority includes the brainiest, the most experienced in monetary affairs,
the most inspired and far-seeing, the most informed and ethical and socially
minded. That the President's monetary advisers constitute such a hierarchy
of mind and heart is open to serious question. But that the administration's
monetary policy is advocated and supported by only a narrow minority of
the economists, in all major phases and in almost every minor phase, is amply
demonstrated by the responses to our committee's questionnaire.
Dr. King's tabulations of responses to the 21 questions asked, reveal the
positions taken severally by the following groups:
1. The members of the Economists' National Committee on Monetary Policy.
2. The total individual membership of the American Economic Association.
3. Groups according to professional rai<k and business connection.
4. Groups according to educational training, as evidenced by college degrees.
5. Groups according to experience (past or present) in teaching the subjects:
economics, money, statistics, and other social sciences.
6. Groups according to geographical areas of residence.
Some of these groupings are quite detailed. All told the tabulations provide
specific information as to the opinion of 49 different categories of economists
on 21 different questions. The number of "yes" and "no" answers, respectively,
are given, as well as the proportions which the "yes" answers are of all. It is
obviously impossible to cite but a few of these figures in the space of this
article.
1. Of the committee 82.1 percent expressed the belief that the present trend
in the United States is toward dangerous inflation of money, and 83.1 percent
toward dangerous inflation or credit. The proportions were as follows for
other groupings:
Dangerous inflation
Money

All responses
All professors
All holders of doctorate degrees.

Credit

Percent
51.4
56.5
54.3

Percent
55.9
57.7
57.7

The committee appears to be more apprehensive than the other groups, by
a considerable margin.
2. Only 2.7 percent of the committee, 26.7 percent of all respondents, 26.6
percent of the professors, and 22.9 percent of the holders of doctorate degrees
favored any further adminisative efforts to raise prices by monetary devices.
This is an overwhelming vote against further tinkering with the dollar. Practically all of the responses were mailed before the enactment of the Gold
Reserve Act on January 30.
3. The gold-buying policy of the administration was condemned by 98.6 percent
of the committee, 79.6 percent of all the economists, 83.3 percent of the professors, and 82.4 percent of the holders of the doctorate degree. This is a sweep-




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

ing condemnation of the willful depreciation of the dollar abroad, an action
which presaged and ended in the devaluation at 59.06 cents on January 30.
4. Of the committee 39.7 percent thought that inflation can be controlled under
existing conditions, but only 10.1 percent were sanguine enough to believe it will
be controlled. The percentages of other groups were, respectively, as follows:
Inflation
Can be
controlled
Percent
66.6
52.8
66.2

All respondents
All professors
All doctorates

Will be
controlled
Percent
41.9
29.7
39.3

5. The percentage favoring an increased use of silver in any forln was decidedly
small, as is evident from the following table:
Additional use of silver b y -

Commit- All econtee
omists

All professors

All doctorates

Percent
14.8
4.2
8.8
12.2

Percent
13.1
1.8
7.9
12.3

Percent
12.0
3.4
7.8
11.5

Percent
5.4
1.4
0
5.6

Additional purchases
Bimetallism
Symmetallism
._ .
Silver bank reserves

This is a conspicuous and categorical stand against doing anything more
for silver.
6. Since the administration has been so earnest in directing the money and
credit facilities of the country toward reflation of the price level, it is interesting
to note that only 9.9 percent of the committee support further efforts in this
line, only 34.4 percent of all the economists, 34.2 percent of the professors, and
31.9 percent of the doctorates.
7. The Gold Reserve Act of January 30 is said, by the administration, to be
a return to the gold standard. The respondents to the questionnaire had, before
this date, advised as follows on this action. Of the committee 97.3 percent
favored taking steps in the near future toward the return to the gold standard,
49.1 percent favoring an immediate return and 100 percent an ultimate return.
The respective percents for the other groupings were:
Return to gold standard
In near
future

All economists -_ _
All professors
All doctorates

. ._

Immediately

Ultimately

Percent
83.1
84 6
84.6

Percent
39.7
42 4
44.0

Percent
84.5
87 0
85.9

8. In returning to the gold standard the division of the committee and other
groupings as to the weight of the new dollar was as follows:
Gold content of dollar

23.22 grains
___.
As near 23.22 grains as practicable.
About 15 grains
About 11 grains

Commit- All economists
tee
Percent
58.3
77.2
36.0
2.2

Percent
24.7
54.2
49.8
12.8

All professors

All doctorates

Percent
20.0
58.7
51.9
14.7

Percent
26.8
57.9
50.0
11.3

Of all questions in the questionnaire the respondents had greatest difficulty
in answering this question because it did not clearly indicate whether the
respondent was to select one of the alternatives or to rank them in preference.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS
But the general conclusion is that big majorities favored returning to 23.22
grains or as near that weight as practicable, the second choice being to have
about a 65-cent dollar. The administration's decision to go below 60 cents had
inconsequential support.
9. As to whether it was politically feasible to return to the gold standard
with a dollar of 23.22 grains, within a reasonable length of time, only a quarter
or a fifth of the economists in any of the groupings were optimistic. It is evident, therefore, that while majorities favored returning to the 23.22 grains or
thereabouts, they did not urge immediate return, but rather immediate "steps
toward" such return, probably a definite announcement of intention ultimately
to return to it.
10. There was overwhelming support for the modernization of the gold standa r d represented in the gold-bullion standard. The percents favoring a bullion
standard were of the committee 74.6 percent, of all economists 78.4 percent, of
all professors 79.5 percent, and of all doctorates 76.8 percent. The Gold Reserve
Act of January 30 provides for a modified form of the gold-bullion standard.
11. The economists are opposed, once the return to the gold standard is
accomplished, to varying the gold content of the dollar for the purpose of
stabilizing the general price level. Of the committee 88.7 percent are opposed,
and of all the economists 63.3 percent, of all the professors 64.1 percent, and of
all doctorates 64.1 percent. The President, therefore, has little support for his
contemplated intention, as expressed in his reservation of power, to attempt to
stabilize commodity prices by adjusting the gold content of the dollar.
12. As for geographical areas the economists of New England are the most
conservative and anti-inflationary, and the economists of the Central States the
most inflationary and favorable to depreciation of the dollar abroad by gold
purchases, to heavy devaluation of the dollar, to further use of silver, and to
experiment with the compensated dollar. This is an interesting conformance
of economists to the traditional differences of thought between these two sections
of the country.
RAY B. WESTERFIELD.
AN APPEAISAL

Dr. King comments on results
The monetary questionnaire to which this issue of the Independent Journal
is devoted was tabulated under the direction of Willford I. King, secretary of
the American Statistical Association. Following is his opinion of the results:
Replies were received from some 845 out of the 2,560 economists to whom
questionnaires were sent. As compared to the usual percentage return on a
questionnaire, this proportion is so large as to inspire considerable confidence in
the fact that the economists replying constitute a fair sample of the economists
of the Nation.
On the other hand, the possibility must be recognized that, since the questionnaires were sent out by a group favoring the gold standard, the economists not
voting may have been considerably less favorable to the fixed gold standard
than were those replying to the questionnaire.
However, even if there should be a certain amount of bias in the total returns,
there is no reason to suppose that it would, in any way, cast doubt upon the
accuracy of the comparisons made between the respective views of the different
groups voting. Furthermore, there is every reason to believe that the percentages show which of the policies covered by the questions asked have relatively strong support and which have relatively strong opposition among the
economists of the Nation.
WILLFORD I. KING.

NOTE.—The detailed statistics, published fully in the Independent Journal of Columbia
University (February 19, 1934), are omitted here in the interests' of conserving space.
They have also been published fully by Prof. Roy L. Garis in his Principles of Money,
Credit, and Banking (The Macmillan Co., New York, 1934), opposite p. 820.
V. COMMODITY-DOLLAR P L A N OPPOSED BY T H E EXECUTIVE COMMITTEE OF T H E
ECONOMISTS' NATIONAL COMMITTEE ON MONETARY POLICY

(Statement released to the press from the Office of the Secretary-Treasurer, April 3, 1934)

Fearing that the Government is seriously considering the introduction of
the commodity dollar as a device for price-level stabilization, the executive committee of the Economists' National Committee on Monetary Policy wishes to go
on record, by means of the following statement, as opposing such a program.




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GOVERNMENT OWNERSHIP OP FEDERAL RESERVE BANKS

Were an experimental monetary program of this kind undertaken by the Federal Government, in the belief that undesired future price changes can be controlled by varying the gold content of the dollar under the machinery contemplated by the commodity-dollar plan, it is the judgment of this committee:
(a) That in periods of rapidly rising prices the Federal administration would
find it politically and economically inadvisable to attempt to bring prices back
to the commodity basis by increasing the gold content of the dollar.
(b) That in periods of declining prices accompanying a business recession,
prices might not be responsive to a change in the gold content of the dollar
because of the absence of a business demand for more credit. Furthermore,
efforts to counteract the decline by reducing the gold content of the dollar
would tend to encourage unsound uses of credit and exaggerate unhealthy
speculative tendencies, but probably would not prevent prices from falling
ultimately, and,
(o) That the commodity dollar would, in practice, tend to become a device
for changing the gold value of the dollar in one direction only.
It is believed that it would be very difficult, for political reasons, to increase
the gold content of the dollar during periods of rising prices because of the fact
that such action, if it be assumed that it would have an immediate influence on
prices, would tend to reduce sharply the prices of export commodities including
many which are of especial importance to agriculture, such as cotton, for
example. Furthermore, an attempt to increase the gold content of the dollar
when prices are rising would surely be attacked, politically and otherwise, as
interfering with, and possibly as destroying, what might currently be judged to
be * 'prosperity."
If, as sometimes contemplated by the commodity dollar advocates, the gold
content of the dollar were to be varied only if foreign governments would undertake similar action with respect to their currencies, the commodity-dollar plan
would lose its quickest and most responsive alleged influence upon prices because
of the difficulty of obtaining concerted action quickly.
If reliance be placed upon increasing or decreasing the gold base of bank
credit, as a means of stabilizing the price level, there can be no assurance that
such a procedure would produce perceptible effects on the price level in any
short periods of time.
With respect to the operation of the commodity-dollar plan in periods of
declining prices, it must be remembered that wholesale commodity prices tend
to decline before wages, rents, and the cost of living as expressed in retail
prices. And inasmuch as the demand for credit depends upon all prices, attempts to prevent wholesale commodity prices from falling, by using the
machinery of the commodity dollar, would probably result in so saturating the
credit market with funds that many unsound uses of credit would be stimulated,
as, for instance, in security speculation. The later and inevitable correction of
such inflated security prices would tend to disturb confidence and make it
difficult, or perhaps impossible, to cope with commodity price declines, once
they have become precipitous.
It is believed that it would be impossible to keep the decision to increase or
decrease the gold content of the dollar on a strictly scientific basis, because our
national history shows that pressure on Congress and the administration by
interested groups succeeds, from time to time, in obtaining relief for such groups
or in positive promotion of their interests at the expense of the Nation. It is
hardly reasonable to suppose that the acceptance of the commodity dollar device
would end such pressure for preferential treatment.
No national monetary standard can function satisfactorily unless it is adopted
by a large majority of the leading nations; and there is no prospect that the
commodity dollar scheme will be generally adopted. A commodity dollar which
is not adopted at least by the leading commercial and financial nations is not
reconcilable with stabilized exchange rates which are so necessary to commerce.
Finally, it must be remembered that the value of the dollar is determined
not alone by its gold content but to a large extent by psychological and other
factors wlr'oh, by affecting the velocity of currencies, can nullify efforts to
expand or contract them.
(Signed:) Dr. Arthur B. Adams, University of Oklahoma; Dr.
James W. Angell, Columbia University; Dr. James Washington
Bell, Northwestern University; Dr. Neil Carothers, Lehigh University ; Dr. George W. Dowrie, Lei and Stanford University;
Dr. J. Franklin Ebersole, Harvard University; Dr. John Thorn
Holds worth, University of Miami; Dr. Edwin W. Kemmerer,




GOVERNMENT OWNERSHIP OP FEDERAL RESERVE BANKS
Princeton University Dr. David Kinley, University of Illinois;
Dr. Wesley C. Mitchell, Columbia University; Dr. Ernest Minor
Patterson, University of Pennsylvania; Dr. Harold L. Reed,
Cornell University; Dr. W7illiam A. Scott, University of Wisconsin; Dr. Walter E. Spahr, New York University; Dr. Oliver M.
W. Sprague, Harvard University; Dr. Ray B. Westerfield, Yale
University; Dr. H. Parker Willis, Columbia University; Dr.
John Parke Young, Occidental College.
VI. STATEMENT IN OPPOSITION TO THE SILVER MEASURES BEFORE CONGRESS BY
THE EXECUTIVE COMMITTEE OF THE ECONOMISTS' NATIONAL COMMITTEE ON
MONETARY POLICY

(Issued to the press through office of the secretary-treasurer, April 20, 1934)
The executive committee of the Economists' National Committee on Monetary
Policy is gravely concerned about the various silver measures introduced and
proposed in Congress and wishes to go on record as opposing all these proposals,
whether they involve the introduction of bimetallism or symmetallism, or the
purchase of silver for the purpose of increasing our silver reserves or the
circulation of silver or silver certificates.
This committee believes that the lessons of monetary history and the principles of money should have an important place in the consideration of monetary legislation in this country and, therefore, desires to express the following
convictions:
1. That no additional silver should be purchased at any price.
2. That the purchase of silver bullion at artificial prices will not promote
sound recovery but, on the contrary, will add to the liabilities of the Government and reduce confidence in the Nation's currency.
3. That the restoration of bimetallism at the market ratio would cause
national injury and retard recovery.
4. That the restoration of bimetallism at a ratio of 16 to 1 would be a
national calamity.
5. That a rise in the price of silver benefits materially neither domestic
industry nor the foreign trade of the United States.
Perhaps a brief survey of our experiences with bimetallism and of the past
efforts "to do something for silver" will be of some service in enabling the
public to see the present proposals before Congress in their proper perspective.
The double or bimetallic standard, as established in 1792 with a mint
ratio between gold and silver of 15 to 1 (gold having a value 15 times that
of silver at the mint), never functioned well. Our experience has been that
of alternating between gold and silver because of the well-known fact that,
wiien the market ratio between gold and silver differs from the mint ratio,
the metal undervalued by the mint will be driven out of the country or
into hoarding by the cheaper metal. Since the market ratio between gold and
silver varies from day to day and the mint ratio is a legal, artificial ratio
rarely changed by a country, discrepancies between the mint and market ratios
are the usual thing. The consequence is that when countries in the past tried
to use bimetallism they usually found that they had alternating standards—
either silver or gold—rather than a bimetallic standard. It is for this reason
that no country in the world has had actually functioning bimetallism since
the early 1870's. It should be emphasized that a very small discrepancy between
the mint and market ratios will cause the overvalued metal to expel the undervalued one. Yet there are in Congress today men who are advocating the
reintroduction of bimetallism at the ratio of 16 to 1, although the market ratio
is about 78 to 1.
The experience of our country illustrates this fundamental weakness in bimetallism. In general, it may be said that during the years 1806 to 1834
we were in a silver period due to the fact that the market ratio between gold
and silver was higher (as, for example, 1 to 15.5) than the mint ratio of 1
to 15. Most of our gold went to England and France. The coinage of the
silver dollar was suspended from 1806 to 1836, and even our fractional silver
coin was driven out by foreign silver coins and by the cheaper paper money.
The result was that our attempt to maintain bimetallism during this period
was very unsatisfactory.
In 1834, Congress changed the mint ratio to 16.002 to 1 and again in 1837
to 15.9884 to 1, the latter being commonly referred to as 16 to 1. This ratio
reversed the relationship existing between the mint and market ratios, the mint




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

ratio now under-valuing silver since the market ratio remained below 16 to 1.
Under this mint ratio relatively little silver, as compared with gold, was;
coined. Silver disappeared rapidly, and this included fractional silver coins
which were then of the same proportionate pure silver content as the dollar
and were full legal tender. The resulting scarcity of "small change" caused
great inconvenience in retail trade. In 1853 Congress discontinued the free
coinage of all silver coins below the dollar and created the relatively lightweight fractional silver coinage which, except for a minor change in the
weight in 1873, we have today. The silver dollar was left a standard coin,
but it was coined between 1836 and 1860 only in trivial quantities, principally
for coin collections or for shipment to China. This piece was sold by the
mint as a curiosity, at a price of $1.05 or more in gold. Thus, the silver dollar,
from the birth of this Nation to 1873, was a little-used coin, in a country
that, though legally bimetallic, was in actual fact on a gold basis from 1834
to 1862, and on a paper basis from 1862 to 1879. The 16 to 1 ratio established
in 1837 was never effective at any time in bringing the silver dollar into
circulation.
In 1873 the coinage laws were revised and codified. The bill was before
Congress for 3 years. In this revision the silver dollar was dropped. In
1874, there was a fall in the gold value of silver. It was then discovered that if
the law of 1837 had not been repealed by the law of 1873, the coinage of silver
dollars at the ratio of 16 of silver to 1 of gold would have been profitable.
The silver interests began in that year a propaganda to restore the free
coinage of silver at the ratio of 16 to 1 which, under the new calculation,
would have been very profitable to the silver owners, and they have carried on
propaganda to this end up to the present day.
On four occasions the silver interests have managed to get through Congress
legislative measures which gave them a Government subsidy. In 1878 the
Bland-Allison Act, passed over Hayes' veto, commanded the Treasury to buy
not less than $24,000,000 worth of silver bullion per year and to coin it into
silver dollars. In 1890 the Sherman Silver Purchase Act was passed. This
greatly increased the amount the Government had to buy. In fact, it was
virtually an arrangement by which the Government was forced to buy the total
output of the American mines. The people declined to use, to any considerable
extent, the clumsy silver dollar pieces, except in the West, where propaganda
and the expense of sending them in for redemption encouraged their use, and
in the South, where the unfamiliarity of the Negroes with printed symbols made
paper money unpopular. Elsewhere the silver dollar was very unpopular.
In 1878 the Treasury had devised the silver certificates which enabled the
clumsy silver dollar to circulate by proxy, and which permitted the coin to lie
buried in the vaults of the Treasury. By 1893 the bullion value of the silver
dollar had fallen below 60 cents, and over 400 millions had been coined. In
that year the strain on the gold supply resulting from adverse economic conditions and the dread of further silver coinage contributed to a financial panic
which ushered in the grievous depression of the next 4 years. Subsequently,
on the recommendation of President Cleveland, Congress repealed the silverpurchase clause of the Sherman Act which had been largely responsible for the
panic.
Considering the similarity between the present efforts "to do something for
silver" and those of 1878 and 1890, it would seem that we might profit from
a part of President Cleveland's message of December 2. 1895, in which he
referred to the Bland-Allison Act of 1878, the Silver Purchase Act of 1890, and
the agitation for free coinage of silver. He said:
* 'Twice in our recent history we have signally failed to raise by legislation
the value of silver. Under an act of Congress passed in 1878 the Government
was required for more than 12 years to expend annually at least $24,000,000 in
the purchase of silver bullion for coinage. The act of July 14, 1890, in a
still bolder effort, increased the amount of silver the Government was compelled
to purchase and forced it to become the buyer annually of 54,000,000 ounces, or
practically the entire product of our mines. Under both laws silver rapidly
and steadily declined in value. * * *
"Every dollar of fixed and stable value has, through the agency of confident
credit, an astonishing capacity of multiplying itself in financial work. Every
unstable and fluctuating dollar fails as a basis of credit, and in its use begets
gambling speculation and undermines the foundations of honest enterprise.
"* * * I cannot rid myself of the belief that there lurk in the proposition
for the free coinage of silver, so strongly approved and so enthusiastically advocated by a multitude of my countrymen, a serious menace to our prosperity and




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS
an insidious temptation of our people to wander from the allegiance they owe
to public and private integrity * * *."
President Cleveland made other penetrating comments in his message to
Congress on August 8, 1893, when he asked it to repeal the silver-purchase
provision of the Sherman Act of 1890. What he said is peculiarly applicable to
Congress today.
"The people of the United States," said the President, "are entitled to a
sound and stable currency and to money recognized as such on every exchange
and in every market of the world. Their government has no right to injure
them by financial experiments opposed to the policy and practice of other
civilized states, nor is it justified in permitting an exaggerated and unreasonable reliance on our material strength and ability to jeopardize the soundness
of the people's money.
"* * * At times like the present, when the evils of unsound finance
threaten us, the speculator may anticipate a harvest gathered from the misfortune of others, the capitalist may protect himself by hoarding or may even
find profit in the fluctuations of values; but the wage earner—the first to be
injured by a depreciated currency and the last to receive the benefits of its
correction—is practically defenseless. He relies for work upon the ventures
of confident and contented capital. This failing him, his condition is without
alleviation, for he can neither prey on the misfortune of others nor hoard his
labor."
The next favor to the silver interests was extended to them by the Pittman
Act of 1918. Under the terms of this act more than 270 million silver dollars
in our Treasury vaults were sold for the account of the United States and
England to settle trade balances with the Orient. In order to replace this
silver the Pittman Act required the Treasury later to purchase silver bullion
at a price much above that in the world markets. This measure cost the
taxpayers of this country more than $70,000,000.
At the World Conference in London in 1933, Senator Pittman obtained an
agreement by five nations to purchase a total of 35,000,000 ounces of silver every
year for 4 years. Under this agreement the share of the United States was not
stated. In December 1933, President Roosevelt announced that this Government would purchase annually 24,000,000 ounces at a price of 64V2 cents an
ounce. This price was 21 cents above the market price for silver. The dollars
resulting from these purchases will doubtless join the other millions in our
Treasury vaults.
This, briefly, is the history of the silver movement in the United States. 1
Before the gold devaluation measure and with silver in the dollar worth as
bullion about 30 cents, the market ratio between gold and silver was 1 to 70.
Today with gold quoted at $35 per fine ounce and with silver quoted at 46 cents
per ounce in the world market, the market ratio between gold and silver is
about 78 to 1, and the silver bullion in the silver dollar is worth little more
than 35 cents. The Government is liable for its dollar value, and every additional dollar going into the vaults is a national liability placing an additional
burden upon the gold reserves. Furthermore, there was incorporated in the
recent devaluation law—the so-called Gold Reserve Act of January 30, 1934—a
provision authorizing the President to "devalue" the silver dollar in proportion
to the devaluation of gold. This provision simply means that this coin, legally
called a dollar, but in bullion value worth much less, may have its bullion
content reduced still further.
There are now before Congress various silver bills. One is for the sale of
$400,000,000 worth of American products for foreign silver at a valuation 25
percent above the actual value of the metal, the bullion to be coined into
dollars. The second is for the purchase of 1% billion ounces of silver. The
third is for the restoration of bimetallism at a ratio of 16 to 1, which the
President already has the right to do under the Thomas amendment. Still
other silver bills, and combinations and compromises of those just mentioned,
are before Congress. The first of those measures calls for a subsidy to silver
producers and additions to the heavy Treasury liability for debased coinage.
The second calls for the purchase of an amount of silver sufficient to destroy
what little there is left of our American gold standard. The bimetallic proposal, if adopted, would be devastating in its financial effects and would force
us onto a silver standard.
1
NOTE.—Until the President, on July 19, 1934, signed the Silver Purchase Act which
provided for the purchase of silver until it equals one-fourth of our stock of gold and
silver.—The Secretary.




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

Since the pro-silver advocates, in searching for excuse for their measures,
frequently refer to the Chinese "situation," the implication being—if, indeed,
the direct assertion is not made—that the Chinese would be benefited by the
measure designed to raise the value of silver, this committee wishes to quote
from the recently published book, Kemmerer on Money, the following brief
passage relating to this argument of the silver advocates. Kemmerer, who
recently spent a year in China as currency and bank expert of the Chinese
Government, says (p. 131) :
«* * * China's commodity price level has been much more stable since
1929 than the price level in any gold standard country. Since January, 1933,
however, commodity prices in China have been declining. The wholesale priceindex number for Shanghai, for example, fell every month but one from January 1933, to November 1933, and in November stood at about 8 percent below
the level of January. It is hard to believe that the proponents of silver in the
United States, who have shown such great solicitude for the poor people of
China and wept so many crocodile tears in their behalf, should want to adopt
a policy that, by raising the value of silver in China and depressing commodity
prices, would increase the debt burdens of the Chinese people, and, in short,
impose upon China 'all the hardships of deflation from which the silver group
proposes to relieve the American people by the remonetization of silver."
Congress, under this administration, has already placed on our statute books
a series of unsound and potentially dangerous monetary laws; and to add to
their potential dangers, or to convert these potential dangers into actual mandatory law, is to invite monetary, economic, social, and, perhaps, political disasters.
Signed: Dean Arthur B. Adams, University of Oklahoma; Dr. James
W. Angell, Columbia University; Dr. James W. Bell, Northwestern University; Dr. Neil Carothers, Lehigh University; Dr.
George W. Dowrie, Leland Stanford University; Dr. J. Franklin Ebersole, Harvard University; Dean John Thorn Holdsworth,
University of Miami; Dr. Edwin W. Kemmerer, Princeton University ; Dr. David Kinley, University of Illinois; Dr. Wesley C.
Mitchell, Columbia University; Dr. Ernest Minor Patterson, University of Pennsylvania ; Dr. Harold L. Reed, Cornell University;
Dr. William A. Scott, University of Wisconsin; Dr. Walter E.
Spahr, New York University; Dr. Oliver M. W. Sprague, Harvard University; Dr. Ray B. Westerfield, Yale University; Dr.
John Parke Young, Occidental College.
NOTE.—Dr. H. Parker Willis was in Europe and, consequently, not able to sign.
V I I . A N APPEAL TO T H E PEOPLE OF T H I S COUNTRY TO ELECT SOUND-MONEY R E P RESENTATIVES TO CONGRESS BY T H E ECONOMISTS' NATIONAL COMMITTEE ON M O N ETARY POLICY

(Issued to the press through the office of secretary-treasurer, October 1, 1934)

The undersigned members of the Economists' National Committee on Monetary Policy believe it necessary for the country's welfare that the next Congress shall have a majority who, regardless of political, party stand unqualifiedly for a sound-money program. Unless such members are elected, we believe
this country may be plunged into an orgy of currency inflation which will culminate in disaster and in the impoverishment of the great mass of our people.
We agree with the President of the American Federation of Labor that among
those who will suffer most are the wage earners. Others who will suffer seriously are those who save and the holders of insurance policies.
There are developing today conditions and movements which point definitely
toward dangerous inflation and to the further mutilation of our currency system in the near future. The so-called committee for the Nation and others
have already begun a drive for further devaluation of the dollar. Recently
the northeastern group of presidents and secretaries of the State farm bureaus
joined in the same movement. The silver advocates are dissatisfied with the
last Silver Act, and those who urge the issue of unsecured or fiat paper money
have revealed definite intentions of forcing such paper money on the country.
Another dangerous tendency is seen in the fact that our commercial and Federal Reserve banks are becoming gorged with Government bonds in connection
width the Treasury's program of financing, and are growing progressively less
liquid, a condition that may lead ultimately to large and excessive issues of
bank notes against these bonds. Even today Government bonds and much of




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS
our currency are for practical purposes interchangeable. Additions to our
present supply of inconvertible paper money will have ultimate effects not
greatly unlike those resulting from the outright issue by the Government of
unsecured or fiat paper money.
The present prices of Government bonds should, furthermore, not mislead
the public, for their market is artificially maintained by the Treasury and by
the huge absorptions on the part of the banks. Such unusually large bond
issues cannot be floated indefinitely except by a process of progressive inflation.
The time must arrive when this procedure of Government financing must be
discontinued and when either the burdens of taxation must be greatly increased or the public debt be paid through inflation in a greatly depreciated
dollar.
Just as there is a limit to the amount of bonds which the banks and the
public can absorb, so are there limits to the tax burdens which people can
bear. As a consequence, there is the very clear possibility that the Government may resort to the outright issue of fiat money to meet its current expenditures unless strenuous efforts are made by the Government in the near future
to restrict its expenditures and to balance its Budget. Furthermore, as many
aspects of the Government's recovery and reform program show progressively
less satisfactory results, there will be an increased determination on the part
of Congress to employ progressively more desperate measures; and the chief
one will most probably be an increasing resort to paper money inflation.
We believe that it is imperative to elect to Congress experienced, levelheaded, sound-money men who understand that the problem of bringing about"
economic recovery is not a question of increasing the money supply but a
question of enabling business, particularly the durable-goods industries, to
resume its productive activities with a reasonable assurance of conditions
under which a profitable outcome may be anticipated. All possible obtsacles
in the paths of such resumption should be removed. A large proportion of
consumer purchasing power is derived from the activities of such production.
Under conditions of sound business recovery the money and credit in circulation are a result, not a cause, of increased production and consumption. About
90 percent of our medium of exchange is composed of checks and drafts drawoi
against bank deposits. Most deposits result from loans and investments; and
loans, particularly, increase and decrease as a consequence of the increase or
decrease in business activity. Thus the amount of currency in circulation is
normally che thermometer recording the health and activity of business—except
that when a currency is artificially inflated an increased supply of such currency causes and is evidence of an unhealthy and dangerous condition in
business.
Paper money issued will in a large part be deposited in banks, raising deposits; and all deposits are payable only in such money. Corruption of money
means equal corruption of bank deposits. Through devaluation of the dollar,
the scale of our monetary thermometer was changed on the assumption that
this change alone would improve business conditions. Similarly, the last Silver
Act was passed on the assumption that diluting and weakening our gold base
still further would stimulate business to a healthy activity. These assumptions
have been proved wrong. The chief results have been to change the scale of
our monetary thermometer, to mutilate and weaken our currency system, and
to inject into it provisions that will constittue an increasing danger to this
country until removed.
We therefore urge, with all the earnestness at our command, that the voters
of this country elect to the next Congress only those candidates who, regardless of party, (1) will oppose any further weakening of our currency structure,
(2) will oppose any further devaluation of our monetary unit, (3) will oppose
any further prosilver measures, (4) will oppose paper money inflation in every
form, (5) will oppose bimetallism, symmetallism, and the commodity dollar,
(6) will vote for the repeal of all the currency provisions of the Thomas
amendment of May 12, 1933, (7) will insist on a return to an outright gold
standard with a unit of weight not less than the present 15 5/21 grains of
standard gold, and (8) will urge upon the Government cooperation in the
international stabilization of currencies.
(Signed:) James W. Angell, Columbia University; Charles C. Arbuthnot, Western University; Leonard P. Ayres, Cleveland Trust
Co.; George E. Barnett, Johns Hopkins University; Don C.
Barrett, Haverford College; James Washington Bell, Northwestern University; Jules I. Bogon, Journal of Commerce; Fred69972—38

21




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS
erick A. Bradford, Lehigh University; R. P. Brooks, the University of Georgia; Charles J. Bullock, Harvard University;
Wilbur P. Galilean, University of Cincinnati; Neil Carothers,
Lehigh University ; J. Ray Cable, Washington University ; William
W. Cumberland, Wellington & Co.; Charles A. Dice, Ohio State
University; William E. Dunkman, University of Rochester; J.
Franklin Ebersole, Harvard University; D. W. Ellsworth, the
Annalist; William D. Ennis, Stevens Institute of Technology;
Fred R. Fairchild, Yale University; Roy L. Garis, Vanderbilt
University; Harry D. Gideonse, University of Chicago; E. C.
Harwood, Massachusetts Institute of Technology; Frederick C.
Hicks, University of Cincinnati; John Thorn Holdsworth, University of Miami; F. Cyril James, University of Pennsylvania;
Edwin W. Kemmerer, Princeton University; William H. Kiekhofer, University of Wisconsin; Elbert A. Kincaid, University
of Virginia; David Kinley, University of Illinois; Ray V. Leffler,
Dartmouth College; Esther Lowenthal, Smith College; Ernest
Minor Patterson, University of Pennsylvania; Clyde W. Phelps,
Chattanooga University; William A. Rawles, Indiana University;
Harold L. Reed, Cornell University; Leland Rex Robinson, New
York City; R. G. Rodkey, University of Michigan; Olin Glenn
Saxon, Yale University; William A. Scott, University of Wisconsin ; James G. Smith, Princeton University; Walter E. Spahr r
New York University; Oliver M. W. Sprague, Harvard University; Alvin S. Tostlebe, College of Wooster; Rufus Tucker,
Westfield, N. J.; Russell Weisman, Western Reserve University;
Ray B. Westerfield, Yale University; William O. Weyforth,
Johns Hopkins University; Nathaniel R. Whitney, Proctor &
Gamble Co.; H. Parker Willis, Columbia University; t Max
Winkler, College of the City of New York; Ivan Wright, University of Illinois; John Parke Young, Occidental College.

VIII. ECONOMISTS' NATIONAL COMMITTEE ON MONETARY POLICY AGAIN DEMANDS A
RETURN TO SOUND MONEY
(This statement was released to the press from Chicago on December 27, 1934. It constitutes a brief summary of the results of a questionnaire which had been submitted to
the members of the committee before the Chicago meeting. The tabulated results of the
questionnaire and this summary of the high lights were presented to about 45 members
in a general meeting held at Chicago on December 27, 1934. The group attending instructed the secretary to issue the following statement to the press in the name of the
committee and without individual signatures.)

Today the Economists' National Committee on Monetary Policy, composed of
95 of the leading monetary economists of this country, made known the fact
that its members had recorded their position on the principal money and
banking questions now before the Nation by replying to a questionnaire submitted to them by the officers of the committee. Among the many questions
on which the members voted the following are of particular interest at this
time:
On the basis of the returns, 94 percent held that an immediate declaration
by the administration as to whether it intends to return to a gold standard is
important to economic recovery; there was a 100-percent vote to the effect that
the United States should return as soon as possible to a fixed gold standard;
77 percent favor a gold bullion standard; 98 percent were opposed to any
further purchases of silver; there was a 100-percent vote to the effect that
current silver purchases are dangerous as an inflationary measure; 93 percent
held that it is not desirable to have part of the reserves of central banks or
part of the monetary base consist of silver; 78 percent believe that the present
trend in the United States is toward inflation by the dangerous expansion of
money; 97 percent believe that there is a trend toward inflation by a dangerous
expansion of credit; and 88 percent believe that it is unlikely that inflation
will be controlled.
On practically every aspect of the current program for managed currency the
committee showed a strong opposition: 92 percent voted against the establishment of a managed currency; there was a 100-percent vote against the Fisher
plan of changing frequently the weight of the gold unit: and 95 percent voted
that insofar as there is to be any currency management it should be in the
hands of the Federal Reserve authorities.




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS
The committee's vote was 100 percent opposed to a Government owned and
operated central bank; it was 100 percent opposed to vesting the powers of
currency issuance in the hands of the Secretary of the Treasury; 81 percent,
thought the Secretary of the Treasury, should be removed from the Federal
Reserve Board.
The committee voted 100 percent to the effect that changes in the official
price of gold could not be used successfully to stabilize the commodity price
level; the members voted 100 percent against the gold buying policy of the
United States; and 87 percent held that there was no important or dependable
relation between the official prices of gold and the general price level.
The committee's vote against the commercial banking system being Government owned and operated was 100 percent; 62 percent favored requiring all
State commercial banks to take out national charters.
Relative to the price level, 93 percent held that prices should be left to find
their own level; 95 percent held that no efforts should be made to restore the
price level of 1926; 97 percent held that the Swedish experience, and 95 percent
that the English experience, with managed currency, do not prove the desirability of trying a similar system in the United States; there was a 100 percent
vote to the effect that the Federal Reserve System did not have the capacity
to stabilize the price level prior to 1933; and 94 percent held that it is not
possible to give it that power.
Approximately 88 percent of the committee thought the Government should
appoint a commission of experts, similar to the Macmillan Committee in England, to make a careful study of the money and banking questions before the
country and to submit a program before any further legislation on these questions is undertaken. A similar consensus of opinions on the same and similar
questions was published in the press just a year ago when this committee issued
a public statement at a meeting held in Philadelphia.
IX. MEMORANDUM IN OPPOSITION TO TITLE II, BANKING BILL OF 1935

(H. R. 5357, S. 1715)
SUBMITTED TO CONGRESS BY THE ECONOMISTS' NATIONAL COMMITTEE ON MONETARY
POLICY

(Issued through the office of the secretary-treasurer, March 7, 1935)
The undersigned members of the Economists' National Committee on Monetary Policy wish to point out to the country that the so-called administration
banking bill of 1935, recently introduced in Congress (H. R. 5357 and S. 1715)
endangers the development of sound commercial banking in this country in the
following principal respects. These warnings relate only to title II of that
bill.
1. Providing for political control of the Federal Reserve Board and Federal
Reserve banks.—The Federal Reserve administrative authorities, instead of
being given the independence which is appropriate to the officers of a nonpolitical central commercial banking system, will be brought under direct control of the President. It is proposed to accomplish this end by providing that
the membership of the Governor on the Federal Reserve Board shall expire
when he is no longer designated as Governor by the President. This provision
will enable the President to advance any member to the governorship, then
remove him, and in this manner the complete personnel of the Board can be
changed quickly and will be subject at all times to Presidential control. Thus
the Board can become a politically controlled board with little opportunity to
exercise independent judgment.
The same will be true of the governors and vice governors of the Federal
Reserve banks, since it is proposed that they be appointed by the directors of
the Federal Reserve banks after approval by the politically controlled Federal
Reserve Board.
The lessons of central banking teach us that the farther a central banking
system is removed from political domination, the better it is for the country.
2. Providing for the conversion if illiquid assets of Federal Reserve hanks into
legal tender notes.—The proposal to repeal the requirements with respect to commercial paper collateral for Federal Reserve notes is unsound. It will enable
the Federal Reserve banks to issue legal tender notes against frozen or illiquid
assets admitted under the tolerance or policies of a politically controlled Federal
Reserve Board, and will destroy the prospect of restoring the so-called "elastic"




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

characteristics of these notes—a feature which financial leaders have striven
to obtain for nearly 50 years. Although the Glass-Steagali amendment of 1932
and the emergency banking legislation of 1933 gave these notes what is commonly
called an inelastic characteristic by permitting the use of Government securities
as collateral, it was supposed that this change was temporary and that efforts
would be made, after the emergency had passed, to restore the "elastic" feature
of these notes. Instead of providing us with a note currency which bears the
appropriate relation to the sound short-term needs of business, thus avoiding
inflationary tendencies, the bill provides the means for the issue of notes against
Government bonds (and other assets, regardless of liquidity) and, consequently,
opens the way for a huge bank note inflation in this country. The bill enables
the Government, through the banks, to convert the national debt into bank notes
until the surplus banking reserves of the country are exhausted. The Federal
Reserve Board, furthermore, is given the power to reduce the reserve requirements of member banks as it sees fit, thus increasing immeasurably the possibilities of inflating the currency. The passage of such a measure will invite
ultimate disaster for this country.
3. Providing that noncommercial and illiquid paper may be eligible for rediscount at Federal Reserve banks.—The proposal to make "any sound asset" of
a member bank eligible for discount at a Federal Reserve bank opens the way to
converting what should be a commercial banking system into an illiquid noncommercial system. The supply of noncommercial paper eligible for rediscount
should be further restricted, not enlarged. This bill makes a politically controlled
Board the sole judge of the soundness of the assets to be admitted to the Federal
Reserve banks. It is the function of a central banking system to maintain at
all times a liquid portfolio, since the System holds the ultimate reserves of the
Nation's banks.
4. Providing for the broadening of member bank loans on real estate.—The
proposal to permit member banks of the Federal Reserve System to loan an
amount equal to 60 percent of their time and savings accounts or an amount equal
to their entire capital and surplus on real estate, for periods of 20 years and up
to 60 or 75 percent (depending upon circumstances) of the value of property,
is unsound. Making such loans is not an appropriate function of a commercial
banking system. Real estate loans of a far more restricted nature have caused
great losses and have been a source of great trouble for the commercial banks
of this country. This is one of the outstanding lessons of the decade of 1920-30,
with its holocaust of bank failures and paralyzing losses. To increase the possibility of such losses and difficulties is hardly rational.
All measures designed to correct weaknesses in the Federal Reserve System
should seek to increase, rather than destroy, its independence of political influence. They should increase, not reduce, its commercial nature. They should
assure, not impair, its liquidity. And they should free it from Government
financing rather than link it more closely to the fiscal needs of the Government.
(Signed:) Arthur B. Adams, the University of Oklahoma; Eugene E.
Agger, Rutgers University (with reservations as to par. 2) ;
James W. Angell, Columbia University; Charles C. Arbuthnot,
Western Reserve University; Leonard P. Ayres, the Cleveland
Trust Co.; George E. Barnett, Johns Hopkins University; Don
C. Barrett, Haverford College; James Washington Bell, Northwestern University; Ernest L. Bogart, University of Illinois;
Jules L. Bogen, Journal of Commerce and New York University
(with reservations as to par. 2) ; Frederick A, Bradford, Lehigh
University; R. P. Brooks, the University of Georgia; Charles J.
Bullock, Harvard University, Neil Carothers, Lehigh University;
J. Ray Cable, Washington University; Wilbur P. Calhoun, University of Cincinnati; Edward H. Collins, New York Herald
Tribune; Alzada Comstock, Mount Holyoke College; William W.
Cumberland, Wellington & Co.; George W. Dowrie, Stanford
University; Eleanor Lansing Dulles, University of Pennsylvania;
William E. Dunkman, University of Rochester; D. W. Ellsworth,
the Annalist; William D. Ennis, Stevens Institute of Technology;
Clarence W. Fackler, New York University; Fred F. Fairchild,
Yale University ; J. Anderson Fitzgerald, the University of Texas;
Roy L. Garis, Vanderbilt University; Lewis H. Haney, New York
University; E. C. Harwood, American Institute of Economic Research; Hudson B. Hastings, Yale University; John Thorn Holdsworth, the University of Miami; B. Cyril James, University of




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

321

Pennsylvania (with reservations as to par. 2) ; Edwin W. Kemmerer, Princeton University; Elbert Alvis Kincaid, University of
Virginia; David Kinley, University of Illinois; William H. Kniffin,
Bank of Rockville Centre Trust Co. (with reservations as to
par. 4) ; Frederic E. Lee, University of Illinois, Ray V. Leffler,
Dartmouth College; Esther Lowenthal, Smith College, Arthur
Marget, University of Minnesota (with reservations as to pars.
2-3) ; A. Wilfred May, New York City; Mark C. Mills, Indiana
University; Margaret Myers, Vassar College; Melchior Palyi, the
University of Chicago; Ernest Minor Patterson, University of
Pennsylvania; Clyde W. Phelps, Chattanooga University; Howard
H. Preston, University of Washington; William A. Rawles, Indiana University; Harold L. Reed, Cornell University (with
reservations) ; Leland Rex Robinson, New York City; R. G. Rodkey,
the University of Michigan; Olin Glenn Saxon, Yale University;
Joseph A. Sehumpeter, Harvard University; William A. Scott,
University of Wisconsin; James G. Smith, Princeton University;
Walter E. Spahr, New York University; Oliver M. W. Sprague,
Harvard University (with reservations as to pars. 2-4) ; William
H. Steiner, Brooklyn College; Alvin S. Tostlebe, College of
Wrooster; James B. Trent, Louisiana State University; Rufus S.
Tucker, Westiield, N. J.; Ray B. Westerfield, Yale University ;
Nathaniel R. Whitney, Procter & Gamble Co.; II. Parker Willis,
Columbia University; Max Winkler, College of the City of New
York; Ivan Wright, University of Illinois; John Parke Young,
Occidental College; Ralph A. Young, University of Pennsylvania.
NOTE.—When the hearings on the banking bill of 1935 were being held in the spring of
1935i by the House and Senate Committee on Banking and Currency, Dr. Spahr appeared
before the House committee, Drs. Kemmerer, Sprague, and Willis appeared before the
Senate committee, Drs. Spahr and Warren (Robert S.) were invited to appear before the
Senate committee, and, although the hearings closed before they appeared, their prepared
testimony was included in the published hearings. Dr. Westerfield was invited to appear
before the Senate committee, but the hearings closed before he was to appear, and his
testimony, unfortunately, was not received by the committee for inclusion in the published hearings. (See Banking Act of 1935), Hearings Before the Committee on Banking
and Currency, House of Representatives, 74th Cong., 1st sess., on H. R. 5357, FebruaryApril 1935, corrected print, and Banking Act of 1935, Hearings Before a Subcommittee
of the Committee on Banking and Currency, United States Senate, 74th Cong., 1st sess.,
on S. 1715 and H. R. 7617, April 19-June 3, 1935, United States Government Printing
Office, Washington, D. C.
X.

MEMORANDUM TO CONGRESS

Submitted by 62 members, Economists' National Committee on Monetary
Policy in support of a monetary commission and opposing enactment of any
important measure with reference to Federal Reserve System without careful
study by recognized experts.
APRIL 2,

1935.

To Members of Senate and House of Representatives:
The undersigned members of the Economists' National Committee on Monetary Policy believe that there are no circumstances which make it necessary
to engage at this time in any important legislation affecting the Federal Reserve
System.
Considering the questionable provisions embodied in title II of the banking
bill of 1935, it is especially important that there be no legislation for the present
with respect to these aspects of the Federal Reserve System until a careful study
has been made by a commission composed of recognized experts and a model bill
is drafted. Such a commission should have sufficient time to study thoroughly
our money and banking problems and, upon the basis of ample and carefully
examined evidence, prepare a comprehensive and properly integrated plan
which will f reflect the be c t thought on the subject. Such a plan should then be
enacted in o law after adequate hearings, II us replacing the hastily prepared
banking bill of 1935, which is now under consideration. Only a well-considered
bill prepared by competent experts in an atmosphere of calm deliberation should
be enacted into law.
Only minor technical changes in our banking law should be made at the
present time, and then only upon the recommendation of the Federal Reserve
Board, accompanied by a statement from the Board explaining that such
changes are necessary because of existing conflicts in law or because some




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

specified emergency demands that such technical changes be made at the
present time.
(Signed): Arthur B. Adams, University of Oklahoma; Eugene E.
Agger, Rutgers University; Charles C. Arbuthnot, Western Reserve University; Leonard P. Ayres, the Cleveland Trust Co.;
James Washington Bell, Northwestern University; Ernest L.
Bogart, University of Illinois; Jules I. Bogen, the Journal of
Commerce and New York University; Frederick A. Bradford,
Lehigh University; Charles J. Bullock, Harvard University;
J. Ray Cable, Washington University; Wilbur P. Calhoun, University of Cincinnati; Neil Carothers, Lehigh University; Edward H. Collins, New York Herald Tribune; William W. Cumberland, Wellington & Co., New York City; Charles A. Dice,
Ohio State University; George W. Dowrie, Leland Stanford University ; Eleanor Lansing Dulles, University of Pennsylvania;
William E. Dunkman, University of Rochester; D. W. Ellsworth,
the Annalist, New York City; William D. Ennis, Stevens Institute of Technology; Clarence W. Fackler, New York University;
Fred R. Fairchild, Yale University: J. Anderson Fitzgerald,
the University of Texas; Roy L. Garis, Vanderbilt University;
Lewis H. Haney, New York University; E. C. Harwood, American Institute of Economic Research; John Thorn Holdsworth, the
Universify of Miami; F. Cyril James, University of Pennsylvania ;
Edwin W. Kemmerer, Princeton University ; William H. Kiekhofer, University of Wisconsin; Elbert A. Kincaid, University of
Virginia; David Kinley, University of Illinois; William H. Kniffin, Bank of Rockville Centre Trust Co., N. Y.; Ray V. Leffler,
Dartmouth College; J. L. Leonard, University of Southern California ; James D. Magee, New York University; A. Wilfred May,
Columbia University; Wesley C. Mitchell, Columbia University;
Margaret Myers, Vassar College; Melchior Palyi, the University
of Chicago; Ernest Minor Patterson, University of Pennsylvania;
Clyde W. Phelps, Chattanooga University; Howard H. Preston,
University of Washington; William A. Rawles, Indiana University ; Harold L. Reed, Cornell University; Leland Rex Robinson,
50 Pine Street, New York City; Olin Glenn Saxon, Yale University ; William A. Scott, University of Wisconsin; James G. Smith,
Princeton University; Walter E. Spahr, New York University;
Oliver M. W. Sprague, Harvard University; William H. Steiner,
Brooklyn College; Charles S. Tippetts, University of Pittsburgh;
Alvin S. Tostlebe, College of Wooster; James B. Trant, Louisiana
State University; Rufus S. Tucker, Westfield, N. J.; Ray B.
Westerfield, Yale University; William O. Weyforth, Johns Hopkins University; Nathaniel R. Whitney, Procter & Gamble Co.,
Cincinnati; H. Parker Willis, Columbia University; John Parke
Young, Occidental College; Ralph A. Young, University of
Pennsylvania.
I. T H E BRADFORD-CAROTHERS LETTER TO THE PRESIDENT, OCTOBER 21,

1933

The Economists' National Committee on Monetary Policy in a sense grew out
of a letter sent to President Roosevelt on October 22, by 44 monetary economists.
This letter was prepared by Drs. Frederick A. Bradford and Neil Carothers, of
Lehigh University. The signers of this letter became a nucleus around which
the Economists' National Committee on Monetary Policy was built by those who
first met at the Pennsylvania Hotel, New York City, on November 17, 1935, to
consider the advisability of organizing a national committee. In a communication of November 29, 1933, sent by Drs. Westerfield and Spahr to the signers
of the Bradford-Carothers letter (and to a few others) the following statement
was made:
"The present plans are to limit the membership to economists who have made
money and monetary problems a special.study. The 44 signers of the BradfordCarothers letter will constitute the original membership; you are asked to
inform us whether you will join us in 'The Economists' National Committee on
Monetary Policy.' It is also desired that you recommend names of persons
highly qualified for membership. They may be either teachers or nonteachers,
but should be professional economists. It is desired to have as able and agreeable a membership as possible. From the total list of nominees received from




GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

323

the original 44 members, the executive committee will select enough to build
the membership to approximately 100."
The Bradford-Carothers letter was as follows:
OCTOBER 21,

1933.

The Honorable FKANKIIN D. ROOSEVELT,

The White House, Washington, D. C.
DEAR MR. PRESIDENT: The undernamed have long been engaged, in connection
with academic work, with writing, with business, or with Government service,
in the study of money and currency problems. We know that in this time of
crisis and conflicting views even the most able leaders in our Government may
be misled in regard to the attitude of the group of which we are a part.
We do not presume to urge upon you a course of action. We do not suggest
that you accept our views in preference to those of others. We do wish you to
know that we believe the following statements to be true.
(1) Inflation of the currency will injure the Nation.
(2) The degree of public confidence essential for economic recovery will be
attained most quickly by a return to the gold standard.
Respectfully,
E. E. Agger, Rutgers University; B. M. Anderson, Jr., Chase National
Bank; James W. Angell, Columbia University; Don C. Barrett,
Haverford College; Benjamin Haggott Beckhart, Columbia University ; James Washington Bell, Northwestern University; Jules
I. Bogen, Journal of Commerce; Frederick A. Bradford, Lehigh
University; William Adams Brown, Brown University; Neil
Carothers, Lehigh University; T. N. Carver, Harvard University;
John M. Chapman, Columbia University; Edward H. Collins,
New York Herald Tribune; George W. Dowrie, Leland Stanford
University; Eleanor Lansing Dulles, University of Pennsylvania;
J. F. Ebersole, Harvard University; George W. Edwards, College
of the City of New York; D. W. Ellsworth, the Annalist; Herbert
F. Fraser, Swarthmore College; Roy L. Garis, Vanderbilt University ; E. C. Harwood, Massachusetts Institute of Technology;
John Thorn Holdsworth, University of Miami; F. Cyril James,
University of Pennsylvania; E. W. Kemmerer, Princeton University ; E. A. Kincaid, University of Virginia; David Kinley, president emeritus, University of Illinois; James D. Magee, New York
University; Wesley C. Mitchell, Columbia University; H. G.
Moulton, Brookings Institution; Marcus Nadler, New York University ; Ernest M. Patterson, University of Pennsylvania; H. H.
Preston, University of Washington; George B. Roberts, National
City Bank; R. G. Rodkey, University of Michigan; William A.
Scott, University of Wisconsin; Walter E. Spahr, New York University ; W. H. Steiner, Brooklyn College; Leonard L. Watkins,
University of Michigan; Russell Weisman, Western Reserve University ; Ray B. Westerfield, Yale University; H. Parker Willis,
Columbia University; Max Winkler, New York City; Ivan
Wright, University of Illinois; John Parke Young, Occidental
College.
II. T H E EXPERIENCE OF SWEDEN W I T H A MANAGED CURRENCY

(This statement was released March 27, 1934, from the office of the secretary-treasurer
of the Economists' National Committee on Monetary Policy on the authority of SecretaryTreasurer Spahr. Such statements do not bind the committee, since not less than threefourths of the executive committee may speak in the name of the committee, and even
they may not speak for the individual members.
Considering the multitude of reliable assertions then being made regarding the
Swedish experience with a managed currency, the officers of this committee were anxious
to give the American public the facts in the case. It so happened that a Swedish scholar,
Dr. Erik T. H. K.iellstrom, who was temporarily in this country, had just completed
work on a book called Managed Money, The Experience of Sweden (published by Columbia University Press, 1934, $1.75. Foreword by Prof. H. Parker Willis). He was
asked to summarize his findings with respect to the Swedish experience so that the officers
of this committee might present them to the public. This was done, and the secretarytreasurer prepared the following memorandum from Dr. Kjellstrom's notes. This memorandum was then read, revised, and approved by Dr. Kjellstrom.
Since endorsement of this memorandum by other members of the Economists' National
Committee on Monetary Policy could hardly be asked, for the reason that the members
would be unable to pass upon the accuracy of Dr. Kjellstrom's statements, the secretarytreasurer, with the knowledge and approval of President Westerfield, issued this statement to the public for any value it might have.)

The managed paper currency advocates of this country, those who believe
that we should increase our currency until the price level reaches that of




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GOVERNMENT OWNERSHIP OF FEDERAL RESERVE BANKS

1926 "and then peg the price level at that point," and those who insist that it
is both undesirable and unnecessary to return to the gold standard, have
pointed repeatedly to the Swedish "managed" currency program as a case
affording adequate and conclusive proof of the validity of their major contentions.
Many monetary students, who had investigated with some care the nature
and operation of the Swedish monetary program, soon arrived at the conclusion that the Swedish situation did not provide support for the chief contentions of the managed paper currency advocates but, on the contrary, demonstrated rather conclusively the widely recognized unsouudness of their contentions. But despite the fact that these scholars have pointed out these facts
with increasing frequency and emphasis, the controlled inflationists, inflationists,
and managed-paper advocates have continued to insist, as though oblivious to
evidence to the contrary, that the Swedish program provides conclusive evidence .
of the soundness of their contentions.
Because of the wide interest in this controversy, and also because the public
should be advised of the ascertained facts regarding the Swedish monetary
program, the president and secretary-treasurer of the Economists' National
Committee on Monetary Policy thought it desirable to call to the attention of
as many interested persons as possible the fact that a study of the Swedish
experience with managed currency has been completed and shows that the
inflationists, controlled inflationists, and managed paper advocates cannot find
in the Swedish situation adequate support for their chief contentions that
managed money can lift a country out of a depression. This study on Managed
Money, the Experience of Sweden, by Erik T. H. Kjellstrom, is about to be
released by the Columbia University Press. The book, which will sell for $1.75,
carries a foreword by Prof. H. Parker Willis.
As a result of urgent solicitation by the president and secretary of this
committee, Dr. Kjellstrom, in cooperation with Prof B. H. Beckhart, consented,
with the generous approval of the Columbia University Press, to give us an
advance summary of the chief conclusions of this study in order that our committee might place them before the country at the earliest opportunity. The
summary of Dr. Kjellstrom's chief conclusions is as follows:
Sweden, in September 1931, provided the world with its first known instance
of a country renouncing one monetary standard and immediately following it
with a new and independent standard. The chief purpose of this new standard
was the preservation of the internal purchasing power of the krona, especially
the krona in the hands of the consumer as measured by a cross section of the
entire community. The program, which is essentially an emergency measure
having for its ultimate purpose the mitigation of the economic depression, has
three specific objectives : (1) The prevention of inflation of currency and credit;
(2) preservation of the internal-purchasing power of the krona in the hands
of the consumers; and (3) a gradual rise in wholesale prices, primarily domestic
wholesale prices, as a means of stimulating domestic production in the hope that
thereby the country will be lifted out of the depression.
The responsibility for carrying out these objectives is vested in the Bank of
Sweden which acts independently of the Government and was expected to
.have the full cooperation of all financial institutions of the country. Such
cooperation, however, has not been fully attained, and this is proving a weakness since it is not possible to attain the stated objectives or to bring to a
successful conclusion such a managed-currency program merely by centralbank operation.
The Bank of Sweden, consequently, has relied on the ordinary instruments
of currency control at the disposal of the bank, namely: Changes in the bank
rate, transactions in the foreign exchange market, purchases and sales of
gold both in Sweden and abroad, and also purchases oE Government bonds.
These last transactions, however, have been intended as a means of improving
the liquidity of the banking system after the Kreuger crisis.
The immediate guide for, as well as criterion of, the policies if the bank is
various price indexes including the consumption price index of the Bank of
Sweden, the general development of production and trade, and statistics of
unemployment.
For the foreign exchange transactions, the pound sterling has been used as
an external guide, and, although the transactions in the foreign exchange
market have had. and still have, as their objective the protection of the Swedish
price structure, the Bank of Sweden has constantly been compelled to adjust
its purchases and sales of foreign exchange to unforeseen circumstances, such




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325

as speculation and unfavorable developments in foreign money centers, notably
the decline in the dollar during the banking holiday in the United States.
Thus far the following results have been obtained: (1) The danger of inflation was averted, (2) the process of deflation has been halted, (3) the
internal purchasing power of the krona has been preserved tolerably well as
measured by the index of the Bank of Sweden, (4) the desired gradual rise
in the wholesale price level has not taken place, (5) production has not been
maintained—partly due to strikes, (6) unemployment has increased, and (7)
the "managed money" program has not been sufficiently effective to lift the
country out of the grip of the depression.
Dr. Kjellstrom makes the following additional observations: (a) It has
proved impossible to pump additional credits into the domestic market; a
gradual lowering of the rediscount rate has not been a sufficient inducement to
borrowers to make this possible.
(6) Quite contrary to the program of the United States, there has been no
willful depreciation by Sweden of the external value of her currency in order to
increase her exports. Gold has been purchased and sold with the end in view
of minimizing the' risk inherent in the Bank of Sweden's foreign exchange
portfolio, and not as a d