Full text of Statements and Speeches of Charles S. Hamlin : Speech before the Republican Club of the City of New York

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SPEECH BY HON. C . S . HAMLIN BEFORE SHE
REPUBLICAN CLUB OF THE CITY OF HEW YCEX,
JANUARY 22, 1916.____________

For many year* the United State* has been more or lets Isolated, both
from a

c o m m e r c ia l

and a financial point of view, but within the past genera­

tion our activities have greatly broadened.

Oar people hare beooms today

a factor in the world’ s progress, both commercially aad financially.
reading the other day an article by a well fenowa scholar in which the

I was
state­

ment was node that "the detached individual has gone out of existence".

I

conld ntt hat realize the truth of this statement and that it could be, as
well, applied to the nation as to the individual.

Today we must recognise

that the detached nation has gone out of existence? that we are all part of
the composite group of the nations of the world, and that almost every
event in the world*s progress, whether for good or for bad, most sooner or
later affect the interests of our people.
There are many problem before us today for settlement vMoh come
under the general heading of preparedness.

There is preparedness in the

military sense, and, as well, preparedness in the financial, banking and
coBtosroiel sense of the term.

I shall say little or nothing of prepared-

ness from the military point of view, and shall singly rest with pointing
out that from the financial and banking points of view we certainly are now
well prepared, and can look to the future with confidence.
So far as th* finance* of the nation are concerned, the Cold standard
Act of 1900, passed under a Republican Administration, has settled that
question for ever.

So, also, the Federal Reserve Act, passed under a

Democratic Administration, has at last placed our banking system xqoon a



sound basis - one of the firmest and best In the world.
When this terrible conflagration in Europe is over there will be many
great problems for us to consider, and m must prepare for their solution
in advance*
I have stated that we are now prepared in the bastfciag and financial
sense of the tern.

I would say more*

I believe that ultimately it will

be demonstrated that oat of this new Federal Reserve Banking System the
people of the United States will save, each year, much more than the cost
of any reasonable military preparedness which the people of the United
States will ask Congress to secure*
We have to go back only a little over a year, to August, 1914, to see
what a startling ohange has occurred In our ooxmtry.
at least #500,000,000 abroad*

We then owed, In gold,

She first business of the newly created

federal Reserve Board was to collect a sufficient amount of gold to satisfy
our foreign creditors that we could and would pay every obligation which is
payable in gold In that metal*

We appealed to tS» people of the United

States through the banks and bankers, and they responded without delay by
giving us a fund of over $100,000,000 of gold*

The accumulation of this

fund satisfied all nations that every demand obligation payable In gold
could be and would be promptly paid In that metal*

I believe we could

have as easily raised #200,000,000 as the amount we did in fact raise*
You will also remember that it was necessary to issue the so-called
Aldrlch-Vreeland currency notes, and,in some oases, clearing house cer­
tificates, to supply the demand for currency which arose shortly after the
beginning of the war*

It will be a liberal estimate to say that not over

#500, 000,000 altogether was needed in these notes and clearing house

certificates to assuage all fear of trouble, and alljrealise the strength



of the Federal He serve System when I say that we could eaeily supply over
#600,000,000 of additional credit at the present time, sad our resources
are not yet as large as they will be ehortly, when all reserve payments
have been made by the member banks.
The federal Reserve Act wae founded on certain simple principles of
banking which had been recognised an the Continent of Europe for many
years*

These principles were well brought out by the investigation* of

the so-called National Monetary Commission, and no student of finance will
fail to appreciate the painstaking research of that Commission*

The

people of the United States are greatly indebted to its members for what
they accomplished*
As I have said* the principles underlying the Federal Reserve Aot are
simple*

They represent, among others, the principle of consolidation of

reserves and note issue, Keeping apart the function of ordinary banking
The Act
from that of the issue of notes,
ft provides for twelve Independent
Federal Reserve Banks, but connected together through the Federal Reserve
Board, so that the strength of every bank is at ti» service of every other.
Opposed to this principle of twelve banks m s a bill preeented by the
National Monetary Caaaission having one central bank;.
w$s well worked out in detail*

This latter bill

Its principal fault was that the system

was almost completely controlled by the banks, and that the Interests of
adequately
the people were not/represented on the Board of Directors*
In any event
it was never brought to

a vote in either House*

The Federal Reserve System, on the other hand, has direct representa­
tion in that each Federal Reserve Bank has three members of the Board of
Directors, appointed by the Federal Reserve Board, who are chosen to



represent not only the banka but, m wellv the people of the United States,
who are the customers of the banka.

I believe that the System gives us

all the benefits of a central bank without the disadvantages of such a
System.
We can realise what has been accomplished under this Act when we con­
sider the position of the national banks under the old law.

We had 7500

Independent banks, - a disorganised sway, - without lieutenants, majors,
colonels or generals, each individual bank In fact being a general*

In

tine of trouble each bank had to take care of Itself, and likely at the
eapanse of its customers.

She notes of customers which were discounted

were placed in the bank vaults as If they were funeral vaults, and there
they stayed until maturity, their Besunrection day? I f taken out before
maturity and sold, the bank would have had the finger of suspicion pointed
toward it.
The national banks, under the old system, could not accept bills of
exchange*

All this has been changed however* and now they are authorised

to accept bills in the foreign trade.

Furthermore, any bank whose reserve

falls can at onoe turn coaraercial paper which it holds into cash at the
Federal Reserve Bank, so that it can always feel certain that its wants
can be cared for.
1 am sure you want to know, however, just what this system has done for
the individual borrowers•

The following facts are clear.

Banks today

oiai borrow from one another at rates cheaper than for many yearst in many
parts of the United States individuals can borrow from banks at lower rates
than ever before; cities, municipalities, towns and villages oan borrow
today on their warrants at rates far lower than they have ever before been
able to secure*



Some of this gain to customers has resulted from the

-ft*

lower reserve requirements established for member banks by the Federal
Beserve Act* some, also, by tbs Inflow of gold Into the United States*
Much of the gain has cotae directly from the discount rates fixed by the
Federal Beserve Banks*
Some oooasionally complain because the Federal Beserve Baziks are not
earning their dividends*

At the present time they are practically all

paying their expenses, while only a few have been able to earn dividends*
It should be rexnenibere&# however, that no new bank can fairly be expected
to pay expenses and dividends the first year.

She Federal Heserve Banks,

undoubtedly, when normal conditions are restored, will easily bo able
not only to meet their expenses bat to pay dividends as well*

We should

not forget that these banks were not organised primarily as profit making
institutions} on the contrary, they were organised to hold the reserves of
the country •

When it is for their Interest they enter the market; when

it is not, they stay out, but in ny opinion they must always keep part
of their resources loaned or invested in order properly to regulate market
conditions, and these loans or Investments, incidentally, in normal times,
will be ample for all expense and dividend requirements*
X had hoped that my colleague, Bon. Paul tt. Warburg, would share
with me today the privilege of addressing you, but, unfortunately, he was
not able to arrange to be present*

I regret this particularly because

I believe that he is one of your valued members, and X know how you would
have enjoyed his able and brilliant handling of these important questions*