Full text of Statements and Speeches of Edward H. Cunningham : Address before the American Farm Bureau Federation Convention, Chicago, Illinois

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A D D R E S S

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FEDERAL RESERVE 30ARD.
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D e l i v e r e d December 1 2 t h ,

1923.

AMERICAN FARM BUREAU FEDERATION CONVENTION
Chicago,

Released f o r P u b l i c a t i o n December 1 2 t h ,

.

/

E

V:

E. II. CUNNINGHAM, MEL1BER

J i', S 3

M-'f

Illinois.

1923.(noon).

H

The general purposes of
i n the

t i t l e of

defined,

the Federal Reserve A c t , w h i c h was passed i n 1913 and

approved on December 23 of
as

the Federal Reserve System are w e l l

that y e a r .

The f u l l

t i t l e of t h i s Act reads

follows:
" A n A c t to provide f o r the establishment of
Reserve Banks,

to f u r n i s h a n e l a s t i c

a f f o r d means of r e d i s c o u n t i n g

Federal

currency,

to

coiranercial paper,

to

e s t a b l i s h a more e f f e c t i v o s u p e r v i s i o n of banking
in

the United S t a t e s ,

The two p r i n c i p l e
f u r n i s h an e l a s t i c
cial paper.

and f o r other purposes.

"

f u n c t i o n s mentioned i n the t i t l e of the Act are

currency and to a f f o r d means of rediscountin- commer-

Both of these purposes c l e a r l y i n d i c a t e

that the

Federal

Reserve System i s intended p r i m a r i l y to supply short-term c r e d i t ,
elastic

thus to

because

currency must n e c e s s a r i l y be based on current t r a n s a c t i o n s ,

the r e d i s c o u n t i n g of "commercial" paper means

and

the extension of c r e d i t on

paper a r i s i n g out of the current needs of production or d i s t r i b u t i o n
agriculture,

Industr^jmd

trade.

Both f u n c t i o n s ,

therefore,

indicate

the Federal Reserve, i s a coiranercial banking system organized to
A
current short

and

terra o p e r a t i o n s ,

the Intermediate

arise

the paper e l i g i b l e

for

finance

the purpose

of

The l i m i t a t i o n s upon the character and
for discount by

the Reserve Banks,

from the fundamental purposes for w h i c h the system was

rJOriBFRSHIP.

that

from the Farm loan System

Credit Banks, w h i c h -aars organized

providing longer term c r e d i t .
maturity of

as d i s t i n g u i s h e d
/i^rC

in

therefore,

created..

For purposes of Reserve Banking the United States i s

divided

into t w e l v e ' d i s t r i c t s ,

each d i s t r i c t h a v i n g a Federal Reserve Bank, v;hich

i n many respects i s e n t i r e l y independent of
of the Federal Reserve Board.

All

the other Reserve Banks

the n a t i o n a l banks i n a

district

belong to the Federal Reserve System and must subscribe as t h e i r
to the b a n k ' s c a p i t a l an amount equal
c a p i t a l ard

surplus,

at the time

the membership i s a c q u i r e d ;

call.

Banks having

Reserve System i f

three per cent

to s i x per cent

( 3 o f

share

( 6 $ ) of t h e i r own

which must be paid i n cash

the remainder b e i n g

state charters arc permitted

they so d e s i r e and i f

and

subject

to j o i n the

their capital

and the

to

Federal
character

of t h e i r b u s i n e s s are such as to make them e l i g i b l e f o r membership.
joining
of

the System they are required to subscribe

the Resorve Bark 011 the same r a t i o

which j o i n the System r o t a i n a l l

to the c a p i t a l

as n a t i o n a l b a n k s .

their charter p r i v i l e g e s

Upon

stock

State banks
so f a r a s

they

arc not i n c o n f l i c t w i t h the Federal Reserve Act and State banks may
withdraw from membership a t any time upon s i x months'
Resorve System,

therefore,

holders and 110 part of
Governmental

notice.

i s owned by i t s member banks who are the

the •stock belongs to the Government.

institution,

Federal
stock-

It i s not a

but a co-operative e n t e r p r i s e of bankers owned

and l a r g e l y controlled by them.

ORGANIZATION.
nine

The F e d e r a l Reserve Banks are administered by a Board of

( 9 ) D i r e c t o r s d i v i d e d into

three c l a s s e s :

Glass " A " D i r e c t o r s

selected from among leading bankers i n the d i s t r i c t ;
represent commercial,
district,

industrial,

and a g r i c u l t u r a l

and Glass " 0 " D i r e c t o r s are

Class

"3"

are

Directors

i n t e r e s t s i n the ^
^
~*v '/o
c ^ fx/ -f'appointed by the, SowraiacrtT,
Glass

" A " and Class " B " Directors are elected by the Member Banks,
appointing only one-third of the D i r e c t o r s .
Class " A " and Class " B " Directors
D i s t r i c t are divided into
medium and small banks,
of v o t e s .

This insures

the Government

For the purpose of

selecting

the banks i n each Federal Reserve

three groups, consisting respectively of

large,

each class having in the aggregate an equal number
the Federal Heserve Banks from being

largely by the big banks as they would be i f

controlled

the votes wore in proportion

to resources, or by small banks as v:ould be the case i f every member bank
had one vote regardless of i t s s i z e .
directorate representative

This plan assures the banks of a

of the business interests and of the various

classes of banks in the d i s t r i c t .
The Federal Reserve Board consists of eight members,

the

Secretary

of the Treasury and the Comptroller of the Currency ex-officio,
other members appointed by the President of
firmed by the Senate.

" I n selecting

and

six

the United States and con-

the six appointive members of

the

Federal Reserve Board, not more than one of v/hom shall be selected from
any one Federal Reserve D i s t r i c t ,

the President

to a f a i r representation of the f i n a n c i a l ,

shall have due regard ,

agricultural,

industrial,

commercial i n t e r e s t s , and geographical d i v i s i o n s of the c o u n t r y . "
that

and
So

the Federal Reserve Board is a body of men selected from various

parts of

the United States who are representative of the various

of the country, and to those men is entrusted

activities

the function of welding

the

V

twelve regional Reserve Banks into one System w h i c h ' i s operated on consistent p r i n c i p l e s and can be depended upon for u n i t e d action when
emergency a r i s e s .
There i s a clear d i s t i n c t i o n between the Federal Reserve Banks and

fil?!

fe?

,

s/>the Federal He serve.-Board.

ta.ny

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y ^ ff u
orr ' ooperation
01 trie
un
nc
ct
t ii o
on
n o
p e r a t i o n of
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it advisable
and d e f i n e d

I

As

i t i s the a c t i o n of
the Federal Beserve

the

3anks

and as the "business

s e c t i o n s of the country,

of

Congress deemed

to make each Federal Reserve Bank a separate
the l i m i t s of a b a n k ' s

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tti-on-a-i

in reality,

and v i c a v e r s a .

in different

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are h e l d r e s p o n s i b l e f o r their c a p i t a l s t o c k ,
banking v a r i e s

/

rfifVjgag^frj i^dbj'tu^ ouns

fs^rt't*/
..ysa^:

, when,
£ Federal Reserve Bank,

,

corporation

corporate powers i n the a c t ,

while

dcsi.C'l-ri • t-t-rt-f' '* 7
i t l e f t to the .Federal Reserve Board the^eatabli-eteaegfrt ox broad
questions of p o l i c y in order that

the banks rai^ht f u n c t i o n harmoniously

as a u n i t and r a l l y to the a i d of each other i n times of
stress or combine

FUl!Ci'IOIIS OF

their force

n

fHb: BANKS.

in case of a n a t i o n a l

credit

emergency.

The c h i e f functions of the Federal

Banks may be b r i e f l y described as f o l l o w s :
Banks.

When a member bank f i n d s

Reserve

(A) R e d i s c o u n t i n j for Member

that i t s customers are i n need of more

than it is able to y i v e them on the b a s i s of i t s own r e s o u r c e s ,

i t can turn to

the Federal Reserve Bank and rediscount w i t h i t some of

tho paper upon which it has made loans to i t s customers.
<

/

however,
actual

special

in order

to be e l i g i b l e under

irnis p a p e r ,

'

the law m u s t A a r i s e out of an

t r a n s a c t i o n connected w i t h the production or d i s t r i b u t i o n

commodities.

of

P6. J JA.
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I^onoy-obtained~-frw the*"Federal Reserve- -Banks- -shall -not

/be used f o r s p e c u l a t i o n ;
stocks and bonds,

for permanent investment,

or for

except o b l i g a t i o n s of the United States

So that the Federal Reserve Banks'
to serve current c r e d i t n e e d s .

carrying
Government.

operations are s p e c i f i c a l l y

intended

Another l i m i t a t i o n upon the p a p e r ,

(XEHO
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having

the same g e n e r a l

for w h i c h Reserve

purpose,

is i n connection w i t h the l e n g t h of

Sanies are permitted

commercial and i n d u s t r i a l

to discount p a p e r .

For

ordinary

paper the maturity i s limited to 90 days and f o r

a g r i c u l t u r a l paper to n i n e

( 9 ) months.

The reason that a g r i c u l t u r a l

i s allowed Ion ;or maturity i s that a g r i c u l t u r a l operations

generally

a longer time i'or t h e i r completion than do commercial and i n d u s t r i a l
tions.

.There

time

i s i n t h i s no departure from the p r i n c i p l e

paper
require
opera-

that Reserve

Bank

c r e d i t must be employed to finance short-term current operations rather
long-term e n t e r p r i s e s .

than

In extending c r e d i t to their members the Beserve

Banks are guided b y t h e i r Boards of D i r e c t o r s and by loan committees
by D i r e c t o r s who have complete d i s c r e t i o n in the matter under

the l a w .

r e d i s c o u n t i n g paper or o b t a i n i n g advances from the Federal Beserve
the Member Banks d e a l only w i t h
Reserve Board cannot i n t e r f e r e

appointed
In

Banks,

the F e d e r a l Reserve Banks and the Federal
so long as they act w i t h i n

the law.

The

Federal Reserve Board cannot r e q u i r e any Federal Reserve Bank to make any
loan or rediscount
to refuse
for

any paper nor can i t require any Federal Reserve

any loan or to refuse

to rediscount any paper which I s

Bank

eligible

rediscount.

(B)

T h e . F e d e r a l Reserve

Banks are authorized

i n exchange for gold or f o r paper e l i g i b l e
of note i s s u e
currency

the Reserve Banks are able

that allows

additional

to i s s u e Federal Reserve Uotes

for d i s c o u n t .

Through this power

to supply the Member Banks w i t h

them to meet every legitimate demand of

credit beyond the b a n k s '

you a c l e a r picture of

this idea

own r e s o u r c e s .

in practice

If

the d i s t r i c t

liquid
for

I might presume to give

I would assume that a g i v e n com-

CTl
T^-Htjry has an a c t u a l need for a d d i t i o n a l c r e d i t .
request for loans at the local bank.
of I t s

customer,

turns to the Reserve ^

The bank,

The need i s apparent by the
i n order to meet the needs

a^-J

-6Say y l 0 0 , 0 0 0

from its Federal Reserve Bank by ^ d i s c o u n t i n g some of

i t s e l i g i b l e paper.
take eare of

The Federal Reserve Bank needing additional

the needs of i t s Member Banks, pledges

funds to

this , 1 0 0 , 0 0 0 of re-

discounted paper w i t h the Federal Reserve Agent and obtains

„:100,000

in Federal Reserve notes, which i t pays over to its Member Bank for the
paper rediscountqd by i t . > The Member Bank lends or pays out this

£100,000

of Federal Reserve notes in i t s cormnunity, and thus they are put into circulation and the total volume of currency in circulation increased or
"expanded" in the amount of Q l 0 0 , 0 0 0 .

When the rediscounted paper pledged

as security for the Federal Reserve notes matures and i s paid o f f ,
Federal Reserve Bank must either
paper or g o l d ) or retire

substitute other c o l l a t e r a l

the n o t e s .

have decreased in the meantime,

If

the

(eligible

the credit needs of the community

the notes probably w i l l have been returned

to the Federal Reserve Bank, either through i t s Member Banks or through
other Federal Reserve Banks, and it w i l l r e t i r e them.

Possibly some of

them w i l l be paid to the Federal Reserve Bank in payment for the very
paper which it had pledged as c o l l a t e r a l for their issuance, and
retirement w i l l be p r a c t i c a l l y automatic.

When the underlying

their
commercial

paper is paid o f f and the Federal Reserve notes are retired the total value
o f currency in c i r c u l a t i o n w i l l have been decreased or "contracted"

$100,000.

in this way the total volume of Federal Reserve note currency automatically
expands and contracts to accommodate the changing needs of commerce,
and a g r i c u l t u r e .

A Federal Reserve Bank cannot get Federal Reserve notes

without putting up 100,1 commercial or agricultural
security,

paper or gold i t s e l f as

and when the volume of available commercial or a g r i c u l t u r a l

decreases i t must either retire

h

industry

|-?i?|

the currency or put up gold as

p g )

paper

security,

If

I have made myself d e a r

the e l a s t i c currency of
seen

you have i n your mind a p i c t u r e of how

the Federal Reserve works i n p r a c t i c e .

You have

( 1 s t ) where the n e c e s s i t y for it o r i g i n a t e d out i n the d i s t r i c t ;

how the Member Bank acquired
equal to 1 0 0 $ a s s e c u r i t y ;

it by o f f e r i n g e l i g i b l e paper of i t s

( 3 r d ) how the money wont into general

through the channels of trade and i n d u s t r y ;

(2nd)

customers
circulation

( 4 t h ) how the currency i s

automatically when the c r e d i t needs o f the community no longer require

retired
its

circulation.
The HeseI've Banks have no power to i s s u e notes except i n exchange
gold or e l i g i b l e paper'.

They cannot create currency out of n o t h i n g .

need for the notes must a r i s e

out of

the a c t u a l requirements of

The Federal Reserve Lrotes are f i r s t l i e n s on the a s s e t s

of

for
The

the community.

the Reserve Banks and are also o b l i g a t i o n s of
Government.

the United

States

They a r e redeemable i n go I'd at the Treasury o f

the

United S t a t e s and in gold or lawful money at any Reserve Bank,
a 40 per cent minimum gold reserve must always be maintained

and

against

them.
In the e a r l y periods of

the system,

the use of Federal

Reserve

Notes as a d d i t i o n a l currency c r e d i t was not g e n e r a l l y resoled
in

times of increased demand or n e c e s s i t y f o r a d d i t i o n n l

but as

credit,

the World War continued and f i n a l l y involved America

for currency w i t h which to c a r r y on and adequately f i n a n c e
needs on account of
very rapidly.
war,

the g r e a t i n f l a t i o n i n p r i c e s ,

On January 1 s t ,

1917,

to

the demand
the

the demand

j u s t before we went into

business
increased
the

the outstanding Federal Reserve notes amounted to § 1 7 , 5 8 8 , 1 0 0 .

On January 1 s t ,

1918,

the amount was

On January 1 s t ,

1919,

the amount had increased

On January 1 s t ,

1920,

t h i s amount had increased to

^3,295,789,145.

1920,

.j3,404,931,000

And on December 2 3 r d ,
in actual
Since

$1,350,764,225.
to

i t reached i t s peak of

.)2,859,843,920.

circulation.

that date

November 2 8 t h ,

the tendency i n the main has been downward and on
1923,

y
stood at

,;2,246,000,000.

/
The h i g h discount

rate of s i x per cent

(6^)

e f f e c t e d by the

0

! 1
Reservo Banks i n January and February was undoubtedly to be
A
as a warning

taken

that expansion was reaching a h i g h p o i n t and h a v i n g

e f f e c t on l e g a l

reserves w h i c h were d e c l i n i n g ,

undoubtedly,.that

with the

its

thought,

this h i g h rate of discount would have the e f f e c t

slowing down the demand for money.

On the contrary - and

to the

of

Surprise and astonishment

of a l l ,

past experiences

and p r a c t i c e s

themselves and the demand for money began to i n c r e a s e .
the r a t e was increased in^fdrre

reversed

S a r l y i n June

of the Reserve Banks to

without any

apparant e f f e c t upon the demand f o r money which reached i t s h i g h p o i n t
in December,

1920,

when the t o t a l amount of R e s e r v e notes issued and

in

c i r c u l a t i o n totaled - $ 3 , 4 0 4 , 9 3 1 , 0 0 0 .
The statement made by a former Comptroller
effect

of the Currency to the

that the largest amount the n a t i o n a l Banks of the country had ever

borrowed i n one year p r i o r
was - $ 1 0 0 , 0 0 0 , 0 0 0

to 1913 through r e d i s c o u n t s and

brings most f o r c i b l y

bill*payable

to our a t t e n t i o n the almost

incomprehensible f i g u r e s t o which the c o u n t r y ' s c r e d i t had been expanded
since the inauguration of the F e d e r a l R e s e r v e
The discount r a t e s

of the System have v a r i e d greatly a t d i f f e r e n t

However, when we r e c a l l

the c o n d i t i o n s

since the System was e s t a b l i s h e d
unjustified.

System.

through which the country has passed

in 1 9 1 4 ,

i t does not appear i n any sense

I n v i e w of the abnormal c o n d i t i o n s r e s u l t i n g frcm the Y/orld

War w i t h i t s attendant

inflation,

so n a t u r a l to c a r r y i n g on war

activities,

the Post-War p e r i o d when overy l i n o of production was moro or less
stimulated

times

over-

together w i t h the tendency tcr^ extravagance and speculation and

added t h o r o t o , t h e further o b l i g a t i o n
a s F i s c a l A g e n t s for

of the F e d e r a l R e s e r v e System to a c t

the Government i n f i n a n c i n g the war which r e q u i r e d

f l o a t i n g of over $ 2 0 , 0 0 0 , 0 0 0 , 0 0 0

the

of Bonds together w i t h a Large amount

of short time government o b l i g a t i o n s , it quite n a t u r a l l y was to be expected
that discount r a t e s should or would vary q u i t e m a t e r i a l l y .
The discount
rate of s i x per cent (6>%) was e s t a b l i s h e d w i t h the
System i n 1 9 1 4 .
Between 1914 and J a n u a r y , 1 9 2 0 , the r a t e v a r i e d but
never a g a i n reached 6/6 u n t i l the l a t t e r part of J a n u a r y , 1 9 2 0 , and later
in 1 9 2 0 , went to lcjo in Boston, Hew Y o r k , Chicago and
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The Federal Reserve Banks h o l d a l l

Banks,

that i s ,

nothing that a Llembor Bank h o l d s ,

cash i n its v a u l t s ,

counts as reserve by law,

d e p o s i t w i t h the Federal Reserve Bank.
making them a v a i l a b l e
made i t p o s s i b l e

the requirements

except

the amounts hold on

The concentration of reserves

at any point w i t h i n

The Reserve Act has reduced

to ten per cent

to three per cent
(15$)

(1<$),
(3$);

and in country banks the r e d u c t i o n has

to seven per cent

to three per c e n t - ( 3 $ )

(25c,

and on tine d e p o s i t s from twenty-five

( 7 o n

demand d e p o s i t s and

on time d e p o s i t s .

There is no doubt that the F e d e r a l Reserve System through i t s
p o l i c y i s rendering the country a great service i n m a i n t a i n i n g the
of d e p o s i t r e s e r v e s , and i n p o o l i n g those reserves i n order that
available

and

the System, and at any time, has

throughout the country.

been from f i f t e e n per cent
from f i f t e e n

not even gold or other

for reserves on demand d e p o s i t s from twenty-five per cent

i n reserve c i t i e s
(2S$)

the LLember

to reduce reserve requirements and at the same time renders

banking much safer

per cent

the l a w f u l reserves of

reserve
integrity

they may be

i n time of need to the Llembor Banks and to any other function of

the

System.
One of the g r e a t e s t d e f i c i e n c i e s
enactment of

in the old banking system p r i o r

to the

the F e d e r a l Reserve A c t , was the system of m a i n t a i n i n g bank

reserves c o n s i s t i n g p a r t l y of cash i n v a u l t and p a r t l y of balances w i t h
correspondent banks which i n turn c a r r i e d part of t h e i r reserves i n the form
of balances with other banks which were permitted to lend a large part of
such reserve d e p o s i t s to t h e i r customers so that the ultimate reserves of
country were
need.

invested

in loans which might not be c o l l e c t i b l e

i n the time of

And the greatest d e f i c i e n c y i n our present banking system r e s u l t s

the continuance

the

from

of t h i s very same practice by banks which are not members of

the F e d e r a l Reserve System.

A reserve

intended

£o protect the d e p o s i t o r s of a bank which consists l a r g e l y of

loans

to the patrons oi' the correspondent banks cannot i n i t s f i n a l

analysis

be considered any more of a reserve

than the notes i n the p o r t f o l i o

of

the o r i g i n a l bank and i t cannot compare as a d e p o s i t p r o t e c t i o n to the
F / £
P.;,':.
reserves h e l d i n th?.- system .which must always be protected by a gold
A
'
reserve of not l e s s

( 3 5 f a ) and i n a d d i t i o n having

than thirty-five

advantage of b e i n g a v a i l a b l e for uso at any point of

the

emergency.

The h i s t o r y of past f i n a n c i a l panics which have caused so much trouble
and worry to bankers and depositors
every instance

ittefeE^sa*^ w i l l

show i n

practically

that- the reserves which were intended as a p r o t e c t i o n to
as a consequence

d e p o s i t o r s , had i n n e a r l y every c a s e , been d i s s i p a t e d and^i'eserve

protection

was not a v a i l a b l e

Federal

Reserve
(D)

i n the time of n e e d .

This cannot happen under

Banking.

In a d d i t i o n

System has

to c l e a r i n g i n t r a - d i s t r i c t checks

the F e d e r a l Reserve

set up a machinery by which balances b e t . e e n d i s t r i c t s

s e t t l e d by book e n t r i e s without the shipment of c a s h .

can be

This is done

through

the gold settlement fund i n Washington held i n custody by the F e d e r a l
Reserve Board.

Each reserve barf: has

placed w i t h the Reserve Board a part

of i t s reserves and whenever one reserve bank w i s h e s
to another i t does so by w i r i n g

The Board d a i l y n o t i f i e s

the total d e b i t s and c r e d i t s

<Jf gold i t owned at

the end of

funds

to the Board to make an appropriate entry on

the books of the gold settlement f u n d .
Reservo Bank of

to transfer

cach

to i t s account and o f the amount

the previous d r y ' s b u s i n e s s .

This

has done away w i t h exchange charges for d r a f t s w i t h i n the country;
eliminated much time lost and expense incurred i n the shipment of

plan
has
currency

and lias made b u s i n e s s d e a l i n g s between d i f f e r e n t p a r t s o f the country more
expeditious and

economical.

FARI;Ii;GS.
Par.

55 - S e c t i o n

7.

••After a l l necessary expenses o f a Federal Reserve
Bank have been paid or provided f o r , the stockholders
s h a l l be e n t i t l e d to receive an annual d i v i d e n d of
s i x per centum on the paid-in c a p t i a l s t o c k , which
d i v i d e n d s h a l l be cumulative.
A f t e r the a f o r e s a i d
d i v i d e n d claims have been f u l l y met, the net earnings
s h a l l be paid to the United
States as a f r a n c h i s e tax
except that the whole of such net e a r n i n g s , i n c l u d i n g
those for the year ending December 3 1 , 1 9 1 0 , s h a l l be
paid into a surplus fund u n t i l i t s h a l l amount to
100 per centum of the subscribed c a p i t a l stock of
such bank, and that thereafter 10 per centum of such net
earnings s h a l l be paid into the s u r p l u s .

The plan f o r providing a surplus equal

to 100% of the subscribed c a p i t a l was

not a part of the o r i g i n a l A c t but came as an amendment i n Llarch 1 9 1 9 .

At

this time the Federal Reserve Banks w i t h the exception of the Federal Reserve
^
Bank of D a l l s ,

T e x a s , have a reserve of not less

net e a r n i n g s .

The last

was as f o l l o w s f o r the

statement asto net earnings and t h e i r

Transferred
Franchise

$

37,395,205.

to s u r p l u s . . .

tax to G o v t . . . .

this syste..i of a f i x e d d i v i d e n d ,

large p r o f i t s

distribution

System:

Dividends paid

Under

f
than 1 0 0 ^ b u i l t up out

is laagely removed.

218,369,54-9.
135,387,941.

the i n c e n t i v e for earning u n u s u a l l y

The earnings of the Reserve Banks

large!

governed by the volume of c r e d i t needs of the country and n e c e s s a r i l y w i l l
I n accordance w i t h the volume of

vary

business.

During the years when the Reserve Banks were h a n d l i n g the governmental
Y/ar Finance

activities

v'120f000,000;

1920-21,

the Reserve Banks paid

in 1922 they paid about O l O , 0 0 0 , 0 0 0 .

the Government

The n e c e s s i t y of meeting

-12<A11 overhead expenseof
of

the Federal Reserve System i n c l u d i n g the expense

the Federal Reserve Board at Washington,

Reserve B a n k s , a s

i s a d i r e c t o b l i g a t i o n of

the Government i s under no expense f o r or- on account of

Federal Reserve System or any of i t s b r a n c h e s .
Banks accumulate belongs
be l i q u i d a t e d .

The surplus which

to the Government i n case

The member banks under the law can under no

the

the

the bank or banks

should

circumstances

receive more than the return of their c a p i t a l and s i x per cent
on their

the

(6$)

interest

investment.

I hope
institution

I have made t h i s point c l c a r to y o u .

The earnings

in

this

to i t s stockholders can i n no event exceed s i x percent

(6$).

The

earnings during the years America was a c t u a l l y engaged i n the war was very
heavy on account of the large volume of Government f i n a n c i n g
through

the Reserve System,and i n a d d i t i o n thereto,

that was

cleared

the accrued p r o f i t

n a t u r a l l y accrued to the system through the large volume of note i s s u e s
r e d i s c o u n t s g necessary to care for the increase/volume of b u s i n e s s

required a g r e a t e r volume of c r e d i t

order to f u n c t i o n .

t h e past few months as to the

of income would lead one to the conclusion
problem of
system,

rather than one of curtailment

•Jo go into

of net

in

tendency

that under normal conditions

the future w i l l be how to meet the overhead expenses of

and

that on

account of high p r i c e s n e c e s s a r i l y
Observations of

that

the

the

earnings.

minute d e t a i l of the operation fo the Federal Reserve

System would take a great d e a l of time and in the end would no doubt
you so confused as to q u e r i e , what i s i t a l l about.
give you a c l e a r picture of

leave

I have endeavored to

the fundamental p r i n c i p l e s and how they o p e r a t e ;

1st

As to the purpose of the Act

2nd

As to the membership of banks i n the

3rd

The o r g a n i z a t i o n fp the twelve o r i g i n a l

4th

As to the class of paper e l i g i b l e

for

system
banks

rediscount

-135th.
6th.
7th.
Oth.

The power of no to i s s u e .
The method of note i s s u e .
The purpose of the rediscount r a t e .
The reserves and hwi the Act changed
requirements.

-Q-th.
q

TI'i a - •

j

a

r

g

D i s t r i b u t i o n of

If

I

"

t

s

the legal

11 luiuuii I ~Fuixl.

cjl

Earnings.

I might a s k your further indulgence without encroaching

too

largely

upon the time of others,, it would "be for the Tjurpose of commenting b r i e f l y on
the System both from the standpoint of i t s shortcomings as w e l l a s i t s
as I have come to understand i X during

the past few months

advantages

experiences.

Kany complaints have come to me e s p e c i a l l y from the liiddle '.Vest w i t h
respect

to the h i g h i n t e r e s t rates p r e v a i l i n g i n many S t a t e s .

The remedy f o r

the c r i t i c i s m which 121 many i n s t a n c e s i s warranted must come from the
hands of the l e g i s l a t o r s
Llany, i f not n i l ,
in

of

i t as

the current r a t e for l o a n s .

as the Federal Reserve Board has no power to

The Federal Reserve Banks at this
4vr per c e n t .

The rate is

a t i o n i s permitted i n

The remedy i s -

control/^

time have a uniform d i s c o u n t rate

the same to a l l banks i n the System.

of

l.'o discrimin-

the e s t a b l i s h e d rate of the Federal Reserve Bank as

a g a i n s t any of i t s members.
States,

exacted.

states have an e s t a b l i s h e d maximum legal rate and the custom

the States i s to adopt

the S t a t e ;

those states whore exorbitant rates are

The rate

to the borrower, however,

in many

appears to be very much i n excess of the reserve rate and i n some

instances,

the spread between the F e d e r a l Reserve rate and the l e g a l r a t e

is

that i t

so wide

tends to encourage banks i n borrowing from the

Reserve and loaning to i t s
spread.

customers for

'.There the oractice

the p r o f i t

Federal

that can be made on

the

is followed of loaning money at maximum l e g a l
J-

rates as f i x e d by State

l a w s , n a t u r a l l y follows

that a low Federal Reserve

rate could have no b e a r i n g on the r a t e s p a i d by the customer of the bank,
as they are governed by the State

Law.

I t must be s a i d , however,

f a i r n e s s to tho banker that the p r a c t i c e
in fairness

^vm W a l
to a maximum legal

of h o l d i n g c l o a e l y

state rate does not appear to bo tho
state

,,
general rule an there are many evidences

d i f f e r e n t p a r t s of
in difieren
p

lT1

*
n. very small margin, w h i l e ,
that money is loaned on a very sma-n

the country

in others tho c r i t i -

cisms made uro J u s t i f i e d as the spread appears to be too w i d e .
The p r i n c i p l e u n d e r l y i n g
enc our ages p r o f i t e e r i n g V
„

a 3

the F e d e r a l Hoservo System i s not one that

member b a ^ s .

e v i d e n t intent of Congress

that tho F e d e r a l Reserve Bank should he regarded as en

to he u s e d i n t t a . 0 of emergency, or to . s e t

institution

seasonal r e g e n t s

for

a d d i t i o n a l o r e d i t and f i n a n c e whenever l o c a l hanks v,ero u n a b l e to do so

out of their own resources.
.
Kin tv, a t the custom of f o l l o w i n g legal state
I t is not inconceivable that the custuui
t rate'- may have contributed largely
as a guide f o r current r a t e s , m v nave
i n our c r e d i t s

that developed so r a b i d l y

, <
intent of the Federal Reserve Board in

-in lqiQ
in 191.

and 1 9 2 0 ,
^

to the expansion
The evident

the rate to 6f> i n J a n u a r y ,
increasing

«
o m m t r v of the dangers that would f o l l o w if
1 9 3 0 , was to warn the country oi tno
&
;.
e:q>ansion of c r e d i t c o n t i n u e d ,

a

as the

rates

r e s e r v e s , at that time,
reserves,

*
r-'tio
rather material reduction i n the r a t i o .

But,'contrary
But,

the

indicated a

to a l l precedent

v
h i r r e n e d , as the increase
tho reverse of what was hoped for happens
^ *
^ r d a few months l a t e r
in tho rate d i d not lessen the demand for c r e d i t .

or e x p e c t a t i o n ,

•
, t „ 7 ' in four hanks of the System;
tho rate was r a i s e d to 7;» in tour UJ.
•
, a
same intent and purpose i n mind.
„Uhout

mediate

following;

borrowers

Here a g a t e the increase i n the rate was
Hero a g a i n

r e s u l t s as the e x p a n s i o n continued for several months

and it might not ho an u n r e a s o n ^
•
t h , country
in tho countr (/

ware not f u l l y

e v i d e n t l y , w i t h the

deduotion to i n f e r that t o

(tho K i d d l e VTest and South were heavy borrowers)

informed of the s e r i o u s expansion that was taking P

throughout the country and could not he d i s t u r b e d by any - c r e a s e i n the

diacount r a t e s

they were and had "been p a y i n g ,

the maximum 3tate rate which

c o u l d not have the of f e e t of a c t i n g a3 a note of warning aa the rate was not
unusual.

I t d i d , however,

serve aa a warning to the bankers of

They wore men of experience who knew that this great

increase

Reserve rate had f o r i t s purpose but one object and that waa
manner, e f f e c t a slowing down i n the demand f o r c r e d i t .
have boon h e e d e d , and in a l l p r o b a b i l i t y ,
instances

in the Federal
to,

in some

This warning

should

was to aomo e x t e n t ; but in many

tho n a t u r a l prudence and c a u t i o n that waa to be expected from

the conservative banking claaa waa either
profits;

the country.

aubmorgod in their d e s i r e f o r

or tho s i t u a t i o n had gone beyond thoir

control.

The record ohowa that the Federal Reserve System waa quite

generally

u s e d by the camber banks f o r r e d i s c o u n t i n g paper a f t e r .America entered
tho war and l a t e r on member banka discounted very e x t e n s i v e l y f o r non-member
banks.

I n the M i s s i s s i p p i

V a l l e y , where p r o d u c t i o n is heavy and the market-

ing of farm c o m m o d i t i e s , i n c l u d i n g

l i v e s t o c k , aasiimes large p r o p o r t i o n s ,

Ia a groat n o c o a s i t y f o r heavy f i p a n c i n g
the y e a r .

T h i s is oopocially

throughout seasonable p o r t i o n s of

true where co-operative marketing has. developed

to the point where i t is handling
area.

there

tho larger p o r t i o n of farm products of

Tho Middle West section was a heavy borrower throughout the yoara

that
of

1919 and 1930 which at i t s h e i g h t becamo very embarrassing to some members of
tho Federal Rosorve System.
not over one-third of

The records of membership d i s c l o s e

the banks i n tho M i s s i s s i p p i

Federal Reserve System and that many of

the f a c t

that

Valley woro membero of tho

those that woro members of tho Fed-

eral Reserve Systsm were not d i s c o u n t i n g any p a p e r ,

consequently, wore

giving

no e x t r a sorvico to the community beyond thoir own rosourcoa.
-Xn "the Seventh D i s t r i c t ,
Bank,

which is served by the Chicago Fodoral

showed that on December 3 0 t h ,

banks i n the d i s t r i c t ;

1920,

Reserve

that bank had a membership of

1421

353 of which were state banka and 1063 woro national

banks.
date,

There may have been some s l i g h t increase
but the records w i l l

in the membership at

show that since the 1923 Amendment to the Act

there are 3074 e l i g i b l e banks i n the Seventh D i s t r i c t .
loans

this

in this d i s t r i c t was reached i n O c t o b e r ,

1920,

The high p o i n t

and on that date

for
there

was a total of 8 1 3 banks borrowing and located in the f o l l o w i n g states of
the D i s t r i c t ?

Illinois - 175;

and W i s c o n s i n - 6 4 ;
approximately
deavoring

a total of 2 0 0 0 e l i g i b l e banks

to bo of service

the embarrassment of

Iowa - 3 6 9 ; M i c h i g a n - 1 0 4 ;

thus we have at the time of emergency only 8 1 3 out of

auch as p r e v a i l e d i n 1 9 2 0 .

efforts

Indiana - 103;

i n the d i s t r i c t

that were en-

to the d i s t r i c t at a time of n a t i o n a l

emergency

T h i s l a c k of membership contributed greatly

to

the discounting banks and c u r t a i l e d very m a t e r i a l l y

of the Reserve Bank to serve the d i s t r i c t .

the

The d i s i n c l i n a t i o n of

the country banks to become members of the system worked a hardship on such
banks as attempted to serve the country i n that
count or borrow to such an extent
extonded and dangerous.
correspondent
c i t y banks

they were o b l i g e d to redis-

that their c o n d i t i o n soon became over-

The p r a c t i c e of country banks f u n c t i o n i n g

city banks ha3 grown enormously and i t in not unusual

through
for

to act as correspondent f o r hundreds of i n d i v i d u a l country b a n k s ,

And in ordor to r e t a i n the country bank accounts^? -the c i t y banks pledge
themselves

to come to the f i n a n c i a l a i d of the country banks in times of

need,

in ordor to do so, o f t e n f i n d i t necessary to borrow very h e a v i l y

and,

from the F e d e r a l Reserve Banks in
i±3- c a p i t a l and

amounts wholly out of a l l proportion

to

surplus.

Under the old system of n a t i o n a l b a n k i n g , banks were permitted to
rediscount

to the amount o f t h e i r c a p i t a l

stock and surplus; under present

conditions

the reserve banks have f i x e d the b a s i c

lino f o r borrowing member

V
banks at considerably beyond that p o i n t .
case - The basic

To i l l u s t r a t e ,

l i n e in most cases would be

take a hypothetical

tirr.es its c a p i t a l , or

a bank with a c a p i t a l i z a t i o n of six hundred thousand d o l l a r s .
deposits total seven m i l l i o n d o l l a r s .

($7 , 0 0 0 , 0 0 0 ) .

Its

$1,500,000,

individual

This bank borrowed from

the Federal Reserve Bank of its d i s t r i c t Four and One-half M i l l i o n Dollars
($4,500,000),

or seven times its c a p i t a l .

Common sense and ordinary

business

prudence would cause any man in this audience to inquire as to how the Dirge tors in a bank of that k i n d could j u s t i f y

this condition.

lustration is not an actual picture of any bank,
point of Reserve and Capital
further,
clients.

the il-

it is typical from the stand-

to its rediscount l i a b i l i t i e s .

suppose this bank had, approximately,

While

To

illustrate

two hundred country banks as

Would it not have been the better part of wisdom for those two

hundred country banks to have j o i n e d the System and plaee\ their

institutions

in a p o s i t i o n tciiake their loans direct with the Federal Reserve Bank and by
I
so doing avoid the additional charge to the correspondent bank and allowed
t h i s chargo to 'accrue to the b e n e f i t of borrower, which in i t s e l f would have
been a substantial saving, when considered in the light of the large volume
of rediscounting necessary in this country.

The l i a b i l i t y

to the Federal

Reserve Bank would have been no greater than it was to the c i t y bank, and the
local bank would have been in a much better p o s i t i o n to serve i t s customers
according

to t h e i r noed3 and the needs of the community.

The incentive of the borrower should be to undertake to procure h i s
necessary loans at the very lowest rate and h i 3 bank should be w i l l i n g
offer every f a c i l i t y

that would enable him to do so.

to •

It should bo the pur-

pose of the local bank to reach an directly and cheaply as possible

the

fountain-head of i t s emergency resources and this can be done through a
membership i n the Federal Reserve
There a r e ,

System.

as I view i t , many obotacles

to overcome b e f o r e the member-

i
ship in the system w i l l reach the p o i n t that w i l l enable every community
get the most d i r e c t b e n e f i t .

Soma non-member banks,

i n many i n s t a n c e s ,

not reachod the p o i n t where they ctin see any advantage
Others are not members because of reasons
side of the b u s i n e s s - p r o f i t s .
institution
c a p i t a l , but

should be a l i v e

It

have

in b e i n g a member.

that apply only to the material

is p e r f e c t l y n a t u r a l

that any banking

to the n e c e s s i t y of earning dividends on its

the n e c e s s i t y f o r g i v i n g service and p r o t e c t i o n to i t s patrons

is a p r e r e q u i s i t e

to earnings.

When the customers of a bank have knowledge

that t h e i r d e p o s i t s are protected by a reserve

that cannot be

dissipated,

i t becomes more o f an asset to the bank than could p o s s i b l y accrue to
from

to

it

on the email reserve now r e q u i r e d .
The most soriou3 drawback to the Federal Reserve System at

this

moment is the a t t i t u d e of many of our people toward the Federal Reserve
Board and the Federal Reserve Banks.

I t i s regrettable

that the

business

and farming i n t e r e s t s and borrowing p u b l i c generally have not boon
into a more intimate confidence and more f u l l y
poses and intent of

t h i s system,

taken

informed on the o b j e c t s , pur-

in order that they might

stand i t 3 functions and comprehend i t 3 e f f e c t i v e n e s s .

i n t e l l i g e n t l y under-

The majority of let-

ters I receive I n d i c a t e very c l e a r l y that the Federal Recerve System i n
policies

and f u n c t i o n s

its

is not understood and many people are wholly unin-

formed or misinformed as to its o b j e c t s .

I f we were d e a l i n g with an or-

dinary p i e c e of l e g i s l a t i o n or 3ome academic problem the matter would right
i t s e l f because it would have the support of the i n t e r e s t e d classos who
would see that it was properly p r e s e n t e d , here we have a corporation -

——-

-

——

—— *

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'
^copypt' "" "1

___

:

_

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•

;

"

-19semi-public

i n i t s nature

(by reason of governmental

is probably

the most powerful and at the same time,

supervision).
the most

i n i t s f u n c t i o n of any system that

the world has ever known,

word,

personally,

i t i s least u n d e r s t o o d .

great amount of

I,

be had as w e l l as

the w i d e s t d i s t r i b u t i o n

going into a d i s c u s s i o n over

and,

in a

can be understood

the best of information
of same. '

to leave w i t h you the information

tnat can

I have no thought of

the charge so o f t e n made that

Reserve Board had a r b i t r a r i l y ordered d e f l a t i o n .
however,

far-reaching

can lay no claim to any

superior knowledge of the System but i t

and should be understood by a l l the people

It

the Federal

I deem i t my d u t y ,

I have on the subject w h i c h

I

o b t a i n e d largelyL'rom the records of the Reserve Board and without g o i n g
into d e t a i l s ,

I will

say that I f i n d no record i n the o f f i c i a l minutes-

of the Board where an order was promulgated or acted upon i n any manner.
I have repeatedly had assurance from two members v:ho were members of the
Board i n 1920 that no a c t i o n of any k i n d ' h a v i n g f o r i t s object a demand
for l i q u i d a t i o n , was ever
The Conference
for

taken.

of May 1 8 ,

1 9 2 0 , which many pi oplo claim was

the purpose of demanding l i q u i d a t i o n , was one of the conferences w h i c h

are held each year in accordance w i t h the p r o v i s i o n s of
and,

called

i n order that

hand and be a b l e

you might have

the f u l l

I t would be w e l l

to keep always i n mind the thought

that humanity i s prone to e r r .

first

I have brought every avail-

the S e c r e t a r y ' s

Reserve Members are only human and subject
proves

text of the Conference at

to study i t at your l e i s u r e ,

able copy w i t h me and same can be had at

the Reserve A c t ,

table.
that the

to human l i m i t a t i o n s ,

Federal
experience

There is no doubt "but what

the

Federal Reserve Board made m i s t a k e s ;
mistakes*

the "bankers of

the Federal Reserve Banks have made

the country make m i s t a k e s ;

mistakes and farmers a r e not immune from m i s t a k e s .
w i t h those eventful
blame.

b u s i n e s s men make
L'o one who had to do

times and conditions can claim absolute immunity from

what the a t t i t u d e of the i n d i v i d u a l Reserve Banks was during* those

e v e n t f u l days i s unknown to,many.
customers,

What the Merabdr Bankl^ demanded from i t s

I have no way ofytenowm ^/\Vhat the correspondent

demanded of

c i t y bank

the l o c a l country bank w i l l probably never be made

V.hat the country bank told i t s customer can only be imagined.
status of

public.
What

the

the borrower was and who the r h i s l o a n w a s e s s e n t i a l or n o n - e s s e n t i a l ,

he alone must bo

the .judgeo

age w i l l be r e c o r d e d .

i n the course of

tine the h i s t o r y of our

To a g r e a t extent i t w i l l be a r e p e t i t i o n o f

experiences of war periods
e x i s t e n c e as a n a t i o n .

But,

the

that our country h a s passed through since

We have been

told of

its

the experiences of the '

r e v o l u t i o n a r y period and the d i s a s t r o u s conditions

that followed the w a r .

The h i s t o r y of the war of 1012 r e c o r d s the same i d e n t i c a l experience and
the same

after-war d i s a s t r o u s e f f e c t s .

l e g i s l a t i o n which d i s o r g a n i z e d

In 1$37 the a g i t a t i o n and

subsequent

the U n i t e d States Bank brought about a n a t i o n a l

calamity.
Following' the C i v i l fVar we had

the usual period of contraction and the

record o f our o n time w i l l show that

the ages had not been able to teach the

America^people how to p r o f i t by experience and that

they have not come to an

a p p r e c i a t i o n of the d i s a s t e r they would encounter i n the post-war years of
the World War and which are now known to have been the most d i s a s t r o u s
America has ever

experienced.

that

-21That

something out of

the d e f l a t i o n
Personally,

the o r d i n a r y must have added

i n commodity p r i c e s

i n 1920

seems r e a s o n a b l e

I h a v e h a d many men of u n q u e s t i o n a b l e
l i q u i d a t i o n and

meant b a n k r u p t c y .

those who h a v e h a d

that

to "believe*

that l i q u i d a t i o n

to l i q u i d a t e

i n order

that f u l l r e s p o n s i b i l i t y

d e f l a t i o n could be e s t a b l i s h e d .
on the

subject

safe-guards

e x c e p t as

as w i l l

obviate

My statement a s
w i l l always

servos

as

such d i s a s t r o u s

such e x p e r i e n c e w i l l

The F e d e r a l R e s e r v e

i n s t i t u t i o n and i t s v a l u e
acknowledged

finance

and c r e d i t and that

even by i t s

enemies.'

i t has

That

functioned

is

to who w a s
tell

in order

the System to t h e b o r r o w i n g p u b l i c .

what

established
financial

the l a s t word

efficiently

I.Iany s u g g e s t i o n s a r e o f f e r e d

such

and when a n d w h e r e ,

speak u p and

it

agitation

to c r e a t e

country i n times o f emergency and

many amendments have been made b y Congress
efficiency of

it

System i s r e c o g n i s e d as a n

to the

need is

ho was

results.

f o r d i s c u s s i o n w i t h o u t a s o l u t i o n as

those who h a d

i s not our c o n t e n t i o n .

who s a i d

will

f o r any u n j u s t

tho means of e n a b l i n g u s

and p r e v e n t

tliat

them

K o t h i n g c a n come from a n y f u r t h e r

to what was s a i d and

be a s u b j e c t

at fault unless
happened.

it

to

such a n e x p e r i e n c e

speak u p and t e l l how and by whom and u n d e r what c i r c u m s t a n c e s ,
required

to

i n t e g r i t y a s s u r e me

a r b i t r a r y demands were made f o r
I hope

incentive

in every

from time

to i n c r e a s e

in

instance

to

time and

the

St^jOG-tlett-r

'"^loU

- Tiir.flo, -±h-:t—-tho--S'ye-tem-should- •be^so-d-iv idcd^iTi'"i"tTr~practir©al - opera ti o n
for
o4LJhindjA--5U.lo.tod for-^ha-t-purpose.
changes w i l l ^ c o n e

the needs o f n g r i c u 1 turc-nnd—lnoor"out
It i s

to the S y s t e m ^ ' , time and

e n t i r e l y probable

these w i l l bo l a r g e l y

upon the knowledge we have g a i n e d from our p a s t
To one who has

been p r i v i l e g e d

^

COPY

•

1

that

based

experiences.

to observe

.;

additional

the o p e r a t i o n s

'

f

I

^ C O P Y jmy

of

the

F e d e r a l Reserve

System i n p r a c t i c e

and compare

i t w i t h the

m a c h i n e r y of o t h e r n a t i o n s ,

there comes the thought

ceived

a genius.

the i d e a w a s

that of

the w o r l d w a r w h i c h i n v o l v e d
has

e v e r known,

above

that of
I hold

the o t h e r n a t i o n s

that

tho f i r s t

strain

that

to a f i n a n c i a l

tho

the

of

that

con-

test

of

history

position

far

conflict.

nec-es-sary to the m a i n t e n a n c e o f

and c u r r e n c y system i s a l o y a l t y o f i t s members

the c o n f i d e n c e

a

that

will

the p e o p l e w i t h whom t h e y d e a l .

Tho F e d e r a l R e s e r v e Board
different

severe c r e d i t

engaged i n

essential

the mind

I t not o n l y lias stood

hut a l s o b r o u g h t our c o u n t r y

successful credit
command

the most

that

financial

at W a s h i n g t o n and

the D i r e c t o r s of

F e d e r a l R e s e r v e Banks do not d e a l d i r e c t l y w i t h

the

tho p u b l i c ,

con-

jtf*y- -ft'
sequently,

h a v e n o t h i n g but i n d i r e c t c o n t a c t and second

as

to what

is a c t u a l l y

in

that

transpiring.

i t does not g i v e

Federal Reserve

Banks

i s n e c e s s a r y to a

scoumK'

This is unfortunate

i n one

the p e r s o n a l

contact with

thorough u n d e r s t a n d i n g

people o f

and more i n t i m a t e knowledge

to make c l e a r

to i t s customers on every o c c a s i o n the reasons

in

The i n a b i l i t y or n e g l e c t o f

to Meet r e q u e s t s
the

the
that

of

the- Ilembor Banks
for

f o r c r e d i t , has c r e a t e d a s i t u a t i o n

the

bank's

that w i l l

be

undoing.

I n order

that

t h i s statement might not be m i s i n t e r p r e t e d

i m p r e s s i o n m i g h t go f o r t h t h a t i t was a p e r s o n a l f e e l i n g
prejudicial,
Chicago h a s

of

the c o u n t r y

first hand.

years

respect

the F e d e r a l R e s e r v e Baord or the D i r e c t o r s

c o n d i t i o n s at

inability

information

I want

1923,

and more or

the
loss

to quote you v e r b a t i m w h a t a v e r y prominent b a n k e r

s a i d on t h i s

in September,

or that

subject

i n a speech d e l i v e r e d at A t l a n t i c

to the assembled d e l e g a t e s o f

the American

City,

Bankers'

Association:

'XERO V
-I C O P Y R*~

F XERO
- - < — I COPY P Y -

of

—

"Nevertheless,

the harm done by the p u b l i c i t y g i v e n to

the c o n d i t i o n s of

those

engaged i n a g r i c u l t u r e

immeasurable and a l l of Us are

to some extent

i s almost
responsible,

because in some way most of u s have contributed
farmers'

to the

f e e l i n g that he i s not so much the v i c t i m of the

circumstances of h i s own i n d u s t r y ,
Qf a l l elements of b u s i n e s s ,

"A3 b a n k e r s , we contributed

as of

the machinations

f i n a n c e and government.

to this .feeling when we

sought

to blame our demand upon the farmer for payment (of) the
cruel a c t i v i t i e s of the F e d e r a l Reserve Ban]-; and the Federal
Reserve Board.
farmer f r i e n d s

Our cowardly a c t i o n in f a i l i n g
the

to t e l l

truth, which was that we had loaned

much money and were hard up and needed to c o l l e c t

our
too

rather

than that we were being made to do so by some government
agency,

is

bearing abundant f r u i t today,

of us a tremendous
which we arc

If

task to correct the f a l s e impression

for

responsible."

the System cannot have the most loyal support and h e a r t y

of its members,
J

i t w i l l bo d i f f i c u l t ,

tinuance £fc i t s s u c c e s s .
i n which

and we have ahead

Its

the banks as w e l l as

many as the i n s t i t u t i o n

indeed,

co-operation

to hope f o r a permanent con-

e f f i c i e n c y w i l l always depend upon the manner

the public

support i t .

It is recognized by

in America that is to act at a l l

of finance and c r e d i t and i t s e f f i c i e n c y i n serving

times as a barometer

the people w i l l

depend upon the manner- i n w h i c h a l l of the a g r i c u l t u r a l and b u s i n e s s

always
interest

-24-

of

the c o u n t r y are w i l l i n g

,

In conclusion,

situation
appears

that

I,

to bo g u i d e d by i t s

personally,

Agriculture,

on the w h o l e ,

r e c o v e r y and w h i l e

there tsr-a

credit

than a y e a r

has made s u b s t a n t i a l

ago.

progress

toward

—V *v«~ < »

r o a s o n C f o r the o p t i m i s t i c

r e t u r n o f a more p r o s p e r o u s c o n d i t i o n ,

to w a r r a n t the farmer

the p r e s e n t

The c o u n t r y as a whole

situation financially

CKv V

partial

can see n o t h i n g i n

i n any w a y appears a l a r m i n g .

to bo i n an e a s i e r

warnings,

f e e l i n g over

the s i t u a t i o n

the

i s not one

i n i n d u l g i n g i n any e x t r a o r d i n a r y e x t r a v a g a n c e n es-

/Ho t h i n g ^ d n—t hG-:^;ttxj n ttOif--indi c a tes~ that- a g r i c u l t u r e - i s ..reducing;: ito-payts. -for^ioney-borrowed o i r c a p i t a l i n v e s t m e n t a c c o u n t .
That there h a s
v
^ b e e n a l a r g e amount of l i q u i d a t i o n on the p a r t of the farmer i s c o n c e d e d ;
Ifccptcr-t-as---ca:uin^adJjs^^ii;^
operations as
during

the mortgage i n d e b t e d n e s s

the p r o c e s s o f

that -tea farmers have
obligations^

liquidation

to some e x t e n t

and u n t i l

0,« 1-1
adjus ted,

agri c u l t u r e

.1 ."'7

on c u r r e n t

m d X s ^ ^ ^ J J U j
on farms h a s been.le,r- 'Q7ty i n c r e a s e d

that has been g o i n g o n ' a n d
J '

by i n c r e a s i n g mortgage

true i n many c a s e s ,

from p r o f i t s

r e d u c c d A l o a n s made
indebtedness

y"

2nd

u>

\

thought
J

for^current

021 farms i s

that problpm h a s been

thS

literally
permanently
'Ka-is-C-yy\

post-war readjustmente brmiha.

JXEROI
! COPY