View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Remarks of
James K. Vardaman
Before the
Kansas City, Missouri
May II, 1949

For release IOjOO a.m.
Central Standard Time
May 11, 1949

President Welman, Ladies and Gentlemen of the Association:
Yours is the first invitation of its kind I have accepted and
this is the first public talk I have made in more than two years.

My last

talks were made about six months after becoming a member of the Federal
Reserve Board, in which I tried to make clear my official position on then
pending questions such as consumer credit under executive order, stock mar­
ket regulation, and selective controls generally.

I stated then that my

only reason for discussing such questions publicly was that as a new member
of the Board I felt I should make known my position where I was in disagree­
ment with prevailing Board policy or else be estopped from expressing oppo­
sition at a later date.

I also tried to make clear my intention to work

harmoniously in Board harness, and my desire and intention from that time
on, to express my opinions on pending official ¿natters in Board meetings
only, and to support the decisions of the Board as best I could, once the
Board, as such, had taken a position.
Since January 1947, I have tried to adhere to my expressed opinion
that most public servants in Washington should listen more and talk less.
I have always thought that the people of this country know quite well what
they want and that they, through their elected President and Representatives
in Congress, should tell us what to do.

Ve non-elective office holders out­

side the Cabinet should quit trying always to tell the people whet we think
they need, and what ve think they should do, and how we think they should
run their business.

In many cases those who talk so much, and who would

have our Federal Government control everything and everybody, are listen­
ing to the sound of their own voices rather than to the voice of the great
people as they would have you believe.

Much of the control theory and

paternalistic proposals spring from their minds rather than from any real
demand from the people themselves.

The President and the Congress are the

elective officers who should interpret the people's wishes, and only they.
Those of us not selected by the people should stand by to carry out the
orders of the Legislative and Executive branches, regardless of our personal
opinions; and if we can't execute those orders loyally and objectively, then
we should get out.

Accordingly, I have stayed off the public platform,

refrained from expressing my opinions outside of the Board room, and have
tried rather to keep my eyes and ears open; and in those matters made dis­
cretionary with us by the Congress, I have made decisions which to me re­
present a consensus of the best thought of our agriculturists, laborers,
industrialists and bankers, in relation to our over-all economy, to the end
that the Federal Reserve System may continue to serve constructively agri­
culture, industry, and banking, just as the Congress intended it should.
In those matters not discretionary with us, I have tried to follow the law,
in the light of Congressional intent as clearly shown by the record.


after this talk with you today, I hope to go back to what I have been doing
the last two years— just studying, listening and looking, and officially
acting as my conscience dictates.
But, I was extremely pleased when President Welman advised me that
this Missouri State Bankers Association would listen to me a fev moments.
Because of your geographical location and because of the publicity and
prominence which has been given your state in recent years by the unusually
large number of high public officials who are from Missouri, I feel that
statements made before a representative body of Missourians, such as this,
have an especial significance.

Also, I am always glad to be at meetings of




your Association because more than twenty years of investment and commercial
banking experience in Missouri have taught me that here one contacts pro­
bably the most typical cross-section of American business men; and by look­
ing and listening and questioning at any representative Missouri meeting,
one can come nearer to the core of American opinion and requirements than
at any other place in this country.
I am not going to regale you today with a lot of figures on the
national debt and other aspects of our monetary picture; nor shall I indulge
in theorizing about monetary, fiscal and credit policies and related mat­
ters, which are the subject of our regular daily business in Washington.
I do, however, welcome this opportunity to be here and to say a few words
from my heart, as one member of a seven-man Board of public servants who is
responsible to you tax-payers through your Congress— the United States Senate
and House of Representatives.
It is especially gratifying that we meet at a time when the bank­
ing business in our country is in the soundest condition in our history,
and banking as a profession is held in higher esteem than it has been in any

Too often bankers have been made the whipping boys for economic


Partly this is because the banker deals in money and, as the

old saying goes, there are few troubles, certainly few economic troubles,
that money can't cure.

Partly it is due, I think, to a misunderstanding of

the role the banker plays in his community, and in part it is because
bankers themselves have failed to make their function better appreciated.
This is one way of saying that bankers have not always assumed the leader­
ship in their own communities and in the country at large that their res­
ponsibilities require.

So it is fair to attribute some, at least, of the




greatly improved standing of the banking fraternity today to the more alert,
aggressive leadership which it has accepted during and since the war.
Those in this audience who are acquainted with me know that I have
always been an ardent advocate of private enterprise, and of private bank­
ing as an indispensable element in any system of private enterprise.


three years' experience as a member of the Federal Reserve Board I am no
less zealous— perhaps I am over-zealous— to preserve and maintain our econom­
ic institutions which have made this the greatest of nations, measuring that
greatness by the best of all standards, the welfare and well-being of our

I have always appreciated the vast network of facilities, of

operations, and relationships with business, agriculture, industry, as well
as banking, which this great Federal Reserve System represents.

It is

closely interwoven with the entire economic fabric of the country, and that
means it should be dedicated to the preservation of private enterprise and
private banking.

The alternatives are forms of State socialism or collecti­

vism or some other "ism" such as beset many other nations today.

The prac­

tical demonstrations in Europe of what these "isms" mean in reality should
be enough to convince you that we, over here, want none of them.
Our private enterprise institutions, however, will not survive
merely on the momentum accumulated in the past, or by wishful thinking or

You, as bankers, and we who are public servants, must be always

on the alert to see that they function for the best interest of the most

Leadership is not an empty word.

To have content and effective­

ness, it demands grappling from day to day with problems for which solutions
must be found, not only in the light of experience, but, above all, in the
light of broad national interests.




One of the healthiest evidences to my mind of enlightened leader­
ship in the banking field is the example that was set by the American
Bankers Association under the leadership of its then President, Joseph E.
Dodge, of Detroit, in cooperation with your State banking associations and
the national and State supervisory officials, in striving for voluntary
restraints upon the over-expansion of bank credit.

It originated because of

the recognition of the inflationary dangers, then existent, that confronted
us as a consequence of the war.

Not only was there a keen awareness of

the national problem, but an earnest desire to cope with it promptly and
intelligently, preferably by voluntary measures, self-imposed, instead of
by Government imposed restraint.

It served to illustrate the fact that when

the bankers make up their minds so to do, they can cooperate with State and
Federal authorities and, to the extent that they are successful in a cam­
paign such as that, they reduce, if they do not altogether eliminate, the
necessity for the imposition of additional Governmental controls.
On the other hand, it should always be remembered that regulatory
bodies such as the Federal Reserve System, the FDIC, or the Comptroller of
the Currency, and the forty-eight Stete Benk supervisory authorities, have
statutory responsibilities which are even more definite and clear-cut than
is the individual banker's responsibility to his own community.

It is only

when private banks, or other groups of people controlling an essential ele­
ment of our economy, fail in their duty to the community, that it becomes
necessary to invest public authorities with statutory powers designed to
protect the public interest.

I hope I reflect the attitude of all State

and National bank supervisory authorities when I say th&t they want to in­
terfere as little as possible with private banking, and that nothing would




please them more than to be able to remove restrictions and restraints.


know from daily experience what an unpleasant and thankless task it usually
is to have to impose and enforce restrictive or regulatory measures.
The Reserve System, like other banking agencies of the Federsl
and State Governments, has a moral obligation— in our case directly to the
Congress and to the country as a whole— to maintain a proper balance and to
prevent so far as our authority will permit, any one sector of the economy
from doing things that are injurious to another sector.

We, as public offi­

cials, would certainly be remiss if we did not prevent, where we can,
damaging actions which would ultimately recoil upon the entire banking fra­
ternity and, therefore, upon our whole economy.
The private banker, whether he likes it or not, needs to conceive
of himself as a quasi-public servant in the sense that he has and must re­
cognize a special responsibility to the community.

If he fails to serve his

own public effectively and satisfactorily, then that public through its
duly elected members of Congress is almost certain to take corrective action,
and in the case of banks, corrective action is bound to be synonymous with
more public controls, regulation and participation.

Such necessary action

on the part of Government is a reflection of failure on the part of private
enterprise and private responsibility and leadership somewhere along the

The ultimate and the final attempted corrective for a general or

wholesale failure of private leadership and responsibility ie Government
ownership, such as has spread all too rapidly in some other countries.
I know from my long association with you that in your own minds
you are, locally, quasi-public servants; but I urge you to consider in times
of inflationary trends the national picture, as well as the local picture,




in connection with the making of loans, i.e., the creation of additional
credit to add to the current total of bank credit throughout the nation.
And, likewise, in times of deflationary trends, it is essential that the
local banker be prepared to take risks and to encourage the creation of
credit in order to prevent unnecessary depression conditions in his com­

The more appreciation and observation local bankers have of our

national problems, and the closer they can cut their cloth to the national
pattern, the less participation and control out of Washington will be neces­
I do not want to see, any more than you do, the emergence of con­
ditions in our country which will lead the public to any desperate attempted
remedy such as government ownership.

It is obviously a wholly mistaken

remedy if we are to keep our private enterprise system.

I think it is true,

and I certainly want to believe, that the country is generally more aware
today than ever before of the importance of privste banking as a prerequi­
site of a private enterprise system.

I want to believe that bankers and

other citizens in general are more interested than ever before in the per­
petuation of private banking in its present form as a necessary adjunct to
our successful profit and loss system of private enterprise.

I do not mean

for a moment that I think there is no room for improvement; but I want to
make haste very slowly.

I certainly do not want to see what may be called

our quadruple system of bank supervision— that is to say, the State bank­
ing systems, the FOIC, the Comptroller of the Currency, and the Federal
Reserve System— deposed, displaced or replaced by some theoretically ideal
but practically untried reshuffling and realignment.




I am sure that no careful student of our banking structure will
say that it is ideal, but I am certain that any impartial judge would say
it has been workable and that this nation has grown and prospered beyond
the fondest dreams of its founders under this admittedly imperfect system.
I cannot escape the conclusion that some credit, however small you want to
make it, for the solid foundation on which our banking system rests today,
and for its independence, and for the favorable opinion which it enjoys, is
due to this quadruple system and the part it hes played in banking history,
particularly during and since the war.

I concede that a merger of all of

these supervisory authorities under one head would be more efficient, at
least for awhile, and perhaps less expensive; but one of the prices which
we pay for democracy, and which we should gladly pay, is the security of
democratic processes.

As Mr. Justice Brandeis once pointed out in a dis­

senting opinion (Myers vs. United States, 272 U. S. 52293, October 1926):
"The doctrine of the separation of powers was
adopted by the Convention of 1787, not to pro­
mote efficiency but to preclude the exercise of
arbitrary power. The purpose was, not to avoid
friction, but, by means of the inevitable fric­
tion incident to the distribution of Governmental
powers among three departments, to save the people
from autocracy."
As we have seen dramatically illustrated in our time, one-man
control in a nation can be very efficient— and deadly.

We have had too

many horrible examples throughout the world of the ultimate result of oneman control of any major sector of a nation's life.

Private banking must

be preserved in the United States, not for the good of the banks or the
bankers themselves, but for the good of the public at large.




Once a national government gains absolute ownership and control
of the banks and thus of the money supply— as distinguished from the ad­
mittedly loose regulatory controls we have in this country— once this vast
power is placed unrestrictedly in the hands of Government officials, the
death sentence has been imposed upon and will soon be carried out so far as
private enterprise is concerned— in agriculture, manufacturing, merchandising
and every other business.
The members of the Federal Reserve Board are, of course, plain,
ordinary human beings, prone to doubts and errors, conscious of their short­
comings, but also of their responsibilities.

As a Board we work in close

cooperation with each other trying to solve the particular problems which
are within our province.

We do not crave power for the sake of power nor

do we enjoy exercising power merely because the Congress has entrusted us
with it.

Let me point out in passing thf t whatever power (ana I dislike

that word) we possess today was voted by the Congress of the United States—
your Congress.

During the war, our regulation of instalment credit was based

on executive order, but that was a war-time measure subsequently discarded
and replaced by a specific act of Congress.

Today, this and other responsi­

bilities which the Reserve System has, are placed upon it by Congress.


the matter of reserve requirements, open market operations, discount rates—
all means of influencing the volume and cost of bank credit— as well as in
the case of instalment credit and stock market regulations— which are
selective means of affecting credit in two specifickareas— Congress has
given the System a wide degree of latitude and discretion.

In using these

means of influencing credit, we try to assess the needs of the economy and




to adapt these measures to current conditions.

Policies of restraint that

are appropriate to a boom period are manifestly inappropriate in a down­
swing of the business cycle; therefore, we strive to be flexible in our

Questions of timing are perhaps the most difficult to de­

Whether or not such selective controls and regulations are paterna­
listic; or whether or not such detailed regulation and regimentation of the
individual citizen has any place in our constitutional Republic (as distin­
guished from a Democracy)— those are broad questions of Federal Government
policy which must be determined by Congress, and not attempted by mere
appointive boards to which the Congress had delegated certain powers.
Neither the Federal Reserve Board nor any other appointed Board is a legis­
lative body and I think all such Boards should be scrupulously careful not
to attempt legislation by regulation or order.

Under our Constitution, we

are entitled to government by law— and it is fortunate that only an elected
Congress can make laws, and only an elected President can participate in
the process.
But once the Congress has spoken, it is our Board's responsibility
to carry out the expressed wish and intent of the Congress.

We endeavor to

do so objectively and to the best of our ability for the over-all good.
Our constant objective is to maintain a proper balance between
supervisory measures and unhampered independent operations of member banks.
We recognize that the banking system, per se, must be profitable or it will
die of starvation without being slaughtered by excessive Governmental regu­
lation or outright Government ownership.

We also realize that the public

has an interest in and right to adequate banking service end accommodation




as well as to security of its deposits, even though these pufclic demands
may entail some cost in profits.

Bankers, too, mart realize that ours is

a profit and loss system, and I am su~& that every banker with an svciceued
sense of public responsibility understands that these considerations must
be balenced off in a proper relationship.

He should recognize his respon­

sibility to extend credit at a risk, not only in good titles but also when
the economic climatc is not auspicious.

If he isn't willing to approach

his task on such a basis, he is in the wrong business.

Insofar as the pri­

vate banker fails to meet his responsitiiitv in this respect, then just so
far is he endangering his position and his pio^ession by making necessary
more Federal and State participation, intervention and control.

And, as I

have sought to emphasize, that road eventually leads to Government ownership.
Ve have been especially fortunate in the past two years because
of the constant stream of bankers who have come to Washington and visited
with us.

They come to talk to us, to have luncheon, to give \ s the benefit

of their views and of their criticisms.
thing to commend in what we do.

And sometimes they even find some­

It keeps us mindful of the facts of life

in the banking and business world end most of all it keeps us conscious of
the fact that we are public servants.

I thimc we are able in many instances

to familiarize our visitors with our particular problems and viewpoints and
to convince them that they will best carry out their responsibilities as
private bankers when they are conscious that they, too in a sense, are pub­
lic servants.

Largely as a result of these personal contacts, our Board

has had a better understanding than ever before of the immediate problems
of the bankers, the fanners, the businessmen, the workers in industry, all
cf whom are affected directly or indirectly by monetary poxi.cies.




I hope when you come to Washington you will let us know, if pos­
sible in advance; if not, please telephone us when you get there and give
us an opportunity to exchange information and opinions.
Incidentally, when you visit Washington I hope you will not for­
get to cell on your Senators and Congressmen.
sonally, you should.

If you do not know them per­

I am perhaps especially conscious of the importance

of your visits to your representatives in Congress, for I have had a life­
long familiarity with the tasks which your legislators perform end I freely
admit that I am prejudiced in their favor.

I think they are a worthy cross-

section of our people and that they are sincere public servants.
exceptions prove the rule.

The rare

Gn the whole they are good men and good women;

and they usually get sound results, as our history proves.
You are familiar with particular proposals that are pending or
will be introduced into this present Congress affecting banking and I shall
not take your time to comment on them specifically.

I do want to say, how­

ever, that I am still of the opinion which I expressed some time ago in a
published letter, that the Congress might well create after this long lapse
of years another monetary commission specifically directed to reconsider the
entire structure of our monetary laws in the light of the many changes and
the new problems which the years have brought.

It has been some four decades

since such an intensive and comprehensive Congressional study was undertaken,
and I think another now would be helpful.
As a matter of fact, the present might prove to be a particularly
propitious time for the Congress to create such a Commission, and refer to
it for immediate study and report the controversial questions of supplemental




reserves, application of reserves to non-member banks as well as member
banks, and the broad question of the basis upon which reserves are figured;
and also consumer credit and other selective controls.

As you know, the

authority for supplemental reserves and control of consumer credit expires
June 30 under present statutes, and such authority could well be extended
for a limited time pending study and report by the proposed Monetary Com­
In the meantime, I, for one, would go very slowly in tampering
with our present structure.

Let needed changes come gradually after we are

sure that they are within the framework of our Constitution and of our
established institutions.

I want to stay away from one-man, two-man, or even

three-man oligarchies having the power of life or death over our indepen­
dent institutions.

Let me say again that I am not assuming our present

banking system is perfect, but it is a bulwark against over-concentration
of power, and against autocracy and arbitrary exercise of power.

We can

better judge and more wisely perfect our Federal Reserve and private banking
systems and corx'ect their faults after a searching, exhaustive study, than
we can by hasty amendments based on theory rather than on practical ex­

We should think through very carefully all of the implications

of proposed changes before we tamper with an essential component of our free
enterprise institutions, that is,— privately owned farming, transportation,
communications, industry, natural resources, and free manpower— those great
private efforts that have made this nation without equal in strength and in
well-being— to which happy circumstance private banking has an essen­
tial contribution.