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[Remarks of J . L . Robertson, Member of the Board of Governors of the Federal Reserve System at the Fortieth Anniversary Celebration of the Federal Reserve Bank of Kansas City Muehlbach Hotel, Kansas C i t y , Missouri Dinner Session - 7 : 3 0 P . M. November 16, 195b I am very glad of the opportunity to p a r t i c i p a t e in this celebration of the f o r t i e t h anniversary of the Federal Reserve Bank of Kansas City. In the f i r s t p l a c e , I am p a r t i c u l a r l y s e n s i t i v e to anniversaries. A number of years ago a very personable young lady came to my o f f i c e s e l l i n g magazine subscriptions to finance her college career. I wasn't the s l i g h t e s t b i t interested in either her magazines or her career. she was p e r s i s t e n t - and p r e t t y . F i n a l l y , she asked: "Are you a good enough sport to wager that I c a n ' t tell you exactly how many birthdays you have had?" I knew she c o u l d n ' t do that unless someone had told her, and she professed no one had. ?o I agreed to take not only a ten-year subscription to a magazine I d i d n ' t want, but also a cook book I couldn't u s e , i f she guessed correctly, and she agreed to give me a five-year subs c r i p t i o n f r e e i f she was wrong. I shall not soon forget the g l i n t in her eyes, or my own embarrassment, when she said: "Mr. Robertson, you have had only one birthday* you have been celebrating anniversaries of i t ever s i n c e . " You can easily see why I am anniversary-conscious, but for most a l l of us an anniversary is always an occasion for sweet n o s t a l g i a . On the morning of November 1 6 , 1 9 D 4 , I was trudging along a d i r t road in Broken Bow, Nebraska (the garden spot of the Tenth Federal Reserve Dist r i c t ) on my way to the second grade. I had not the s l i g h t e s t knowledge that the Federal Reserve Bank of Kansas City was opening i t s doors that day. Therefore, to get the f e e l of the occasion I found i t necessary to spend some d e l i g h t f u l hours rummaging through musty records and newspapers, which produced strong vapors of the atmosohere which prevailed here that d a y . Even the make-up e d i t o r of the Kansas City Star had trouble deciding which was the most important event of that November l 6 t h . The Germans, d r i v i n g toward P a r i s , had won a major victory i n the Argonne. °eace had established i n Mexico, so the paper s a i d . Volunteer doctors were at work in Kansas City to stamo out d i p h t h e r i a . The Federal Reserve Bank opened. And h , 0 0 0 people were going to witness the w o r l d ' s championshio checker match i n the Kemper B u i l d i n g . Believe i t or not, the checkers story rated the second column, and the Federal Reserve got J the t h i r d . There were several other interesting items in that paper - which, by the way, c o s t one cent. A new s t a r , Miss Sophie Tucker, was opening at the impress Theater, and Gus Edwards' "matinee g i r l s " were f e a t u r e d ' at the Orpheum, where the best seats were nriced at seventy-five cents. Appropriately enough - o r , perhaps inappropriately enough - the National p u r i t y League was holding its annual convention in Kansas City at the sajne time. • m n . F l i r t h e r e v i d e n c e o f h o w up-to-date everything was in Kansas City in 191/| were the ads of several furniture s t o r e s . Complete suites for - 2 - three rooms were on sale a t Wurmser's for $ 6 7 , and in big black type e r e the words: "No f i r s t payment and only £ 2 . 0 0 a month". Installment credit i s n ' t brand new! w The Star pointed out that the opening of the Federal Reserve Bank s the second of two outstanding events of November I9D4 in the economic l i f e of the area. On the f i r s t of the month, the new Union Station had gone into operation, demonstrating, i t s a i d , that Kansas City the gateway for transportation to the west and to the southwest; and t^e opening of the Reserve Bank o f f i c i a l l y established Kansas City as the center for business and f i n a n c e . wa "Hundreds flocked into the building and overran the Bank's quarters", said the S t a r ' s story that evening, and "about twenty persons fried to deposit their savings in this new Government Bank." And what followed the story about the opening of the Bank? A ^ a c k headline: "Bank of England Suspends". It was not the Old Lady of T h r e a d n e e d l e Street, but instead the Bank of England, Arkansas, which suspended payment on that same November l ^ t h . (Today, we have almost forgotten the c h i l l which accompanied such announcements.) The other eleven Federal Reserve Banks throughout the country hich, like this one, and, in fact, like a l l our national banks, had been g a r t e r e d by the Comptroller of the Currency - were getting under way on the same day, and a wire story to the Star from Washington quoted the most experienced banker among the new members of the Federal Reserve Board, Mr. • M. Warburg, as saying: w "November 16 might well be considered the Fourth of July in the economic l i f e of the United States, marking the foundation of the nation's financial emancipation. The new banking system, wisely administered, will prove to be the means not of inflation but of safety, independence, and gradual healthy expansion. How soon we may become a world power equal in strength and independence to those on whom we have had to lean until now w i l l depend on our ability to avail ours elves of the opportunity now open to u s . " He ^ said that just forty years ago'. As you know, the Federal Reserve System was created because recur®fit financial stringencies and panics, from the beginning of the Indusi a l Revolution in our country, had caused terrible suffering and had times within a period of thirty years) set b S a i n and again ( i n f a c t , five a our economic and social progress. Finally the destructive panic that - 3 - struck in October 1907 spurred the nation to a c t i o n . The National Monetary Comnission held exhaustive hearings both here and abroad in an effort bo get to the bottom of these recurrent c r i s e s . Cut of the Commiss i o n ' s work, and the labors of Congress, came enactment of the Owen-Glass B i l l on December 2 3, 1 9 1 3 , and the Federal Reserve System came into being. President Woodrow Wilson characterized it as "a Christmas present for the American p e o p l e " . Ponderous tones have been written about the evils that the Systen was designed to remedy, but I b e l i e v e that the basic objective can be sum'' ed up in a dozen words - a currency and c r e d i t structure that i s e l a s t i c and yet rranageable. The System has many c r i t i c s today, but none w i l l deny t h a t this great objective has been achieved in f u l l e r measure than even the most enthusiastic of i t s founding fathers anticipated in 191U. One cannot help marveling at the s c i e n t i f i c wonders that have been wrought i n the lifetime o f the System. Forty years ago the carriage and wagon industry was s t i l l putting up a game though losing battle against the automobile, and more than a few people considered airplanes a d e f i a n c e of heaven, Tn 1920 the f i r s t broadcasting s t a t i o n opened. A decade ago the newest of today's miracle medicines were s t i l l in the experimental stage; the whole f i e l d of atomic energy had barely passed beyond the threshold of theoretical physics. Each change has been accomDanied by new economic problems, and i t has been necessary for the Federal Reserve System to evolve with the times and to gear i t s e l f constantly to changing conditions and needs. This i t has done, 'but not without a considerable amount of growing p a i n s , many mistakes, and a good deal of "blood, t o i l , t e a r s , and s w e a t " . The machine is not y e t perfect - i t never wil] be - and i t does not run i t s e l f . Tn the early 3 0 ' s its capacity proved inadequate under extreme c o n d i t i o n s ; but the Banking Acts of 19 33 and 193£ greatly expanded its capacity to deal with monetary and c r e d i t developments. The mechanism has not always achieved a l l that should have been achieved, but its f a i l u r e s have not been due as much to structural weaknesses as to human f a l l i b i l i t y . Desoite our human shortcomings, the Reserve System has been most fortunate i n having been permitted to carry on i t s work with s i n g l e - m i n d e d attention to the economic welfare of the American people, almost - i f not quite - unhampered by partisan interference or p o l i t i c a l storms. This is an amazing fact when we consider that the past forty years have witnessed the emotional and physical strains produced by two World Wars, two booms - h - and a biast, floods, droughts, inflation and deflation, and what have you. Fate has been kind in preventing the perversion of the Federal Reserve System and in preserving its integrity, perhaps in fulfillment its creators' dream. Let me recall for you this statement of Senator Carter Glass: "Vhile the Federal Reserve Board may never, if i t should ever, become so detached and so completely independent of legislative and executive influence as to assume the status of the 'Supreme Court of Banking', as many eminent bankers have desired, it is certainly to be devoutly wished that i t may permanently hold such a high place of appreciation in the confidence and esteem of the country as to make i t f u t i l e , i f not positively dangerous, for p o l i t i c a l vandals to practice their arts against i t . An intelligent and fearless performance of i t s functions involves as much of sanctity and of consequence to the American people as a like discharge of duty by the Supreme Court of the United S t a t e s . " During the intervening four decades, the increasing industrialisation of our country and an increased recognition of the duty and ability of the government to promote economic s t a b i l i t y and progress have ^ e d to changes both in law and in the philosophy of American central kinking. Rut at least one big problem has evaded solution. To exemplify i t , let me dip back again into the System's past. After the Feder a l Reserve Bank of Kansas City had been in operation two y e a r s , its ^ a i r m a n , Mr. Charles M. Sawyer, reported to Washington as follows: " I n d i s t r i c t No. 10 the attitude of the general publ i c toward the Federal Reserve Bank is apparently one of friendliness and favor. I t can not be said that this is because the average citizen has thoroughly digested the provisions of the Federal Reserve Act and comprehended the fundamental principles underlying. Nor indeed could it be s a i d , in the case of the average c i t i z e n , that this sentiment is due to a personal recognition of the influence exerted over general business conditions by the operation of the Federal Reserve B a n k . . . . " This points up one of the crucial continuing problems that we c e - no different today from what i t was forty years ago. No single factor is more important to the American economy than the effectiveness an d integrity of its central banking arrangements. Unfortunately, i t also true that no factor seems to be of less interest to most people Particularly in prosperous times, when the economic system is functioning smoothly. In poorer times, however - and we would be unwise to close fa - 5 - our eyes to the possibility that there may be ooorer times in the years ahead - the Federal Reserve System might become the scapegoat of demagogues, or even of men of good will but of limited or erroneous understanding. I t is d i f f i c u l t bo imagine a greater economic misfortune than a corrupt, timid, or partisan central banking system, misusing its vast powers for private gain or popular acclaim, or as a tool of political expediency. In the long run, the most effective bulwark against the possib i l i t y of such a catastrophe is public insistence that the Federal Reserve System continue as an organization devoted solely to the economic welfare of all the people of the United States, free from self-interest, free from subservience to any class or group, and free from interference aimed at diverting its great powers to selfish or partisan ends. But such a public attitude must rest on a solid foundation of public faith in our institution, and faith that will stand firm in stormy times as well as f a i r must be founded on understanding. I sincerely b e l i e v e , therefore, that none of us faces a more serious or more worth-while job than to make his maximum contribution to more general understanding of the significance of the Federal Reserve System - to a public awareness of what the System does, what i t can do, and equally important, what i t cannot do. As Senator Robert L . 0wen, a co-author of the Federal Reserve Act," said so accurately onlv a few years after the System was established: " I t does not promise /businessmen/ protection against waste, improvidence, or carelessness in conducting business; i t does not protect them against over-production or underconsumption; i t does not give complete protection against industrial d e p r e s s i o n . . . . The orotection of the country against industrial depressions is very largely safeguarded by this Act, but other steps by Government are essential if industrial depression in the future is to be entirely avoided." While monetary policies offer no panacea, no cure-all for the i l l s which may beset our economy, they do constitute, as I s a i d , the most potent single factor affecting the economic welfare of our people. The public should know the limitations of the System, but they should know equally as well the contributions which it can make toward stability and the continued growth of the economy. Out of understanding will come public confidence, and out of confidence a measure of public support that will enable the System to survive and to act effectively i n a i l circumstances. No one need tell me that this is an Herculean task. has attempted i t again and again, I can tell you feelingly As one who that i t is Surprisingly d i f f i c u l t to get across the point that open-market operations involving the purchase of $ 1 0 0 , 0 0 0 , 0 0 0 or so of Treasury b i l l s a t one time and the selling of an equal amount at another time does mean that a temporary " s o f t " money policy has been replaced by a hard" money policy of uncertain duration. All it means, ordinarily, I s that our judgment of numerous factors affecting credit availability J ^ i c a t a s a need for expanding the supply of bank reserves in the f i r s t instance and for contracting i t in the second, in order to contribute ^ward the maintenance of a credit and monetary climate conducive to a stable and progressive economy, Central banking is an exceptionally dull matter (unless i t is a P ^ t of your l i f e , in which case, I can assure you, i t is anything but '^1)0 I t is also a very complex operation; T find i t constantly necesSar y to refresh and expand my own comprehension by repeatedly studying or another of its phases. However, there is a ray of sunshine in j^is heavy atmosphere. For despite the complexity of its operations, underlying philosophy and policy of the Federal Reserve System are extremely simple. That p o l i c y , as you know, i s , on the one hand, to take whatever '-ion i s necessary, and within our authority, to provide that money and Credit are available, at a l l times, i n adequate volume, to permit the ^ a U o n a l economy to progress without being hampered by credit shortages; s! M ° Q t h e o t h e r h a n d > t o to it that credit is never available in th ? X c e s s i v e m e a s u r e as to encourage inflation and speculative excesses inevitably detract from our economic welfare by destroying stability a impeding effective long-range business planning. c Notwithstanding the simplicity of this policy, the newspaper reader knows i t n o t , must sometimes have a very confused idea about the objectives of the Federal Reserve System, and I , for one, could not blame ^ i f he gave up as a bad job any effort to comprehend what we are doing. p here has read time and again over the past few years superficial g^ yone 0 -dements a b ° u t the Federal Reserve's "hard money p o l i c y " , "soft money r e v e r s a l s and Yo» switches from one of these policies to the other, and r kno t h 8 t the but . * Reserve's policy is neither hard nor s o f t , it is up to all of us to bring such facts home to those who are not awa r e of them. ThlS a c a l 1 to d u t y w i t h o u b the or f inspiration of any visible g o a l , . U a g s , or band music, or acclaim. But i t is a duty of the sort that st be performed devotedly year after year, i f great democratic instiSri ° n S a r e t 0 f l o u r i s h r a ^ h e r than to decay. We have in this country economic, s o c i a l , and political struct'ire many times more complicated a n our forebears ever conceived. It is our particular job to keep in operation and in pood repair one important segment of this structure. "The struggle of today", Lincoln once said, " i s not altogether for today ; i t is for a vast future a l s o . " With a w i l l - i f we want to strongly enough - we shall find a to bring about a broad public understanding which will assure the main-"* tenance of a Federal Reserve System that can meet the ever-changing needs of the American people in a manner that will make us as proud of it forty years hence as we are on this fortieth anniversary.