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AMERICA'S STAKE IN THE IKDEFElIDEIiT BAMi Remarks of R. M. Evans, Member, Board of Governors; Federal Reserve System, at the annual Independent Bankers Breakfast, 8:00 a.m., Mayflower Hotel, Washington, D.C.. September 21, 1953. For Release Upon Delivery AMERICA'S STAKE IK TEE IiJDSPEHDENT BANK It is customary to express appreciation of invitations to appear before an audience, even at breakf'astime. I have heard those hackneyed words many times, as 70U .have, and they usually sound, and are, perfunctory. But in my case it is no mere pleasantry to say that I am glad to be with your particular group at this time. The longer I have been in Government service the more deeply I believe in what is perhaps an old-fashioned Jeffersonian doctrine that the real source of our country's strength springs from the type of men who are developed by our small independent business enterprises, whether in agri culture, in commerce, or industry, or banking. It isn't easy to define small business in precise terms bscause that is a relative matter. But it isn't necessary to define it with exactitude in order to enumerate its principal characteristics. You, who are members of the independent bankers' group know what those characteristics are, for the smaller, independent unit banks are the very embodiment of small business. They serve small business. oimed and managed by local people. They are part and parcel of the com munity. They are Most of them were established a long time ago with funds sub scribed by local citizens. the community. They have grown up with, and have grown with, They represent and reflect their own environment as no outsider possibly could. You are closely associated in your daily lives with your local businessmen and farmers and manufacturers. You know their problems, their aspirations, their abilities, and their limitations. -2Now this is a far cry from the kind of business or institution that is run by remote control from some distant point — that is owned or controlled by people who are far removed from the community. Very often the local office is run by looking into a rule book written in the distant home office by people whose knowledge of local conditions is at best second hand and without benefit of personal contacts.. Beyond that, I believe that the enduring moral and spiritual values of this Nation are rooted in the smaller, closely knit communities spread across the face of this land. As you travel through them and see their churches and schools and public buildings and observe the faces of the men and women and the children of these typically American small towns and small cities, you must be insensitive indeed if you do not derive from it a feeling of deep reassurance — of confidence — in the basic virtues of the American character and its vast capabilities. The founding fathers envisaged such a nation of free men where equal opportunity would be a reality and not merely an ideal. They had rebelled against remote control and they were resolved to be rid of all forms of imperialistic power. The Constitution, as you know, is a grant of powers for all citizens, not a denial. not of restriction. It is a document of liberation — Its guarantees of freedom, I believe, are best realized in the way of life that flourishes in our smaller communities. We have not come by these benefits without bitter struggles and some setbacks. At the turn of the century, for example, we had reached what has been called the high tide of trustification, when two-thirds of the country's manufacturing capital was controlled by monopolistic or - semi-monopolistic combinations. 3 - They were bound together, for the most part, loosely, but nevertheless effectively, by a few financial giants. The growing recognition of the inherent evils in this kind of concentra tion of economic power ushered in the era of trust-busting. It was, in its way, an economic revolution. I venture to say that if similar dangers were to become apparent to the American people in this day and age there would be a similar popular uprising against it. I am not saying, for a moment, that we can or should turn back the clock, that we should make arbitrary rules to define a large, or small, business, and to outlaw bigness as such. I do say that we must constantly be alert to give every reasonable encouragement to the smaller enterprises, to encourage the flow of capital, and to see that our tax laws do not impede our smaller enterprises. People who are engaged in businesses of their own or in which they own a real share have a very different attitude, as to the kind of government we should have, from those regimented in a great army of em ployees whose lives are dominated by the time-clock rather than by a sense of personal participation in and responsibility for the success of the industry or business in which they are engaged. The banker, in particular, must be fully conscious of his respon sibility to the community. He has not always been as respected a figure as I am glad to say he is today. In the middle of the last century, banks in many places had exhibited such reckless irresponsibility that popular opinion rebelled against them, and by statute, or even Constitutional prohibition, banking was outlawed in Florida, Texas, Arkansas, Illinois, Wisconsin, Iowa, - u - Minnesota, Oregon, California, and the District of Columbia.* Fortunately, that day has long since passed. Today the banking profession has won a greater measure of public confidence than ever before. It is up to you to continue to merit that confidence. And, as you know, many of our great industrial enterprises have come to an increasingly enlightened attitude in encouraging stock ownership, in providing pensions and, in other ways, giving to workers some of that sense of security — of independence and freedom of action which is char acteristic of those who own and operate, or have a real share in, small enterprises. I am informed, for example, that it is a definite policy of the larger oil companies to encourage local ownership and operation of fill ing stations. It is by no means a philanthropic gesture but comes from an awareness of some of the concepts on which this Nation was founded. I think there is much the same policy among the great automobile manufacturers, not only in the distribution of their product but in creating opportunities for people to engage in business for themselves in closely related industry and distribution. The banking field is one that is particularly well adapted to small business. In this country a bank can be organized, controlled, and operated by people in the small towns who band themselves together. After all, they know more about local credit conditions than any person possibly could who resides in a distant city and sends-out mimeographed instructions on how to * See page 243 — Financial Development of the United States, published by Prentice-Hall, Inc., Hew York, 1937. -5extend or refuse credit. The local bankers have the benefit of advice from their correspondent banks and the Federal Reserve System stands ready to bring them up to date on business, farm and trade conditions in this country and throughout the world. There is no reason why the officers and directors of the country banks should not be fully informed on the credit situation throughout the Nation and the world. Many times, I think, their knowledge of human nature makes it easier for them to understand conditions in distant countries than it is for those who lack intimate, daily contacts with their fellow men. Then, too, an independent bank takes a deeper interest in the welfare of the community where it is located than does the subsidiary of some vast banking chain. The unit bank is owned by people who wish to see the community prosper and succeed, whose own wealth is tied up in real estate or in some business in the surrounding country. They can be depended upon to do everything possible to make their community a better place in which to live. Remember, Rome degenerated and lost its position in world affairs when rural areas and the small towns deteriorated. We hear a great deal these days about the dangers to our type of government because of Communism. Personally, I am not very worried about the possibility of the American people becoming Communists. They are too well educated and have too much good sense to be deceived by a system whose record is one of inhumanity as well as inefficiency and failure. Yet there is, more and more, a danger that concentration of power may destroy our traditional freedom. The centralization of power in the hands of a few people in the business world would be one of the steps that would, in this country, lead to socialism with its concentration of power in Government. If all the banking business of the United States were concentrated in a few hands, I have no doubt that there would again be a popular uprising against it. The danger would be that in striking down the one evil, another would take its place. The people might decide, especially if times were not good, that they would prefer to elect the directors who control the banks or industry rather than to let a few people in some distant place provide the leadership. That would be one of the easy roads to socialism. But if we have many small businesses owned and operated by local people, no political party would dare to propose that the Government take them over. The areas where a small businessman can succeed are not unlimited. Outside of the'professions, there are farmers, bankers, merchants, service operators and manufacturers who can continue to thrive if they have a fair, competitive opportunity. The little fellow must have some protection from the large concerns which- have- vast capital resources. This type of pro tection cannot be merely conversation and should not be a subsidy. In almost every session of Congress oceans of words are. spilled in behalf of small business but, unfortunately, too few constructive steps result. If the independent bankers wish to save their business, they must get, through political action, laxjs that will give them real protection. I speak from experience in. this particular field, as most of you well know. From time to time bank holding company legislation has been introduced in Congress but some of the bankers as well as others have always intervened to prevent its adoption. The situation is Steadily growing worse. A really effective bank holding company bill is a must. Credit is the life blood of a nation and when that nation is as large as ours with such varied conditions as e:cist throughout the country, it is impossible to give small local businesses the credit attention they deserve from a distance. And without credit it is almost impossible for small businesses to prosper. You who are here this morning represent small business and you repre sent what I consider to be the American pattern of life. I think the time has come for you to take your cause to the country and see how much support you can gain. You will find your problem is a difficult one but if you have the pioneering spirit that motivated your forefathers when they settled this country, you will win because your cause is just. For the nation as a whole, the choice must always be made between two basically opposed concepts of the economic and social order. between them is old and never-ending. The conflict The choice, to put it in the simplest terms, is between individualism and statisia, between a competitive, private enterprise system — enlightened capitalism, if you will — tation of a socialistic order. and the regimen Under the former concept, the individual has the greatest freedom of choice consistent with the law and order of a civilized nation. I-Ie is essentially the captain of his own fate. cept, he becomes increasingly the captive of the state. Under the latter con
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