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TRUTH ABOUT THE FEDERAL
RESERVE SYSTEM
These figures prove beyond all controversy that, instead of
deflating credits and currency, the Federal reserve banks, during
the period of falling prices, enormously expanded bank credits
and increased the volume of circulating notes. This is espe­
cially true with respect to credits in the agricultural sections
of the United States.
*

*

#

*

*

*

#

Why not toll the farmer tlie truth and advise him, if; he 'would
escape the consequences of another such disaster, he should
organize; organize, Mr. President, not to he the plaything or
the instrument of designing politicians, but organize for an in­
telligent investigation and pursuit of economics; organize for a
cooperative marketing of his product; organize, if it may seem
desirable, for the cooperative purchase of his requirements;
organize for an intelligent understanding of the source and
volume of demand for farm products.
*
*
*
*
*
*
*
If some Senators will go home and talk sense to bankers who
remain outside the pale of protection, instead of talking non­
sense to farmers and arousing prejudice against the Federal
reserve banking system, which has afforded them protection,
something worth while will be accomplished.

SPEECH
OP

HON. CARTER GLASS
OW

VIRGINIA
IN THE

SENATE OF THE UNITED STATES
M onday and T u esd a y
J a n u a r y 16 a n d 17, 1922

T

WASHINGTON
1922
S 6 4 G 9 -22174







SPEECH
OF

H-ON.

CARTER

GL AS S .

Monday, January 16, 1922.
The Senate had under consideration the bill (S. 2263) to amend the
Federal reserve act, approved December 23, 1913.

Mr. GLASS. Mr. President, the distinguished Senator from
Nebraska [Mr. Nokkts] a while ago said some things with which
I am heartily in accord, and I well could express the wish that
the discussion of the Federal reserve banking system might
generally be engaged in with the same apparent spirit of fair­
ness as was manifested by the Senator from Nebraska.
But, Mr. President, I venture to think that the time has come
when some one should assume the task of combating in the
Senate the many persistent and constantly recurring misrep­
resentations which for more than a year have streamed from
this Chamber with respect to the Federal reserve banking sys­
tem and its administration. Aside from a painful disinclination
to speak in any circumstances, I had hoped that this service to
a great Federal institution, and, indeed, to the country, would
be undertaken by some Senator whose long tenure would pre­
clude any thought of a premature anxiety to project himself
into the important controversies of this body, and w hose estab­
T
lished reputation here would arrest the attention of the Senate
and command the confidence of the country.
I am not willing to believe that failure of any Senator of this
type to speak out in defense of the Federal reserve system may
be ascribed to indifference to the success of the system or to any
lack of pride in its notable achievements. Many very grave
problems have claimed the attention of the Senate and to these
Senators have been devoting painstaking labor. Moreover, it
may be that Senators generally have thought, as I confessedly
have believed, that the hostile assaults on the Federal reserve
system and its administration have manifestly been so devoid
of the truth and so obviously saturated with ignorant prejudice
and injustice as to require no answer.
RESERV'D SYSTEM

SAVED T H E NATION.

But, Mr. President, the misconceptions and misrepresenta­
tions to which politicians at Washington have given vehement
expression have been eagerly seized upon by restless profes­
sional agitators and disseminated from one end to the other of
the country. Thus a large body of citizens has been induced to
believe that the Federal reserve banking system is a financial
juggernaut, crushing the life out of commerce and industry,
creating widespread depression, and putting an end to enterpris­
ing business activities. Instead of clearly apprehending, that
which the facts so amply attest, that this reserve banking sys86469— 22174




3

4
tem saved their country from inconceivable distress, from irremedial disaster, these people have been taught to believe that
its continued existence would be a peril to the Nation. They,
in their present mood, literally would smite the hand that feeds
them and demolish the instrument of their salvation.
I would not have it imagined, Mr. President, that I purpose
to decry fair criticism; on the contrary, it is with me a constant
prayer to be kept on guard against the streak of iconoclasm
which has too evident a place in my owT nature. Neither am I
n
disposed to assert the perfection of any economic instrumentality
or the infallibility of any human agency. It would be amazing
if the Federal reserve system had no imperfections, and foolish
to assert that its administration lias been devoid of error.
What I do say with all the emphasis of which I am,capable is
that neither malignant nor ignorant misrepresentation will cure
the system’s defects or render more efficient its administration.
WHAT

T H E FEDERAL BESERVB S Y S T E M ?

That we may the more surely discover what are the deficien­
cies of the system, with a view to their abatement, and compre­
hend to better advantage the mistakes that have occurred in the
execution of the law, it might be profitable to inquire what
exactly is the Federal reserve banking system and how it lias
been administered. Having done this, we may determine how
true or false are the charges made here, how fair or vicious the
criticism. If the system is a curse or its execution a tragedy,
I want to be convinced. If the system is a benediction to this
Nation and an inspiration to the world, if its administration
has been sane and salutary, then I shall feel and express concern
for the integrity of this body if it shall appear that Senators
have disparaged the character and derided the personal honor of
public officials with no better sanction for such behavior than
their own peculiar antipathies or their own pitiful ignorance of
the financial transactions upon which they have assumed to
comment. For one I am not willing that the astonishing state­
ments made here shall any longer go to the country unchallenged
and uncontradicted.
For half a century before the advent o f the Wilson adminis­
tration the United States was compelled to endure the handi­
cap of the most unscientific banking and currency system o f any
that prevailed 011 the earth. For a part of the time we seem
to have been ignorant of our plight; for another part indifferent
to the situation, and for the remainder of the time afraid to
apply the remedy lest we should wound the sensibilities or inter­
fere with the profits of a privileged class. We were during no
protracted stage without ample warning, for the malady mani­
fested itself frequently and violently in disturbances which
swept the country like r. hurricane from end to end. Five times
within 30 years, prior to 1913, a financial catastrophe had over­
taken us right in the midst of apparent business prosperity and
contentment. Each time the disaster was due largely, if not
altogether, to a defective banking and currency system; and it
is literally certain that our always tedious restoration was
rendered vastly more difficult and painful by the sad lack of
well-devised facilities.
SI A ll E SB T W IN S OF DISORDJB&.

The old system had two fundamental defects. One was ap
inelastic currency; the other a fictitious bank reserve. They
$6409— 22174




5
were Siamese twins of. disorder; and I am inclined to ascribe
the invariable failure of statesmen to reform the financial sys­
tem of the country to their unwillingness to subdue both of these
evils at the same time. While they repeatedly would tackle the
problem of an inelastic currency, which everybody wanted
solved, they seemed never in a mood to defy the powerful in­
terests behind the national bank reserve system, through the
peculiar operation of which nearly the whole sum total of idle
bank funds in the United States was congested at a single center
for use in the stimulation of speculative enterprises.
A RIGID CURRENCY.

The national currency was inelastic because based on the
bonded indebtedness of the United. States, rather than upon
the sound, liquid business assets of the country. For 50 years
we proceeded upon the assumption that the country always
needed a volume of currency equal to its bonded indebtedness,
and never at any time required less, whereas we frequently did
not need near as much as was outstanding and just as often
could have absorbed vastly i*iore than was available. Hence,
when it happened that the circulating medium was redundant,
when its volume was too great to be used in local commercial
transactions, instead of taking it through the expensive process
of retirement it was bundled off to the great reserve centers
at a nominal interest rate, to be thrown, at call, into the vortex
of stock speculation.
In a different way and to an immeasurably greater extent
the business of the country was made to suffer by this rigid
currency system in times of stirring development and enter­
prising activity. It could not begin to meet the commercial and
industrial requirements of the country. For example, the total
capitalization of the national banks of a given community in
time of stress, under the old system, measured the full capacity
of those banks to respond to the currency requirements of the
locality. If the combined capital stock of the national banks
of a city w as $5,000,000, that exactly circumscribed the ability
T
of those banks to supply currency of their own issue to meet
the demands of business, albeit these might necessitate the use
of $10,000,000 or more. And in time of panic, such as that
which convulsed the country in 1907, had these banks held
$5,000,000 of gilt-edge short-time commercial paper in their
vaults they could not, under the old system, have exchanged
a dollar of it for currency wherewith to make up the defi­
ciency and promptly respond to the requirements of business;
for practically all the banks were in the same desperate plight,
every one, with rare exceptions, looking out for itself, with no
other source of supply.
A NOTABLE ACH IEVEM ENT.

What was done by the Sixty-third Congress w as to revolu­
T
tionize this wretched currency system, the unhapply victims of
w hich are without number and the losses beyond human ap­
T
proximation. We substituted for a rigid bond-secured circulat­
ing medium, unresponsive at any time to the commercial re­
quirements of this great Nation, a perfectly elastic currency,
based on the sound, liquid commercial assets of the country,
responsive at all times and to the fullest extent to every rea­
sonable demand of legitimate enterprise. It comes forth when
required and is canceled when not needed* The amount is
86469— 22174




6
ample when business is active and only enough when business is
lax. So that in a case similar to the one cited a while ago,
where the banks of a given community, with $5,000,000 of liquid
commercial assets, could not, under the old system, in time of
Stress get a dollar of currency on their holdings, because there
was no source of supply, the same banks, under the Federal
reserve system, could exchange their $5,000,000 of liquid assets
at a Federal reserve bank for $5,000,000 of the best currency
on earth, less a fair rate of discount. That one reform repre­
sents the difference between disaster and success.
A VICIOUS RESERVE SY ST E M .

Another fundamental defect of the old system was its ficti­
tious bank reserve, created by that provision of the nationalbfluk net which authorized a deposit or book credit of individual
country banks with banks in reserve and central reserve cities
to be counted as reserve, just as if held in the vaults of the in­
terior banks. On these reserve balances, subjected to a process
of multiplication, the big banks of the money centers would pay
nominal interest, which operated as a magnet to attract the
reserve funds of the entire country; so that on March 14, 1914,
eight months before the Federal reserve system w^as put in
actual operation, the New York banks alone held $836,000,000
of the funds of outside banks, while they were loaning outside
banks only $192,000,000. Already the congressional monetary
inquiry had disclosed the startling fact that on November 24,
1912, the legal custodians of these reserve funds had put
$240,000,000 of them in the maelstrom of Wall Street stock oper­
ations. Do you realize quite what that means? It means that
these millions and many millions more were withdrawn from
the reach of agricultural, mercantile, and industrial uses
throughout the United States at a fair rate of interest and loaned
to stock gamblers at an abnormally low rate of interest in com­
parison.
We talk about the law of supply and demand and pass laws to
punish combinations in restraint of trade; but before the enact­
ment of the Federal reserve act the hanking community, under
the sanction of the atrocious system of an inelastic currency
and a fictitious reserve, was enabled to defy the law of supply
and demand both in the lax season and in the tense. For in the
season of lax trade and abundant currency local bankers feared
to relax the standard rate of interest. Instead of keeping the
money at home and giving the local agricultural, commercial,
and industrial interests the advantage to be derived from low
rates of discount, the surplus funds were sent to the money
centers for the accommodation of speculators.
A PANIC BREEDER.

The old system was a rank panic breeder. In periods of
greatest business activity the country was made to suffer
desperately for lack of adequate credit facilities. When the
prospect was brightest; when men of ambition and energy
would press forward in pursuit of prosperity and the hum of
industry would literally be heard throughout the land, two
links in the chain would suddenly snap, tearing to shreds
the whole business fabric and carrying dismay to every com­
munity on the continent. In plain terms, when the country
banks of the United States, trying to respond to the commercial
and industrial demands upon them in their respective localities,
86469— 22174




7
being unable to issue additional currency, would seek to draw
in their reserve balances from the congested centers, and
when the big banks of these centers would, in turn, be com­
pelled to call their loans on stock, thus contracting the credit
facilities of “ the street,” interest rates would quickly jump,
mounting higher and higher, until panic would ensue, banks
throughout the country would stop payments across the counter
and consternation would reign where confidence and content­
ment so soon before had prevailed. I have said the losses are
beyond computation; and that is so. They affected not alone
the financial institutions immediately involved, but the mer­
chants whose credits were suspended; the industries whose
shops were closed; the railroads whose cai*s were made idle;
the farmers whose crops rotted in the fields; the laborer wlto
was deprived of his wage. No business enterprise, if any indi­
vidual, ever entirely escaped.
ANOTHER

GREAT ACHIEVEMENT.

It w'as another great achievement of the Sixty-third Congress
to remedy this monstrous condition. No other legislative effort,
as I recall the history of events, was ever directed against this
bank-reserve evil. It required courage. It constituted a chal­
lenge to the dominating financial interests of America, and they
accepted the invitation to the conflict. It was a memorable
tight, in which sound economic principles triumphed so completely
that many of the great bankers who seemed once implacable
now concede that a tremendous advance has been made in the
direction of scientific banking, and there is a general concur­
rence of belief that the Federal-reserve system saved this
country from financial convulsion when the World War raged
and after it ended.
We corrected this’ vicious bank-reserve system by establish­
ing regional reserve banks and making them, instead of private
banks in the money centers, the custodians of the reserve funds
of the United States; by making these regional banks, instead
of private correspondent banks, the great rediscount agencies
of the country; by requiring these regional banks to minister
to commerce and industry rather than to the schemes of specu­
lative adventure. Under the old system the country banks were
subservient to the money centers, for only there could they
resort for rediscount favors. Under the new system it is no
longer a question of favor;.it is purely a question of business.
A X INSPIRING CONTRAST.

In 1907 New York could not let a country bank have $50,000
of bank currency to meet the ordinary requirements of commerce
or the pay rolls of industry. In the fateful year 1915 New York
let two European nations at war have $500,000,000. The
new system enabled the Government to lend $10,000,000,000
abroad and to float $24,000,000,000 at home for war purposes.
Under the old system about $60,000,000 measured the volume of
rediscounts; under this reserve system one of the smaller re­
gional banks exceeds that amount in a single State.
rural

c r e d it s .

Not in 50 years had any jarty written a provision into the
national bank act for as much as one dollar of rural crcdits.
On the contrary, by the text of the law, by the rulinys of the
Treasury, and by decisions of the courts, every scmblance of
86460— 22174




s
farm credits was sedulously excluded. The Federal reserve
system furnishes millions of dollars of farm-credit facilities.
Not a dollar of the funds of a national bank could be loaned
tinder the old system on improved farm lands. Under the Fed­
eral reserve act, according to a computation bp the late Charles
A. Conanty $359>000,000 are made available for loans on farm
mortgages alone having five years, to run. In the matter of
current rediscounts every rational advantage is given to farm
credits over mercantile paper, and I shall show that billions of
dolla7's have been loaned to the farmers of the United States.
In the matter of acceptances on the exportation of the great
staple products of the farm infinite aid is extended to the
American farmers. In addition to this the Federal reserve sys­
tem has had a powerful influence in lowering the rate of inter­
est, and in this circumstance alone the farmers of the country
have been saved millions of dollars. Yet it is at a system
which has done this unprecedented service to American agri­
culture that professional “ friends ” of the farmer are hacking
away. It is to a system which has put hope in rural life that
caressing demagogues, for selfish purposes, falsely ascribe the
inevitable reaction from the saturnalia of unparalleled expendi­
tures.
What are these regional banks?
There is no mystery about them. It is not difficult to under­
stand their organization or their processes. Each of them has
a defined territory. They are operated by boards of directors,
just as any individual bank is. They are conducted with the
same banking instinct, with the same technique, with the same
mechanical and human appliances. They are owned not by the
Government of the United States, as one would suppose, but by
their stockholding member banks. The Government of the
United States never contributed a dollar to their capital; the
taxpayers are not assessed a penny for their maintenance; they
pay the Government annually an enormous sum in franchise
fees—$60,000,000 per annum—against the meager sum of
$3,000,000 per year paid by all the national banks in the United
States put together. They are banks of banks. They do not
loan, can not loan, a dollar to any individual in the United
States nor to any concern or corporation in the United States,
but only to stockholding hanks.
A member bank in Utah, for example, has accommodated
its customers to the full extent of* its resources. It can loan
no more without violation of the National or Stale banking
acts. It needs additional funds with which to make other
loans. How does it obtain them? By taking the note of a
borrower, with its collateral security, giving it the indorsement
of that individual bank. It sends the note thus indorsed to
the reserve bank at Kansas City, the reserve bank rediscounts
the note at an inappreciable charge over the rate of interest
which the member bank charged its customers. That supplies
the member bank with additional funds to loan to other bor­
rowers. It is very simple. There should not be so much
ignorance about it here.
THE

SUPERVISORY

POTTER.

At the head of these 12 regional reserve banks we put a
supervising board. It is not a central bank. It can not loan
a penny to anybody, or to any concern, or to any corporation.
86400— 22174




9
It floes not engage in the minutiae of banking over the counter.
It lias not a dollar, and never had a dollar, to loan to anybody.
It is a supervisory board. It has nothing to do with, and not
necessarily any knowledge of, the detailed discount operations
of the various regional reserve banks. It can not command the
weakest or the strongest regional reserve bank in the district
to discount to the extent of one dollar if that bank does not
care to do so. It can not prohibit a single regional reserve
bank from discounting millions of dollars if it has the eligible
paper and wants to do it.
Mr. POMERENE. Will not the Senator go a little further
and say it has not done it in the past?
Mr. GLASS. It has not done it.
Mr. KING. Mr. President, if I may be pardoned, will the
Senator explain the origin of this heresy which some Senators
and a good many of the people have, that the Federal reserve
districts can draw upon New York whenever they please; that
it is the duty of the New York bank to loan to the people of
Utah, to the people of California, to the people of Alabama
the money which belongs to the Federal reserve bank there, and
that it is the duty of the Federal reserve banks in the various
districts to loan whenever any person comes and desires money,
even though the bank does not have sufficient capital to justify
the continuation of the enormous loans which it in the past
has made?
Mr. GLASS. The Senator has so stated his inquiry as that
it carries its own answer. No banking system that would do
those things could survive in any country on earth.
Mr. SMITH. Mr. President, if the Senator from Virginia
will allow me, perhaps I misunderstood the inquiry which the
Senator from Utah made when he said that the reserve bank of
one district could not be drawn upon for the benefit of another
reserve bank. Was that what the Senator said?
Mr. KING, I did not put it that way. Of course, I appre­
ciate that in a certain contingency, as has been explained by
the Senator from Virginia, there may be a crisis which may
warrant interregional discounts; but the heresy has grown up
that the people of Utah, or the people of Alabama, or the people
of any other district can demand of New York, or of some
other district, that it respond to the wishes and needs of any
State or any district.
Mr. GLASS. I will ask that Senators desist for the present
from this argument. I do not object to being interrupted, but
I do want to finish this speech.
Mr. SMITH. I just want to read in that connection one
little paragraph of about 5 lines from the law.
Mr. GLASS. I shall come to that, if the Senator will allow
me. I shall explain it fully. I have said that in certain ex­
treme contingencies the law does permit the Federal Reserve
Board, by a vote of five of the seven members, to go to the
financial assistance of some weak Federal reserve bank to
avoid a crisis, not ill ordinary course to loan it the funds
of some other region with which to do business. The textual
restriction of the statute on the Federal Reserve Board indi­
cates what was contemplated. If, perchance, the inability of a
weak Federal reserve bank to respond to the urgent requirements
r
of its member banks would threaten financial disaster in a
864G9— 22174------- 2




10
great section of the country, then, in the judgment of the
Federal Reserve Board, five members of which were required
to act affirmatively, one Federal reserve bank might go to the
assistance of another Federal reserve bank. That is all there
is to that. The distinguished Senator from Ohio [Mr. Poiferene], who was a conferee with me on the bill, knows I am
stating the case exactly.
Mr. President, if my exposition of the Federal reserve act
has been accurate, it will be observed that the Federal Reserve
^oartl sitting at Washington is not a central bank; it is merely
4 supervisory body, with certain clearly defined, limited powers.
It can not establish a credit for any individual member bank at
X single one of the Federal reserve banks. It can not issue a
dollar of currency to any one of these regional banks, except
upon the specific application of the regional bank. It can not
withdraw or cancel one dollar of Federal reserve bank notes,
with a view to contracting the currency or for any other pur­
pose, not a dollar.
I have sat here for a year and heard Senators denouncing the
Federal Reserve Board for withdrawing circulating notes. It
has no particle of authority under the law to withdraw one
single dollar of currency from circulation.
It may decline to issue currency upon request of a regional
reserve bank, but there is not one instance of record since the
establishment of the system in which it has done that. It may
levy a tax on Federal reserve notes* so as to make their issuance
uninviting to the regional banks, but there is no Instance of
record in which It has levied a penny of tax on note issues.
Mr. WATSON of Georgia. Mr. President-----The PRESIDING OFFICER {Mr. Jones of Washington in
the chair). Does the Senator yield to the Senator from
Georgia?
Mr. GLASS. I do.
Mr. WATSON o f Georgia. Mr. President I saw in the Wash­
ington papers yesterday a statement issued by the Federal Re­
serve Board which seemed to say that during the last 12 mouths
they had retired of their note circulation a thousand million
dollars.
Mr. GLASS. I will say to the Senator that the Federal Re­
serve Board has not retired a dollar. The various regional
reserve banks have retired their Federal reserve notes, for
which they made application when business was humming and
industry was at its height. Now that there is widespread busi­
ness depression, these regional reserve banks, not the Federal
Reserve Board, have sent in certain notes for cancellation and
destruction.
Mr. OVERMAN. Mr. President, I would like to ask the
Senator, before he leaves that question, who fixes the discount
rate?
Mr. GLASS. The Federal reserve banks fix the rate, subject
to review and determination by the Federal Reserve Board. I
am coming to that.
Mr. JONES of New Mexico. Mr. President-----The PRESIDING OFFICER. Does the Senator from Vir­
ginia yield to the Senator from New Mexico?
Mr. GLASS. I do. I want to give all the information I
can, but Senators by interrupting are going to prolong my
speech.
86469— 22174




11
Mr. JONES of New Mexico. I do not understand that the
Federal Reserve Board, as such, has the power to restrict the
issuance of notes or eularge the amount of an issue; but inas­
much as one-third of the board of directors of each of the
regional banks is appointed by the Federal Reserve Board in
Washington, does not the Senator believe that any recommenda­
tion of policy directed to these regional banks would be quite
effective, and is it not claimed that such policies have been
announced by the Federal Reserve Board, and that that has re­
sulted in the deflation of the currency in the country and in the
restriction of the amount of the currency; and does not that in
effect operate in the same wa£ that it would if the board had
the direct power to make the restriction?
Mr. GLASS. I sny to the Senator from New Mexico that
every director of a Federal reserve bank must be a resident of
his Federal reserve district. The appointment of three of these
directors by the Federal Reserve Board, as the Senator from
Ohio will recall, was resisted by the banking community of the
United States. They were put there to represent the interests
of the Government, because the Government, under the opera­
tions of the banks, would be one of the largest depositors in
the banks. I have no doubt the banking community to-day
would gladly welcome an alteration to exclude these three ap­
pointed members from the regional boards.
Answering the other part of the Senator’s inquiry, I will say
that the Federal Reserve Board has never, since it was inaugu­
rated, offered a suggestion to a Federal reserve bank that it
should or should not make rediscounts or apply for currency.
Mr. FLETCHER. If I may interrupt the Senator just on
that point, is it not true that the power to fix the rate of re­
discount is the power to control circulation?
Mr. GLASS. I said to another Senator that I would reach
that presently. If Senators will just let me get on, I hope I
shall not leave any phase of the problem untouched.
Mr. FLETCHER. I did not know that the same question
had been presented. It seems to me they do not need the power
to control circulation as long as they have the power to control
the rate of rediscount.
Mr. GLASS. Of course, the power to fix the rate of redis­
count is a fundamental banking power of the system.
Mr. JONES of New Mesrico. Mr. President, I am sorry to
interrupt the Senator, but I saw the statement made by peo­
ple who were supposed to know and be advised about it, that
the Federal Reserve Board in Washington had made a direct
request of the regional banks in certain sections of the country,
as well as member banks, that no more loans of a certain char­
acter should be made; for instance, upon live stock. Personally,
I was never able to find out from any authoritative source that
such a thing had been done, and I should like to know whether
or not the Senator has -any information upon that subject.
Mr. GLASS. I know it is not true, I will say to the Senator
from New Mexico. The Federal Reserve Board at one time did
what Senator after Senator upon this floor did. In one of its
public outgivings it suggested that there ought to be a cessa­
tion of extravagance in this country; that the credits of the
country should be devoted to taking care of the necessities of
the people rather than the luxuries of the people. Will anybody
86469— 22174




12
question the Solomonic wisdom of a declaration of that sort?
The board has never at any time indicated to a bank that it
should not engage in lawful and proper rediscount activities,
and has never denied the application of a regional bank for one
dollar of Federal currency.
Mr. POMEItENE. Mr. President, the Senator has already re­
ferred to the fact that only one-tliird of the directors of the
regional banks are appointed by the Federal Reserve Board.
The other two-thirds are divided into two classes, one repre­
senting the smaller banks and the other representing the larger
banks. The thought struck me that ordinarily two-thirds can
control one-third.
Mr. GLASS. There has never been any suggestion that the
one-third were in any degree out of sympathy with the agricul­
tural, commercial, or industrial requirements o f their particular
region. It is not natural to suppose they ever are. They are
business men of character and reputation, identified with the
particular region. Why should they wish it harm?
These powers, with the right to review and determine re­
discount rates,'are conferred by the law' on the Federal Reserve
Board for the security of the banking system of the United
States and to insure that any expansion of the currency shall
be upon safe and sane lines.
RECKLESS CHARGE OF DEFI-ATION.

Yet, Mr. President, with these restricted powers unexer­
cised to this day, the Federal Reserve Board, times without
number, has recklessly been charged with instituting and exe­
cuting * drastic and cruel policies of deflation/’ One perfervid
*
Senator characterized it a “ murderous ” policy of discrimina­
tion against agricultural produce. What, precisely, is meant by
this charge? It can signify but one thing, which is, in plain
terms, that the Federal Reserve Board at Washington, without
sanction of law, ordered Federal reserve banks, especially those
located In the agricultural regions, to curtail or stop redis­
counts or that the board refused to issue currency upon applica­
tion of the banks or that the board did both these things. The
actual truth is, Mr. President, the Federal Reserve Board did
neither of these things, and I challenge the production here or
elsewhere of any particle of evidence of any stick action by the
Federal Reserve Board, It issued no such order; it had no
right to issue any such order. And, as I have pointed out, while
the board is vested by law with explicit authority to refuse to
issue currency or to tax that outstanding in order to influence
its redemption, the board has not exercised its lawful power in
either respect. Every dollar of bank credit denied Was with­
held by a local bank or regional bank. The Federal Reserve
Board had nothing to do with it. Every dollar of currency
retired was retired by a local bank or regional bank. The
board had nothing to do with it.
By whom, then, Mr. President, was this wicked policy of defla­
tion of the credits and currency of the system instituted and
what were the agencies employed in its execution? Each
regional bank of the system is master in its own domain, subject
only to the Federal statutes; it is operated by men, all citizens
of its territory. Two-thirds of its directors are selected by
the member banks in its territory. These men are presumed
to understand the conditions and to know the requirements of
86469— 22174




13
every Interest in the territory, agricultural, oommercinT or in­
dustrial. If there was deflation, “ w ic k e t !o r righteous, mon­
strous or sane, the directors of these respective Federal reserve
banks, in larger degree than any other agency under the law,
should be held responsible for it.
But I pointedly deny that there icas deflation of either
regional reserve hank credits or any diminution of Federal
reserve currency for the period of the appalling drop in prices
of agricultural products.
INCONTROVERTIBLE FACTS AXD FIC.l'RES*

I hope Senators will take particular note of that declaration,
and convict me here, if they can, of any inaccuracy that apper­
tains to it. Rhetoric, whether the mo ivc of it be harmless or
vile, is one thing. A cold, indisputable fact is something, dif­
ferent. In all this fanfare of prejudice and vituperation
there has not been given one authenticated fact or figure to
justify the assertion that the Federal reserve banking system
was appreciably delinquent or in any degree oppressive. I shall
present proof to the Senate that, in the period of precipitated
prices of farm products, there was a constant expansion of
regional bank credits and an increase in the volume of Federal
reserve notes issued. At this point I shall insert in the R ecobd
figures furnished me by the Bureau of Statistics, Department of
Agriculture, giving the average seasonal price, by the month,
of cotton, wheat, corn, and oats from July. 1919, to January,
1921, inclusive:
Cotton.

$0.311
.325
.303
.313
.365
.357

J2.22
2.17
2.06
2.10
2.13
SL15

.359

1919.
Jlllv_________
August.................................................................
September. . . ...............................................
October................................................................
November............................................................
December................ ....... .............................. .

Wheat.

£32
2.54

Corn.

$1.76
1.91
1.85
1.54
1.33
L35

Oats.

10.71
. 75
.72
.6$
69
.72

1920.
July.......................................................................
August..................... .......................... ................
September........... .......................... . . ................
October................................................................
November...........................................................
December____________.....................................
Jan liarv ______

.374
.363
.311
.255
.194
.14
.115

1.40

.78

2 14
1.38
1.44

i.sa
1.64
1.56
1.21
.87
.08

1.04
.82
.70
.61

L49

.67

.46

2.32
2.19

.54
47

1921.

Mr. President, an examination of these figures discloses the
fact that cotton, quoted at 31.1 cents in July, 1919, is quoted at
ST.4 cents in July, 1920, when a sharp decline set in, until
for January, 1921, cotton was quoted at 11.5 cents, a decline
o f 69,3 per cent from July, 1920, to January, 1921.
It is seen that oats rose from 71 cents for July, 1919, to $1.04
for July, 1920, and dropped to 46 cents for January, 1921, a de­
cline of 55.8 per cent from July, 1920, to January, 1921.
It will be noted that wheat rose gradually from $2.22 for July,
1919, to $2.54 for July, 1920, and fell to $1.49 for January,
1921, a decline of 41.4 per cent from July, 1920, to January, 1921.
86469— 22174




14
It will be observed tliat corn fluctuated from $1.76 for July,
1919, to $1.86 for July, 1920, and fell to 67 cents for January,
1921, a decline of 63.9 per cent from July, 1920, to January, 1921.
This shocking decline in the produce of American farmers, as
well as a less acute decline in the products of our mills, is a
familiar story to every intelligent business man of the country.
If it can be established that for this period from January 1,
1920. to January 1, 1921, the Federal reserve banks, severally
or in the aggregate, contracted their credits and diminished
the volume of their note issues, those who charge them with “ a
drastic and cruel policy of deflation V may justify the accusation
with respect to these regional banks. But even in this event
they can get no sanction for their assaults upon the Federal
Reserve Board, which does not initiate bank credits nor issue
currency except upon application of the regional banks. Now,
let us see what the facts are. At this point I shall place in the
R e c o r d an authenticated statement o f paper held under dis­
count for member banks of the Federal reserve system as of
January 1, 1920, and January 1, 1921; likewise a statement of
the volume of Federal reserve notes in circulation on January
1, 1920, and on January 1, 1921.
p a p er held under I'ediscount for m em ber banks in each Federal reserve
districtt also Federal reserve notes in circulation on Jan. 11 1V20 and

mi.

Paper held under dis­
count for member
banks—

Federal reserve notes in
circulation—

Federal reserve bank.
Jan. 1 , 192a Jan. 1,1921. Jan. 1,1920. Jan 1 ,1Q2L

San Francisco.....................................

$188,039
790,803
237,300
164,517
114,772
88,062
£67,639
77,679
73,857
110,380
28,371
73,896

*155,293
871,439
155,484
122,182
125,473
166,640
475,503
114,933
95,991
139,402
97,392
167,593

$244,093
807,616
237,051
264,733
145, m
155,511
500,139
145,293
87,187
104,089
74,980
242,462

$2S?,730
887,481
278,322
548,951
155,169
173,403
bir>, 395
135,785
79,498
111, 578
79,453
272,463

Total..........................................

2,215,305

2,637,383

3,008,878

3,336,2&t

Cleveland.............................................

Minneapolis.........................................
Kansas City........................................

c r e d it s

in c r e a s e

as

t r ic e s

drop.

An analysis of these statistics shoics that the total amount of
rediscounted paper held by the 12 regional reserve banks on
January 1, 1920, was $2,2M,305,000. Instead, of deflating their
credits, as has been charged, these banks as of January 1, 1921,
had increased their accommodations to member banks in the
aggregate to $2,687,393,000, an expansion of $472,088,000 in the
12-month period.
If any Senator can controvert this fact, I pause to haye him
do it.
On January 1, 1920, the 12 regional reserve banks had notes
in circulation to the amount of $3,008,878,000. Instead of reduc­
ing circulation, these same banks on January 1, 1921, had out­
standing circulation aggregating $3,336,281,000, a total expanS6469— 22174




15
sion of currency of $328,^03,000 for the 12-month period of fall­
ing prices.
Will any Senator say that that is not true?
Thus it will be noted that so far from the truth is the accu­
sation that the Federal Reserve Board “ tumbled ” the prices
of farm products by a cruel policy of deflation, it is shown that
during the whole period of falling prices the Federal reserve
banks were supplying largely increased credit facilities and
issuing a constantly increasing volume of Federal reserve notes.
Mr. HEFLIN. Mr. President-----The PRESIDING OFFICER. Does the Senator from Vir­
ginia yield to the Senator from Alabama;
Mr. GLASS. I yield.
Mr. HEFLIN. I do not want the Senator to get the impres­
sion that I agree to a good many of those things.
Mr. GLASS. Oh, I do not get the impression that the Sen­
ator from Alabama agrees with a single one of those things.
Mr. HEFLIN. Because I expect to reply to the Senator, and
I want him to know that I disagree with him on several of
these propositions.
Mr. GLASS. I would have assumed that without any state­
ment from the Senator.
Mr. HEFLIN. The Senator compliments my friendship for
the people of the country.
Mr. GLASS. Oh, Mr. President, no friendship can intervene
where a great and vital interest of the country is concerned.
I believe it was the Duke of Guise who once was bitterly repri­
manded by the Archbishop of Paris for exhibiting some degree
of acerbity toward a friend. The prelate asked how he could
reconcile his attitude with his professions as a churchman, and
the Duke of Guise responded, “ I confess, your grace, that Christ
taught us to forgive our enemies; but I thinli you will search
Scripture in vain to find that he anywhere admonished us to
forgive our friends.” That is my reply to the Senator from
Alabama when he appeals to friendship to avert criticism of his
misrepresentation of the Federal Reserve Board here in Wash­
ington.
Mr. HEFLIN. Mr. President-----The PRESIDING OFFICER. Does the Senator from Vir­
ginia yield to the Senator from Alabama?
Mr. GLASS. I yield.
Mr. HEFLIN. The Senator from Virginia misunderstood me.
I said that he was complimenting my friendship for the people
of the country and my desire to have a fair deal for them, and
not my friendship for the Senator, which is great; we are per­
sonal friends; but I am not appealing to that. I will take caro
of the Senator’s arguments along that line.
Mr. GLASS. Oh, I do not doubt that.
It is significant, Mr. President—and I call the attention of my
distinguished friend from North Carolina [Mr. O v e r m a n ] t o
the fact—that these increased facilities were applied for and
granted at the increased rate of rediscount put into effect by
the regional reserve banks and approved by the Federal Reserve
Board. This tremendous expansion of Federal reserve credits,
aggregating nearly $1,000,000,000 within the 12-month period of
falling prices, was not managed except by an alarming encroacli86469— 22174




16
juent upon the gold reserves of the regional banks, one of them,
as I recall, barely escaping the humiliating if not disastrous
experience of having its gold reserve wiped out of existence; it
had to resort to the expedient of largely rediscounting with
another Federal reserve bank at the North.
LOANS TO F ARM EBS.

Let me anticipate here a thought which may have place in the
minds of some Senators. Doubtless they will want to know in
what sections of the country these extensions o f credit pre­
vailed, in order to determine whether one class of citizens was
discriminated against or another dass granted peculiar privi­
leges by the Federal reserve banks. We shall see:
The regional bank at Richmond accommodates the grain,
fruit, tobacco, and cotton portions of the fifth district. Were
Its credits deflated or its note issues reduced during the period
of falling prices? Not at a ll; both credits and circulation were
extended. On January 1, 1920, the Richmond Federal Reserve
Bank held discounted paper to the amount of $114,772,000. On
January 1, 1921, its rediscounts had been increased to $125,473.000, or more than $10,000,000. On January 1, 1920, the
Richmond bank’s note issue amounted to $145,765,000; on Janu­
ary 1, 1921, the bank’s note issue had been increased to $155,169.000, an expansion of nearly $10,000,000, the total expansion
in currency and credits being about $20,000,000 in the period
of falling prices.
The Atlanta Federal Reserve Bank, which is in the cotton
belt, as the junior Senator from Georgia [Mr. Ha-sbis] may note,
held $88,052,000 of discount paper on January t, 1920. Was
there any deflation at the Atlanta bank? Not a b it ; on January
1, 1921, its rediscounts had about doubled, amounting to $166,640.000, Its note issues increased from $155,511,000 on January
1, 1920, to $173,406,000 on January 1, 1921, a total increase in
credits granted of $96,4S3,000 within the period of falling prices.
The Chicago Federal Reserve Rank, accommodating the grain
and live-stock section o f the country, on January 1, 1920, had a
volume of $267,639,000 in rediscounts, and during the period of
falling prices these credits had increased to $475,563,000 on Jan­
uary 1, 1921. It/ note issues for the same period increased from
$500,139,000 to $545,395,000; total expansion* $253,178.
The St. Louis Federal Reserve Bank, accommodating the grain
and live-stock territory, on January 1, 1920, held rediscounts
aggregating $77,679,000. These credits increased during the
period of falling prices to $114,933,000. Its note issues were
reduced by the sum of $10,000,000; aggregate expansion of the
bank's credit about $37,000,000.
The Kansas City Federal Reserve Bank, in the grain and stock
section, had $110,380,000 rediscounts on January 1, 1920. These
credits had expanded to $139,402,000 on January 1, 1921, and
its Federal reserve note issue had increased in the same period
$7,500,000; total expansion, $36,522,000.
The Federal reserve bank at Dallas held $28,371,000 in dis­
counted paper on January 1, 1920, which amount had been more
than trebled on January 1, 1921, totaling $97,392,000. For the
same period its note issue increased about $5,000,000, aggregat­
ing $73,453,000; total expansion, $74,021,000.
The San Francisco Federal Reserve Bank, accommodating the
fruit, dairy, and other farm industries of the Pacific States, held
8646G— 22174




17
$73,896,000 of eligible paper on January 1, 1920. This amount
had more than doubled on January 1, 1921, when it reached
$167,598,000. This bank’s note issue increased from $242,462,000
to $272,468,000, an increase of more than $93,000,000 in credits
and $30,000,000 in the volume of its notes.
Mr. President, while this expansion of credits was taking
place in the agricultural districts of the United States, the
notable fact is disclosed by the official figures that there were
scarcely any increases by the banks located in the great indus­
trial centers of the country. Senators may easily examine the
table and ascertain for themselves the accuracy" of this state­
ment.
Mr. POMERENE. Mr. President-----The PRESIDING OFFICER. Does the Senator from Vir­
ginia yield to the Senator from Ohio?
Mr. GLASS. I yield.
Mr. POMERENE. Is it not true also that during this decline
of prices there was an advance by the Federal reserve banks
in the industrial districts to the banks in the other sections of
about $267,000,000?
Mr. GLASS. The Federal reserve bank of Cleveland, in the
Senator’s own State, advanced, as I recall—and I will insert in
the R ecobd the exact figures—$150,000,000, and perhaps in ex­
cess of that, to the Federal reserve banks in the agricultural
regions of the country. It did not have to be compelled to do
eo by the Federal Reserve Board, but took the action on its
own initiative, or perhaps at the suggestion of the Federal
Reserve Board.
AM AZING L IBERALITY OF RESERVE BAN KS.

I shall anticipate another thought which doubtless arises in
the minds of Senators who may desire to know whether strictly
agricultural credits, as distinguished from mercantile and in­
dustrial credits, were diminished during the period of falling
prices. The figures show that loans on agricultural and live­
stock paper increased enormously within the period of price
precipitation. At this point I will insert in the R ecord a table
giving the loans on agricultural and live-stock paper, as segre­
gated, each month for the entire year of 1920, showing that these
loans by the banks in the agricultural sections increased more
than fivefold, while prices for agricultural products were fall­
ing in a distressing degree:
Loans of Federal reserve banks on agricultural and livc-stocJpaper for

mo.

January________________________________________________________ $56, 905, 000

F ebruary__________________________________________________

67, 195, 000

M arch _________________________________________________________
74, 665, 000
A p r il__________________________________________________________ 1 0 6 ,3 8 2 ,0 0 0
M ay____________________________________________________________ 140, 691, 000
June________________________________________________ - __________ 1 6 8 ,0 3 8 ,0 0 0

J u ly _______________________________________________________ 202, 520, 000
A ugust_________________________________________________________
September_____________________________________________________
October________ __ ____________________________________________
November_______________________________ _____________________
December______________________________________________________

2 1 6 ,2 7 8 ,0 0 0
224, 424, 000

240, 649, 000

2 4 1 ,5 6 1 ,0 0 0
2 4 6 ,9 4 0 ,0 0 0

The figures in some detail show that at the Richmond Federal
Reserve Bank loans on this kind of paper increased from
$449,000 on January 1, 1920, to $9,251,000 on January 1, 1921.
8 6 4 6 9 -2 2 1 7 4 ------- 3




18
The loans of the Atlanta Federal Reserve Bank on paper of
this character increased from $841,000 on January 1, 1920, to
$16,831,000 on January 1, 1921.
Why, Mr. President, I am amazed at the broad liberality of
this regional reserve banking system in that distressing time.
Had I any criticism to make of its administration it would be
that it too far transgressed the requirements of safe banking.
The Federal reserve bank at Dallas on January 31, 1920, had
only $4,450,000 on agricultural and live-stock paper, which was
increased to $31,251,000 by January 1, 1921.
The Kansas City Federal Reserve Bank increased its loans on
this kind of paper from $20,022,000 on January 31, 1920, to $46,540.000 on January 1, 1921, during the period of falling prices.
The Federal reserve bank at St. Louis on January 31, 1920,
held but $294,000 of agricultural and live-stock paper, which
amount by January 1, 1921, had been increased to $4,898,000
during the period of falling prices.
The Federal reserve bank at Minneapolis held on January
31, 1920, only $6,855,000 of agricultural and live-stock paper.
On January 1, 1921, it held $53,896,000 of strictly agricultural
paper.
The Chicago Federal Reserve Bank on January 1, 1920, was
loaning but $12,783,000 on agricultural and live-stock paper,
whereas on January 1, 1921, it had increased these loans to
$52,695,000 during the period of falling prices.
I would call the attention of the Senate to this significant
fact in this connection:
These figures constitute loans made to the agricultural inter­
ests of the country on paper having a maturity of six months,
which paper may easily be segregated; but the figures are not an
Index to the full volume of agricultural loans, because hundreds
of millions of dollars of commercial loans are made to the
farmers of the country on paper of 90 days’ maturity. Indeed,
by reference to page 17 of the last annual report of the Federal
Reserve Board it will be seen that 11 of the Federal reserve
banks, excluding the New York bank altogether, made loans for
farm and dairy purposes for the year 1920, comprising the
period of falling prices for farm products, aggregating $1,980,003.000 as against $729,266,000 for a like period of 1919; and
this great volume of credit does not include the large amounts
advanced on cotton, wool, and similar lines by the greater banks
of the system.
TTIS

ST STEM

NOT

SECTIONAL.

Mr. President.-1 am not speaking for any section of the coun­
try or against any section of the country. I am not speaking
for the Democratic Party or for the Republican Party. I de­
spise the conception of the man who thinks that we should
harass and corrupt this great Federal banking institution by in­
troducing politics into its administration or political henchmen
into its personnel. Once that is done, the system is gone beyond
reclamation. I am speaking for the integrity of this great
Federal reserve banking system, which saved every section
of the country in a time of unprecedented disturbance, when
all the world beside was going into financial chaos and
being wrecked almost beyond recovery. But it is a fact of
some significance that the Federal reserve banks of the
North, without compulsion of any kind, went largely to the
86460— 22174




19
assistance of the agricultural interests of the South and West
At one time, in October, 1920, in the crop-moving period of that
year, when the prices of agricultural products were going down,
the Federal Reserve Bank of Cleveland alone was loaning to the
reserve banks in the West and South no less than $145,800,000,
Mark this: The loans of the Federal reserve bank at Cleve­
land in the South and West exceeded its total loans to member
banks of its own district, including the banks of the great
cities of Pittsburgh, Cleveland, and Cincinnati, the greatest
industrial district of the United States.
These funds were derived from the stockholding banks of that
district; they represented the vision, the enterprise, the activi­
ties of the men and industries of that territory. Yet, in an
effort to save a distressing situation they were loaned to the
banks in the agricultural regions of the United States. And so
also did the Federal reserve banks at Boston and Philadelphia
and New York, by permission of the Federal Reserve Board,
loan from their funds to western and southern Federal reserve
banks for the relief of the agricultural situation In those sec­
tions. Indeed, the Dallas Federal Reserve Bank borrowed con­
tinuously from the northern reserve banks from the spring of
3920 to December 15, 1921. Minneapolis just finished paying
out of debt to these banks last November, and Richmond and
Atlanta last December. Happily, ail of the Federal reserve
banks are now above their reserve requirements, each standing
on its own resources, with the ability and the willingness to
take care of all reasonable credit requirements. It was the
palpable intent of the law that they should do this. It was never
intended that interregional discounts should be a normal process
of this system.
NOT A CENTRAL BANK.

Some Senators seem to imagine that we have a central bank­
ing system in this country. The amazing statement is made
here that Congress in 1913 adopted a slightly modified form of
the Aldrich bill, which tfid provide a central banking institution.
No greater misconception was ever projected in this Senate
Chamber, and no man on earth knew better than Mr. Aldrich
himself that a statement of this kind involves a total misunder­
standing either of the provisions of the Aldrich bill or the
essential provisions of the Federal reserve statute. We have
no central bank, and the Federal Reserve Board sitting at
Washington has no right, except in circumstanccs threatening
the financial fabric of the Nation, to even order one Federal
reserve bank to rediscount the discounted paper of another
regional bank. Even in a financial crisis, such as the law con­
templates, it requires the affirmative action of at least five of
the seven members of the Federal Reserve Board to compel
one of these regional reserve banks to rediscount for the other.
Hence, when gentlemen talk about the great resources and earn­
ing assets of this or that Federal reserve bank and imagine
that these resources are available as a normal process for use
in other regions, they simply display a lamentable ignorance
of the Federal reserve banking system, both as to the text and
intent of the law. When the junior Senator from Alabama
assumes that the contemplated expenditure of a certain sum of
money for a regional reserve bank building in New York
operates to restrict the banking credits of cotton planters in the
86469— 22174




20
South, lie is talking pitiful nonsense. What have agricultural
credits in the South to do, directly or indirectly, with a bank
building in New York or Chicago or Cleveland or San Francisco?
It might as well be said that the school children of Birmingham
or Richmond have their educational facilities wickedly impaired
because the school board at New York or Boston has been or
contemplates spending more money for educational purposes
nest year than all the Southern States combined. That sort of
talk is not even specious; it is such arrant nonsense that I
should not like to believe it can deceive the very simplest
among those who are the accustomed victims of demagogy I
THH CASE CLEARLY PROVED.

Presently. Mr. President, I shall briefly discuss the question of
bank building and bank salaries. For the moment I desire
sharply to draw the attention of the Senate and the country
to the incontestable fact that the authentic figures which I have
presented pro re beyond controversy that the crashing dccJinc in
the prices of fai'm products teas not caused by the Federal
Reserve Board at Washington nor by any policy adopted or
pursued by the Federal reserve banks throughout the country.
These figures prove beyond all controversy that, instead of
deflating credits and currency, the Federal reserve banks, during
the period of falling prices> enormously expanded bank credits
and increased the volume of circulating notes. This is espe­
cially true with respect to credits in the agricultural sections
of the United States, for it appears fi'om the official figures
that while agricultural credits were expanding commercial
credits were contracting. Federal reserve banks in the great
money centers carrying an aggregate of $467*000,000 in bankersr
acceptances this last summer were carrying less than $40tQ Q <0
0 tQJ
of these acceptances.
The figures show a decline in commercial credits secured by
Government securities of nearly $1,000,000,000 in that period.
What, then, becomes of this charge of “ cruel and wicked and
murderous” deflation of farm credits by the Federal reserve
banks under orders from the Federal Reserve Board?
Mr. President, any self-respecting board of directors of any
one of these Federal reserve banks would doubtless resent an
order from the Federal Reserve Board to abandon its redis­
counting operations. The board has no lawful authority to
issue any such order. These rediscounts frequently take place
without the immediate knowledge or consent of tlie Federal
Reserve Board. It is only when currency is desired, when ap­
plication is made for the issuance of Federal reserve notes, or
when a regional bank depletes its gold reserve, that the inti­
mate knowledge and supervisory power of the Federal Reserve
Board is brought into effect.
What, then, becomes of the charge o f “ murderous deflation ”
when it is examined? It takes its place in the limbo of discarded fiction. For my part, I fervently thank God that I have
no responsibility for its inception or its propagation or the dis­
semination of its vile odors. No one will ever be able to com­
pute the amount of damage done by this misrepresentation and
the harmful use made of it by erupting politicians. The truth
in one sentence is that falling prices caused the deflation of
credits and currency, such as we have witnessed since January
of last year, and not deflation of credits the fall in prices.
86400— 22174




21
W H Y TRICES TUMBLED.

Mr. President, the crash in commodity prices in the summer
and fall of 1920 is not a hidden mystery. It did not require a
Joint Commission of Inquiry to be ascertained, although I am
profoundly thankful that such a commission instituted a
thorough investigation of the subject. The storm was inevitable;
discerning men saw it brewing and were prepared when it
burst. It was not peculiar to this country; its sweep was
through the whole world. First, it tore asunder economic con­
ditions in Japan. The disaster there almost instantly reflected
itself by the break in the silk market in March of i920. The
next manifestation of distress was in May, when the wool
industry utterly collapsed and we had presented the phenomena
of wool cheaper than cotton. Then came the break in hides
and leather; then in sugar, wheat, cotton, corn, oats—all con­
spiring to create alarm and to occasion distress throughout the
country.
Did deflation of credits by the Federal reserve banks, on order
of the Federal Reserve Board, cause the crisis in Japan? Did
a restriction of credit cause the violent prostration of the wool
industry? Did the drop in sugar, which threatened a mora­
torium in Cuba and which came not far from wrecking one of
the great banking institutions of this country because of a
satiety of credit, have its origin in any policy of the Federal
reserve banking system? If not, how may it rationally be
contended that a restriction of credit, which never took place,
by an order which was never issued, is responsible for the crash
in prices of other commoditiest
Mr. President, we are accustomed to get periodically more or
less definite estimates of crop production, and then think we
have envisaged the entire problem of prices for a given time.
As a matter of fact, we have only half of the picture. It may
be told with a reasonable degree of certainty what will be the
supply, but nobody can ever tell what will be the demand for
the products of farm or factory. Senators know perfectly well
that all continental Europe, as well as the Near and Far East,
has been embroiled in war and plagued by economic disasters
since the armistice was proclaimed; so that our foreign markets
were dislocated.
Moreover, the peak of extortionate prices in this country had
all but pierced the clouds in the early summer of 1920, exceed­
ing actually the highest point of the war period.
I pause to remark that we are a peculiar people in America.
For months and months Senators and newspapers throughout
the country were denouncing profiteering in the prices of com­
modities and of all conceivable articles of commerce. They were
eager to put the profiteers in jail. They wanted to impeach the
Attorney General of the United States for not quickly putting
them in jail. Then, when the drop came, these impatient souls
denounced the Federal Reserve Board.
T H E SEXATE ORDERED DEFLATION.

Mr. McLEAN. I remind vhe Senator that in May, 1920, we
passed a resolution for an investigation of the cause of high
prices, and at that time condemned the Federal Reserve Board
for not raising its rediscount rate.
Mr. GLASS. Yes; and I shall show that you practically
undertook, without any authority of law, to compel the Fed86469— 22174




22
The Senate
voted for a resolution unanimouxlt/, offered by the dixtiupuishid
Senator from Montana [M r. Myers], demanding to knoic what
the Federal Reserve Board had done, or irhat it purposed to
do, to deflate the credits and currcney of the country. Senators
eral Reserve Board to raise its rediscount rate.

are making me anticipate my speech*
[A t this point M r. Glass yielded the floor for the day.]

Tuesday, January 17, 1922.
M r. G L A S S . M r. President, when the Senate recessed on
yesterday I had covered those phases o f the problem under dis­
cussion which related particularly to the question of alleged
deflation of credits and currency in this country and was under­
taking to describe the causes and course of the fa ll in prices.
CONSUMEUS

0?« ST R IK E .

The peak of extortionate prices in the United States, as I
said before, had all but pierced the clouds in the early summer
o f 1920, exceeding actually the highest point o f the w ar period,
and the people of the United States had become tired o f being
profiteered and the people o f Europe could no longer
pay the prices. A t home and abroad the people in their
righteous indignation went on strike, as it were, against the
profiteers. That vitally affected the situation, because when the
people once began to do without luxuries, by the very processes
of psychology they began to economize in the more necessary
things of life. The demand for all products w as thus enor­
mously diminished. Then railroad rates were skyrocketed, not
alone putting a tax on the things which the farm er must trans­
port to market, but likewise on everything which the farm er
w as compelled to bring back to the farm . Building was reduced
to the minimum, road construction was stopped, furnaces from
one end of the country to the other were banked, unemployment
to a frightful extent ensued; and all this, Mr. President, for no
lack of credit facilities, but for lack o f markets in which to sell
the products of farm and m ill and factory. There is the pic­
tu re! W h y not tell the farm er and everybody else the truth
about the thing? W h y invent the wretched fiction about d e la ­
tion of bank credits, and by this false predicate seek to impair
the usefulness and ultimately to destroy a banking system that
preserved this country from chaos and that, if let alone, w ill
restore the financial equilibrium o f the world, if it be not
already beyond restoration?
WHY

FARM ERS

SUFFERED

F IR S T .

The consequences of this crash in commodity prices were
more pitiful to the American farm er, because the pelting storm
found him defenseless and without shelter. The factory men
and mercantile interests, both jobbers and retailers, have better
insurance against sudden collapse. They are more compactly
organized; they may longer resist falling prices than the farm er.
I do not charge that they are more acquisitive; but at least
they do not find themselves obliged to accept their losses as
promptly as the farmer. This is why the farm er was hit first,
and hit hardest and suffered most. W h y not tell the farm er the
truth and advise him, if he would escape the consequences o f
another such disaster, he should organize; organize, Mr. Presi­
dent, not to be the plaything or the instrument of designing poli­
ticians, but organize for an intelligent investigation and pursuit
86460— 22174




23
of economics; organize for a cooperative marketing of his prod­
uct ; organize, if it may seem desirable, for the cooperative pur­
chase of his requirements; organize for an intelligent under­
standing of the source and volume of demand for farm products.
I commend to the consideration of every intelligent American
farmer the report of the Joint Commission of Inquiry upon the
Agricultural Crisis and Its Causes; and to indicate that I
have not to-day in anywise misstated the situation, I will here
quote a paragraph to be found on page 17 from the report in
question on—
TH E BREAK IN PRICES.

The crisis was not confined to this country. The avalanche of de­
clining prices and its attending hardships, sacrifices, and losses involved
the whole world. It began In distant Japan with the break in the silk
market and the Chinese boycott of Japanese goods.
It traveled the
circle of the Far East, Australia, Ijadia, Java, England, France, Italy,
the whole of Europe, South America, Canada, and the United States.
It embraced all countries and all industries, though not to the same
extent or in the same way.

Mr. President, the difficulties of the farmers of the United
States can not be cured by listening to the sickening rhetoric
of politicians or professional agitators. Recurrent distress can
not be averted by indefensible assaults upon the integrity of the
Federal reserve system or defamatory accusations against the
clean, courageous, trained men who are engaged in its adminis­
tration. The farmers of the country can be helped in two prac­
tical ways, one of which involves the strengthening rather than
impairment of the Federal reserve system itself.
NOX1IEMBKB BANKERS POW ERLESS.

I draw the attention of Senators from the agricultural sec­
tions of the country to the fact that a large part of the banking
power of their States is wholly independent of the Federal
reserve banking system and refuses to avail itself of the tre­
mendous advantages of the system. In the South 42 per cent of
the banking power of that entire section is lodged with nonmem­
ber banks, institutions which had no access in the recent crisis
to the currency vaults or credit facilities of the Federal reserve
banks. They were powerless to help the situation because they
could not avail themselves of the rediscount privileges of this
great banking institution.
Very likely, Mr. President, most of the State banks did what
they could in the circumstances; possibly they responded to the
limit of their facilities to the demand of the agricultural inter­
ests for bank credit; but they were not members of the Federal
reserve banking system and had no access to its advantages.
In the Middle Western States 39 per cent of the banking
power of all that region is lodged with banks which do not
belong to the Federal reserve system; they likewise were power­
less to help in this crisis which so afflicted not only the agricul­
tural interests but every interest in this country.
In the far Western States, the great grain-growing section, r>
0
per cent of the banking power of that region is lodged in banks
that are not members of the Federal reserve system; they are
powerless, beyond their own restricted resources, to aid in any
national crisis. And in the Pacific States 36 per cent of the
banking power is lodged in banks outside the Federal reserve
system. These nonmember banks have total resources amount­
ing to $19*144*393,000, which were availed of in that crisis to
86469— 22174




24
only a limited extent because these banks were not members of
the Federal reserve system.
A STARTLINO FACT.

If some Senators will go home and talk sense to bankers who
remain outside the pale of protection, instead of talking nonsense
to farmers and arousing prejudice against the Federal reserve
banking system, which has afforded them protection, something
worth while will be accomplished. Why, Mr. President, on
August 22, 1907, when that great financial crash which started
in New York traversed this country, the total rediscounts and
bills payable of all national banks in the United States was
but $59,177,000. I ask Senators particularly to note this fact:
All the rediscounts and bills payable of all the national banks
of the United States on the 22d day of Augxist, 1907, under the
old bank system, were but $59,177,000, whereas in the month
of October, 1920, in the midst of falling prices, the Federal Re*
serve Bank of Kansas City alone advanced the member banks
of the single agricultural State of Nebraska over $38,000,000,
which was more than half the entire amount of rediscounts
and bills payable of all the national banks of the United States
when the great crash came in 1907.
The Federal reserve bank at Richmond during the rocent
crisis loaned the member banks of the single State of South
Carolina $21,105,000, nearly as much as one-half of the total
rediscounts,and bills payable of all the national banks in the
United Stares under tjie old banking system in the panic of
11)07. And so I might go from State to State pointing out the
vast advantages of the system, the incomparable aid rendered by
it, and yet Senators, ignoring these great achievements, persist
in misrepresenting the operations of this institution to the farm­
ers of the country.
BAN KS ALARM INGLY

EXTENDED.

The distinguished senior Senator from South Carolina' [Mr.
S mith ], who is by no means a stranger to this system or the
system to the Senator, who had something to do with its fabri­
cation, and who, I am glad to be told, has renounced his sug­
gestion to legislate out of office the Governor of the Federal Re­
serve Board-----Mr. SMITH. Mr. President, will the Senator allow me to
make a statement right there?
Mr. GLASS. I yield.
Mr. SMITH. It was a coincidence that at that time section 2
of the proposed bill that I introduced under its terms would
have had the effect of legislating the governor of the system
out of ofliee.
Mr. GLASS. I accept that statement. I was merely re­
ferring to the effect of the proposed legislation.
Mr. SMITH. I understand; but, inasmuch as the impres­
sion has gone abroad that that was the object of the legisla­
tion I want to state—and I know the Senator from Virginia
is glad to correct that impression—that it was entirely errone­
ous.
Mr. GLASS. Absolutely so.
Mr. SMITH. When that bill was drafted none of us, includ­
ing mvself who drafted it, had any knowledge whatever as to
whom* it would effect. We merely provided that the first va­
cancy should be availed of because we wanted to expedite the
80469— 22174




25
presence on the board of a man identified with the agricultural
interests.
Mr. GLASS. I accept that statement fully, Mr. President;
but I four my friend may entertain a misconception as to what
was done or left undone in South Carolina by the Federal re­
serve bank of that district in the unprecedented crisis of 3920,
I do not know and do not undertake to say anything about the
credit facilities afforded by nonmember banks of South Caro­
lina ; but the figures show there was scarcely a member bank in
that great cotton State which was not amazingly 'expanded be­
yond its basic line of credit with the Federal reserve bank at
Richmond during the entire period of falling prices. I have the
list on my desk here now. I have the figures from other States.
There were not many borrowing banks in the State of the emi­
nent Senator from Alabama, the basic credit of which was not
tremendously exceeded. There were some banks in Alabamanational banks, member banks—entitled to a basic line of credit
of $3,000,000 in that period which did not borrow one dollar
from the Federal reserve bank in order to assist the farmers of
that State and section? Why does not the Senator go home and
assail these local banks, not one of which borrowed as much as
one dollar from the Federal reserve banks, although they were
entitled to a basic line of credit of SS,000,000; and had they fol­
lowed the example of banks in Alabama and other States and
transcended their basic line ten times they might have bor­
rowed many tirpes $8,000,000 from the Federal reserve bank in
order to help their farmers, whereas they did not borrow a
dime. Why did they not borrow? The rediscount rate at that
time was but 6 per cent. They had a margin of 2 per cent.
Why did they not borrow if it would help the farmer? Why
come here and denounce the Federal reserve banking system
when the. trouble, if there was really a deficiency of credit,
was inherent at home?
Mr. President, to give the laymen in the Senate—one of whom
I ajn—a concrete illustration of how the Federal reserve banks
went to the rescue of business iw the cotton territory of the
United States, let rae present some facts and figures:
Here is a South Carolina national bank entitled under the
rule of basic credit to borrow $29,000 from the Federal reserve
bank at Richmond. On June 30, 1920, when cotton was about
at its peak, it was borrowing $74,000, until by progressive stages
is was borrowing on June 30, 1921, $212,000 from the Federal
reserve bank. Think of it! It was entitled to borrow as it.?
fair quota, $29,000, and it borrowed $212,000. Here is another
bank which was entitled to borrow $37,000 from the Federal
reserve bank at Richmond. On June 30, 1020, it was borrowing
$91,000 when cotton was highest. On a falling market it man­
aged to increase its loans at the Federal reserve bank to $ 200,000.
Here is another little bank with a basic line of credit at the
Federal reserve bank of $23,000 in that period of stress; it bor­
rowed from the reserve system $111,000; and another little bank,
entitled to borrow $4t>,000, was loaned $235,000 by the Federal
reserve bank at Richmond.
These furnish a fair example of the operations of the smaller
hanks of this State. Here is a larger bank, entitled to borrow
$578,000 from its Federal reserve bank; it borrowed $1,407,000,
Here is another entitled to borrow $468,000 as its quota of
86409— 22174




20
credits at the Federal reserve bank; to meet emergency it was
loaned $2,622,000. All of the member banks combined of South
Carolina were entitled to borrow $7,699,000; they borrowed
$21,105,000 during the period of falling prices.
Mr. POMERENE. Mr. President, does the Senator mean by
that statement that that amount of credits were out at one
time?
Mr. GLASS. I d o ; on each given date.
Mr. POMERENE. And I assume that that statement applies
to each of the other illustrations which the Senator has given?
Mr. GLASS. It does.
Mr. DIAL. Mr. President, do these figures apply to condi­
tions generally over the country or simply to these particular
States or regions?
Mr. GLASS. They apply to the country; but the charge
here has been that there was discrimination in the agricul­
tural sections, and I am undertaking to show that that is ut­
terly groundless.
crn stf

of

to o

m uch

c r e d it .

Mr. President, not infrequently too much credit is a worse
curse than too little. It allures individuals and corporations
into the morass of financial disaster. Attempts to make too
much money frequently result in losing all one has. Of course,
some of us can see now what we could not see 18 months ago;
but the one thing that clearly stands out is the fact that, had
the banks of the country curtailed loans just before the drop in
prices, as is mistakenly charged, instead of lavishly extending
loans, as authenticated figures attest, thousands of people who
are now in distress would be happy and content. For the good
of borrowers themselves, the member banks and the Federal
reserve banks too long delayed liquidation. They loaned too
much money rather than too little; at least, that would be my
criticism of their administration.
KEW

SYSTEM

NEEDED.

I quite agree, Mr. President, in the next place, that there is
need in this country for a strictly rural-credits system, adapted
to the peculiar wants and processes of the agricultural com­
munities. Such a system conjoined with the existing Federal
land-bank system, extending long-time seasonal credits, em­
bracing crop preparation and production as well as orderly and
advantageous marketing, would be of inestimable value to the
farmers of the United States. This matter was being meditated
when the advent of war diverted the attention and absorbed
the activities of statesmen at Washington. We can not too soon
renew consideration of the subject with a purpose to devise a
system that will do for the farming community of the United
States what the Federal reserve system immeasurably lias
done for the commercial and industrial interests of the coun­
try. But, Mr. President, you can not build up a long-time credit
system by picking to pieces or by impairing the liquidity and
the general efficiency of the existing commercial banking system.
The two systems may successfully operate side by side, sym­
pathetically and helpful, but the moment you undertake to trans­
form one halfway into the other you will produce a financial
prodigy, part fish and part fowl, which will neither swim nor
crow.
Mr. POMERENE. Mr. President, in view of the statement
which the Senator from Virginia has made with regard to an
86469— 22174




27
extension of the system of personal rural credits, I might add
that tliere is now a joint commission composed of Members of
the Senate and of the House who are studying that question.
They have been taking some testimony on this subject, and I
think next week they are to take testimony in the city of
Atlanta.
Mr. GLASS. That, of course. I am glad to know.
WARNINGS NOT HEEDED.

Adverting, Mr. President, to the “ cruel and murderous ” pol­
icy of deflation which, as I have shown, never actually had any
existence outside tlie vivid imagination of perplexed politicians,
it has been said here that the alleged policy would have been
sound in fact had it been applied gradually. I contend that no
policy of deflation was applied for the period indicated; but if
it be meant that ample warning was not given against a contin­
uation of tlie wild orgy of speculation and of the alarming in­
flation of credits and currency at an angle at one period of 45
degrees, it can clearly be demonstrated that warning after
warning was given. The Treasury, time and again, literally
implored people to desist from their inordinate extravagance,
and the public press was filled with editorials of caution
against the riot of expenditure.
The very first official function I performed as Secretary of the
Treasury was urgently to insist 011 the continuance of the Money
Committee, composed of patriotic, public-spirited New York
bankers, to administer a large fund designed to restrict the rate
of interest on commercial transactions to 6 per cent. Mean­
while call money was soaring as high as 30 per cent on specu­
lative transactions. Many bankers insisted that money was
worth what it would bring in a competitive market, and’ a dis­
tinguished ex-governor of New Jersey bitterly assailed the re­
strictive policy of the Treasury, which was, of course, merely in
the nature, of moral restraint and in no sense compulsory.
The members of this Money Committee served without compen­
sation, submitting patiently to the violent condemnation of those
who selfishly desired to tax commerce with a high rate of inter­
est on borrowed money. I cite this incident to show that as early
as in the fall of 1018 the public had warning that interest rates
were being held 111 leash only by a resort to extraordinary
expedients.
CONGRESS FAVORED DEFLATION.

In the late fall of 1919 the governors of the larger Federal
reserve banks were invited to Washington, and were urged by
the Secretary of the Treasury to warn member banks that spec­
ulative credits must be curtailed 01* legitimate commerce would
soon be penalized and a condition presented which would shock
the country. Even then we were discussing the advisability of
increasing1the rediscount rates of the Federal reserve banks,
and House and Senate, impatient and peremptory, were sending
up resolutions demanding to know what steps the Federal Re­
serve Board was taking 01* contemplating to check the frightful
inflation of credits and currency. One of these resolutions
barely missed being an explicit order. It was adopted unani­
mously by the Senate on May 1*, 1920, and reads as follows:
Resolved, That the Federal Reserve Board be directed to advise the
Senate what steps it purposes to take or to recommend to the member
banks of the Federal reserve system to meet the existing inflation of

86460—221T4




28
currency and credits and consequent high prices, and what further steps
it purposes to take or recommend to mobilize credits in order to move
the 1920 crop.

The Treasury experts, advised by some of the most eminent
bankers of the country, held the view that any appreciable ingrease in the rediscount rate of the Federal reserve banks
would accentuate the difficulties of floating the Victory loans
and greatly impede the certificate borrowings of the Govern­
ment, amounting to billions of dollars. My personal view also
was that speculative loans should first be curtailed, before we
began assessing higher interest charges against legitimate
commerce.
All these things were conspicuously discussed in the public
press, particularly in the financial journals of the country. But
the various warnings went unheeded; speculation flourished;
credits in greater degree expanded. The country was aghast
at the range of prices and the high cost of living. England was
in worse plight The Bank of England advanced its discount
rate to 6 per cent and in January, 1920, the larger Federal
reserve banks, soon followed by other regional banks, ad­
vanced the rate here to 6 and later to 7 per cent. Did these
advances in the rediscount rates serve as a warning that a day
of reckoning soon must come? Did this action by the Federal
reserve banks, approved by the Federal Reserve Board, and
practically urged by resolutions of Senate and House months
before, result in tightening the reins? One only has to examine
the figures I have presented here to see that the inflation of
credits still persisted; that the volume of the currency con­
tinued to increase; that even after commodity prices began to
topple the Federal reserve banks made a desperate effort to
impede the velocity of the fall. From January 1, 1920, to Janu­
ary 1, 1921, these reserve banks expanded loans to member
banks in an amount approaching $1,000,000,000. Yet, Mr. Presi­
dent, in the very face of this indisputable evidence, Senators
berate the Federal Reserve Board and the Federal reserve banks
with the utterly false charge of ordering and executing a policy
of “ murderous deflation.’* Such talk is wicked mummery.
PASSING T H E BUCK.

Mr. President, Senators may wonder how this misconcep­
tion got abroad about “ the deflation of credits and currency.”
One way in which it got abroad was the willingness, first, of
politicians, and then of local banks, to “ pass the buck ”■ I believe
—
that is the phrase—to the Federal Reserve Board and banks.
Agitators advised the cotton interests of tlie South to hold
their cotton for 50 cents. They held it; and instead of get­
ting 50 cents it fell to 11 cents. AVhen the slump came and dis­
aster ensued, these evil advisers got from under their mistaken
advice by “ laying it on the Federal Reserve Board.” I have in
mind now one of these agitators who advised the cotton plant­
ers of the South to hold their cotton for 50 cents. He has been
maligning the Federal Reserve Board, although his own bank
was extended nearly 300 per cent above its proper quota. Of
course, he tells his victims that “ the Federal Reserve Board
did it.”
In the fall of 3920, campaigning in Virginia, I learned that a
bank in <?ne of the counties where I was making a speech had
refused credits to its customers and had told these patrons
that it refused them credit because it “ could not get any redis*
80469— 22174




29
counts at the Federal reserve bank at Richmond.” It was a
nonmember bank. It had no right to rediscounts at the Federal
reserve bank. It had loaned $96,000 for the purchase of auto­
mobiles, and had no more money to loan; and, not wanting to
admit its plight, it told its borrowers it could not loan money
because the Federal reserve bank—of which it was not a mem­
ber—would not rediscount its paper!
I have here a form of notice sent out by a bank in an agri­
cultural district to many of its borrowers, which reads as fol­
lows :
Your note for $-----------falls d u e -------------Our Federal Reserve Bank owns this note, haring rediscounted It
for us. As it has been renewed several times, they are insixtirur on o
payment. It is absolutely necessary to arrange this note on the day
of its maturity.
Yours, truly,
----------- -------------1

Cashier.

There was not a word of truth in that; and as soon as the
Federal Reserve Board found that notices of this sort wera
being disseminated throughout that district by member banks it
issued an order exposing the deception and expostulating
against i t
I have here a letter from a business man of Tennessee, writ­
ten to the governor of the Federal Reserve Board, saying:
On September 20 I offered to the Farmers’ Bank o f _______ $2,250
of third and fourth Liberty loan bonds, as collateral for a 30-day $1,000
loan ; this they refused to grant, because they claimed they did not
have the money and could not get I t

And he wants to know “ why the Federal reserve bank is
restricting credits in that way.” Gov. Harding wrote him, in
acknowledgment of the letter, saying:
While the Federal Reserve Board can not compel a Federal reserve
bank to rediscount paper for a member bank which, in the opinion of
its discount committee, is undesirable, I feel certain that the Federal
reserve bank would cheerfully have rediscounted your note for the
Farmers' National Bank with the bonds'as security had it been offered.

Of course, it would have done it. That sort of deception by
banks that do not desire to make loans has largely produced the
impression throughout the country to which I have referred.
Nonmember banks finding an excuse for not accommodating
their patrons, and member banks not having the courage to
refuse a loan, “ pass the buck” to the Federal reserve banks
of the country.
THE CHARGE OF ** EXTORTION.”

A great clatter has been raised about the alleged “ extor­
tionate” interest charges of the Federal reserve banks; but,
as in other respects, a half truth only is told. The real facts
are conveniently suppressed.
Tlie “ progressive” interest charge was not a feature of the
original reserve act; it was put is about three years ago by
Congress. It was intended by Congress as a penal provision.
It was not designed to aid borrowing banks; it was intended
to penalize any bank that should persist in borrowing more than
its fair quota of the funds of a reserve bank, thereby depriving
some other member bank of its fair basic line. If Congress did
not want that done it should not have authorized it to be done.
But, Mr. President, this “ progressive” interest charge was
put into effect by but 4 of the 12 reserve banks. By these it was
applied to comparatively few borrowing banks in their districts.
These banks were incorrigible offenders against every require86409— 22174




30
ment of cautious and safe banking. They were perpetually ex­
ceeding their allotted line of credits; they were incessantly ap­
propriating more than their fair share of reserve bank funds.
But the assailants of the reserve system suppress these facts.
They fail also to tell those whom they mislead that the average
rediscount rate charged by the Federal reserve banks against
the great body of borrowing banks in the four disti'icts where
“ progressive ” rates were very occasionally applied was much
below the rate charged by these borrowing banks against their
ou n customers.
Take the case of the one little bank in the Atlanta district,
the evil fate of which has so lustily been bewailed here and
elsewhere. This bank w’as far below its lawful reserve for 11
months out of 12. It exceeded its basic line of credit nearly
ten times. 'Ninety per cent of its capital was loaned on notes
indorsed by its president. It seems to have outraged every rule
of sound banking. It was penalized under the act of Congress
in order to restrain its excesses and to compel it to get back
in line. It could not have complained fairly had it been put
in the hands of a receiver. When it had been forced to abate
its excesses the amount of the “ progressive Mrate was returned
to it. I doubt if this should have been done.
But why pick out a few rare and extreme cases of offending
banks like this and make it appear that the Federal reserve
system is “ extortionate,” when its general interest rate to
tlie great multitude of borrowing banks was not only moderate
but far below the average rate charged business men by
these borrowing banks? Why judge the system by the discipline
administered to a few banks which persisted in “ running
amuck” of sane banking practices, and ignore the generous
and beneficent treatment accorded the many thousands of
banks throughout the Nation? Does not this very thing ex­
hibit the enemies of the system in their nakedness? What
evil motive could a reserve bank have to charge excessive rates
when in no event can it pay its stockholding banks above G per
cent in dividends? What unworthy prompting could the
Reserve Board have in sanctioning excessive charges, when the
board itself derives no single penny of profit from any trans­
actions of the banks? Is not the utter foolishness of such talJr
deplorable?
A DESIGNING TH RASE .

It has been asserted by Senators that if the Federal reserve
banks had extended as great a percentage of credits to the
“ country” banks as were extended to the member banks in the
great central reserve cities—New York, Chicago, and St. Louis—
there would have been a billion dollars more to loan on agri­
cultural products. Mr. President, already I have pointed out
that credit was not the urgent need of any rationally operated
business interest in this country. The crying need was markets,
not greater banking facilities. But let me expose the specious
nature of this play upon the phrase “ country banks,” tjie evi­
dent purpose being to produce the impression that “ country ”
banks necessarily engage in financing agricultural products.
As a matter of fact, every national bank in New England, out­
side of the city of Boston, is classed as a “ country ” bank.
Every bank in the great State of New York, outside New York
City, Albany, and Buffalo is classed as a “ country” bank; and
until recently all the banks in the great industrial city of Buf80*460— 22174




31
falo were “ country * bants. Every bank in the State of New
’
Jersey is a “ country ” bank, and every bank in the great in­
dustrial State of Pennsylvania outside Philadelphia and Pitts­
burgh is a “ country ” bank. And so nearly all national banks
in the industrial State of Ohio are “ country ” banks and all
in Illinois outside Chicago and Peoria and in Missouri outside
St. Louis and Kansas City. Most of these banks are engaged
iu financing industrial enterprises and not agricultural products
especially. Had they borrowed greater sums from their Fed­
eral reserve banks there is no assurance, indeed it is incredible
to believe, that such funds would have been devoted to the use
of agriculture. Senators who use this insinuating argument
fail to state that, because of their larger reserve requirements,
member banks in these great central reserve cities are obliged
to borrow about twice as much to keep up their 18 per cent re­
serve as a country bank has to borrow to keep up its less than
7 per cent reserve. These Senators, with design, simply invoke
the tyranny of a phrase to make it appear that fanners are the
victims of discrimination, when facts and figures show it is not
true.
p r in t in g

press

e c o n o m ic s .

Mr. President, there is one other aspect of this subject to
which I think allusion ought to be made. I shall do that
very briefly, because I do not want to deprive other Sena­
tors of an opportunity to discuss this problem in detail and to
reply to anything I have said. If, as it may be, I have said
anything that is inaccurate, I want to be corrected. If I have
drawn any deductions which are not warranted, I want them
exposed.
It has been said in some quarters that the Federal Reserve
Board might have disregarded the reserve requirements of the
Federal reserve bank act, and by doing so have issued other
billions of dollars of notes and credits; and that is true. That
is what England ditf, Mr. President, and her foreign exchange
became dislocated, her trade for a long time was gravely im­
paired, and in some directions destroyed; that is what France
T
did, and the currency of the nation was debased; that is what
Germany did and is doing to-day, and the mark is worth hardly
a half cent. That is the doctrine of Lenin—the printing-press
doctrine—and look at the plight of Russia, where it takes a mil­
lion rubles to buy 10 pounds of butter! At that rate it would
take a trainload of printing-press “ money ” to buy a bale of
cotton.
Yes, the Federal Reserve Board might have pursued the policy
which has been suggested; but had it done so, instead of our
country being the financial Gibraltar of the world, it would
have been drawn into the frightful maelstrom of currency depre­
ciation and credit debasement. I can not conform my judgment
to that of men who advocate the “ printing-press" doctrine
practiced by Lenin and under which in Russia to-day the mate­
rial upon which rubles are printed is worth more as waste paper
than it is as authenticated currency.
AN HISTORICAL PARALLEL.

Coming from a center of culture and familiar with the epochal
events of history, you will recall, Mr. President, that several
decades beforer the French Revolution the currency of France
was the product of the printing press; and the business of the
S6469— 22174




32
kingdom was thereby depressed beyond the imagination of men.
Those in power enacted a law making it a penal offense for the
farmers of France to discriminate against paper * money ” in
‘
favor of coin of the realm.
The penalty was a heavy fine and long imprisonment in jail.
Later the rulers, still thinking they might compel credit by
legislation, amended the law with a view to effective enforce­
ment ; they made it a capital crime to discriminate between
paper and metallic currency. Eventually the heads of many
of these economic jugglers dropped into the basket—a just re­
compense of their folly and profanation of power. That is the
kind of currency with which some Senators would have us flood
this country; but I venture to think, if we should follow their
lead, that the farmers of the South and West would soon shrink
from it as they would from the drippings of a pest house.
It is a wise man that considers the purchasing power of
money. There are superficial people who would rather receive
a wage of $5 a day, when it costs them $6 a day to live, than
to receive a wage of $2.50 a day, when it costs them $1.50 to
live. One signifies ruin and the other betokens thrift; yet
there are many people who fail to discriminate; who fail to
understand the purchasing power of the dollar.
Mr. President, should we deplete our gold reserves and set
the printing press in motion we would, literally ruin the coun­
try. I know the junior Senator from Alabama thinks the
printing press was invented to print “ money/’
ALLEGED EXTRAVAGANCE EXAM IN E D.

Mr. President, it has been a staple criticism In this Chamber
that the Federal reserve banks are being operated in an exor­
bitantly extravagant way in the payment of salaries and general
expenditures, and this charge has been amplified into the amaz­
ing statement that because the Government of the United States
is the residuary claimant of all earnings of the banks after the
disbursement of 6 per cent of the capital, these excess salaries
and expenditures in building operations amounted to a theft by
the Federal Reserve Board from the United States Treasury.
I am no advocate of extravagant expenditures in either Govern­
ment or private institutions.
I think had I been a member of the Federal Reserve Board,
except in the direst necessity, I would not have agreed to ex­
pend one dollar in building operations at this timfe, because
of the enormous profiteering of the building trades both by
people who supply material and those who furnish labor. In­
vestigations of the Lockwood committee in New York show
appalling graft. They indicate a state of affairs which ought
to land in jail many persons who now are going at large.
I hold no brief for the Federal Reserve Board on this point.
It may be that some excessive salaries have been paid in the
system. It may be that some expenditures have been too large
and others may have been deferred. But we can arrive at a
correct conclusion in such matters only by comparing relative
facts. Let us see, then, how the expenses of the Federal reserve
banking system appear in contrast with the expenses of the
great central bank of the most thrifty nation on earth.
A FAIR CONTRAST.

The last official report of the Bank of France shows a total
amount paid to the State out of the last year’s profits of ap80469— 22174




33
proximately 104,000,000 francs, or, at the old basis of exchange
parity, something like $21,000,000. At the same time, there was
paid to stockholders by the Bank of France approximately
47,000,000 francs, or about the equivalent of $9,500,000. The
capital of the bank was 1S2,500,000 francs, or about $36,500,000.
In the Federal reserve system for tlie year 1920, with a
capital o f approximately $94,000,000, the payments to the Gov­
ernment amounted to something like $60,000,000, while the bal­
ance was either paid to stockholders or carried to surplus ac­
count. In this way the stockholding banks received a total of
about $5,000,000, as against the $9,500,000 paid by the Bank of
France to its stockholders. It will easily be seen that the
amount obtained by the Government of France from the opera­
tions o f its great central bank, now nearly a century and a
quarter old, w^s far less than obtained by the Government of the
United States from the Federal reserve system, while the
amount paid by the Bank of France to its stockholders was
almost double what was paid by the Federal reserve system to
its stockholders, who are the constituent member banks.
Mr. President, the Bank of France states the total of its ex­
penses o f administration during the year 1920, including depre­
ciation, salaries, and pensions, at approximately 150,000,000
francs, or the equivalent, at old rates of exchange, of about
$30,000,000. For the year 1920 the expenses of administration
of the Federal reserve system were reported in the annual re­
port o f the Federal Reserve Board as having been approxi­
mately $30,000,000. When it is remembered, Mr. President,
that the total loan and discount operations of the Federal re­
serve system, with 12 great banks and 23 branches, were in the
neighborhood of $85,000,000,000 in 1920, while the total dis­
counts and advances, other than to the Government, of the
Bank of France amounted at old rates of exchange to roughly
$12 ,000,000,000, a comparison between the cost of operating the
two institutions may easily be drawn—by no means to the dis­
credit of the Federal reserve system.
O FFICIAL SALARIES CONSIDERED.

Mr. President, I desire to supplement the foregoing general
comparison of expenses between the Bank of France and the
Federal reserve system with a brief reference in detail to the
official salaries prevailing in the various Federal reserve banks
with the official salaries in individual member banks of the
various Federal reserve districts. Let us note the case first of
the New York Federal Reserve Bank, against which criticism
has been most violent. Its total annual salary account is
$509,800 for its 40 officers, an average of $12,745, contrasted
with an annual salary account of $768,200 for 67 officers of one
large member bank, an average o f $11,466.
Another large member bank in New York City with 82 officers
has a total annual salary account of $1,574,500, or an average
of $19,201 for each officer. The comparison with a kindred
result might be extended to other individual banks in New York.
The governor o f the New York Federal Reserve Bank receives a
salary o f $50,000, and I may say to the Senate that before he
went with the Federal reserve system he was receiving a salary
of $60,000.
Mr. PQMKRENE. May I add, in this connection, without
naming him, that I know of one of these presidents who is get86469— 22174




34
tin" a salary of $25,000, and he has standing open now two
offers of $50,000.
Mr. ROBINSON. Why does he not take one of them?
Mr. POMERENE. Because he wants to devote himself to the
public service.
Mr. NORRIS. Mr. President, if the Senator from Virginia
will permit an interruption, does the Senator think that a sal­
ary of $50^000 is too much, or is it fair?
Is the Senator in
favor of paying a salary of $50,000, or permitting it to be paid
by the Federal reserve bank?
Mr. GLASS. I will say to the Senator that, in this par­
ticular time of stress, I would think it bad policy to pay the
president of even so great an institution as the Federal Reserve
Bank of New York as much as $50,000. Furthermore, when it
w as first suggested to me, while I was chairman of the Banking
and Currency Committee of the other branch of Congress, to
fix the salary at that figure, I protested that the time was
inopportune to pay a salary that large. I thought it should be
deferred; I believed tiie bank would incur the very sort of
criticism it has incurred.
But Senators must remember that a bank can not be con­
ducted by hod carriers; you can not even run it with a Con­
gressman in charge, or a newspaper publisher, as I am. You
have to get expert banking talent and technical skill of tho
highest description to run a great bank like the New York
Federal Reserve Bank, and you have to get it in open com­
petition with great individual banks. The Senate should re­
member this in considering the matter. Two member banks in
New York City pay their president $100,000 per annum each; 3
member banks pay their president $75,000 per annum; 1 member
bank pays its vice president $75,000; 1 pays the chairman of
its board of directors $65,000; 4 member banks pay their vice
presidents $50,000; and 22 other member banks pay their vice
presidents all the way from $25,000 to $40,000. So that by
contrast, Mr. President, the salary of the governor of the
Federal Reserve Bank of New York, greater in volume of busi­
ness transacted than the Bank of England or the Bank of
France and of any five Federal reserve banks combined, is not
so astounding as one might be led to suppose without any
examination of the facts.
The Boston Federal Reserve Bank has a total annual salary
expenditure of $135,500 for 14 officers, an average of $9,679, as
contrasted with one member bank having 25 officers with a total
salary expenditure of $411,200, an average of $16,448; another
member bank with 21 officers has a salary account of $298,000,
an average of $14,190. This comparison likewise might be ex­
tended to other member banks with a similar result. The
governor of the Federal Reserve Bank of Boston receives $25,000.
One member bank of the Boston district pays its president
$75,000, another $50,000, and another $40,000. One member
bank pays fts vice presidents $42,000. Many of them pay their
vice presidents salaries ranging from $25,000 to $42,000. So
that in Boston, as in New York, officials of the Federal reserve
bank, doing vastly more business than any member bank, in­
deed vastly more business than many member banks combined,
receive very much smaller salaries than many individual banka
pay to their officers.
SG4G9— 22174




35
The Federal Reserve Bank of Philadelphia pays its governor
$25,000. One individual member bank in Philadelphia pays its
president SS0,000; one other pays $45,000; another, $36,000;
another, $25,000; one pays its vice president $40,000. The
official salary account of this regional bank lias an average
much lower than the individual member banks of the district.
The Federal reserve bank at Cleveland pays it governor
$30,000. One individual member bank at Cleveland pays its
president $50,000; another pays its president $36,000; another
pays $35,000; the vice presidents of various other Cleveland
banks get in excess of $30,000. The general salary account of
this bank averages very much less than the salary account of
the individual banks of Philadelphia.
The governor of the Federal reserve bank at Richmond gets
$38,000. The president of one member bank at Richmond gets
$25,000; and of another, $25,000. The general salary account
of the reserve bank at Richmond just about matches that of the
various member banks.
The governor of the Federal reserve bank at Atlanta gets
$1S,000. The president of one member bank at Atlanta gets
$20,000; another, $17,500. The vice president of one bank there
sets $18,000. The salary account of the Atlanta Federal Re­
serve Bank averages very much less than the salary account of
the individual member banks.
The governor of the Federal reserve bank at Chicago gets
$35,000. The chairman of the board of directors of one Chicago
bank gets $75,000 and another $60,000, and the President of
one Chicago bank gets $50,000 and another $36,000. Many
vice presidents of individual member banks at Chicago get
salaries running from $25,000 to $37,500. The average official
salary paid by the Chicago reserve bank is about one-half the
average official salary of the individual member banks.
The governor of the Federal reserve bank at S t Louis gets
$25,000. The president of one member bank at St. Louis gets
$50,000 and another $45,000; one executive manager gets $40,000
and another $35,000. Several vice presidents get $25,000. The
average of official salaries for this reserve bank is much less
than the average for member banks.
The salary of the governor of the Federal Reserve Bank of
Minneapolis gets $16,000. One president of the Minneapolis
National Bank gets $45,000; another, $40,000; and several
executive chairmen and vice presidents get salaries of $25,000.
The average official salary for this bank is a little more than
half the average for member banks.
The governor of the Federal Reserve Bank of Kansas City
gets a salary of $20,000. The president of one individual mem­
ber bank there gets $26,000 and two $25,000 each. The average
salary at the St. Louis bank is very much less than at the indi­
vidual member banks.
The salary of the governor of the Dallas Federal Reserve
Bank is $18,000. The salary of a president of one member bank
is $20,000 and the two vice presidents each $25,000. The average
official salary at the reserve bank is very much less than the
average paid at member banks.
The Federal reserve bank at San Francisco pays it governor
$24,000. The president of two individual member banks gets
$50,000 and of another $36,000. The average official salary is
86469— 22174




30
less than half at the reserve bank than at the individual member
banks.
Mr. JONES of New Mexico. Mr. President-----The PRESIDENT pro tempore. Does tlie Senator from Vir­
ginia yield to the Senator from New Mexico?
Mr. GLASS. I hope Senators will let me hurry through,
because I desire to conclude.
Mr. JONES of New Mexico. If the Senator does not care to
be disturbed, I will not interrupt him.
Mr. GLASS. I yield to the Senator.
Mr. JONES of New Mexico. I merely wanted to inquire of
the Senator if lie thought there was any difference between the
responsibility of a bank which is dealing only witli securities
coming through and indorsed by other banks and that of a
bank which is dealing with individual paper.
Mr. GLASS. I think when we consider that the president of
the New York Reserve Bank and the board-of directors thereof
are directly responsible for $5,000,000,000 in cash and securities,
the greatest gold reserve that ever was mobilized since the
world began to revolve on its axis, we must admit that the
responsibility of those officers is infinitely greater than that of
the officers of a dozen individual banks combined.
SALARIES FIXED BY DIRECTORS.

It must be xmderstood, Sir. President, that these salaries are
fixed by the board of directors of these respective Federal re­
serve banks, two-thirds of which directors are selected by the
stockholding banks of each district and all of them citizens of
the district. The Federal Reserve Board has the right of re­
view with respect to these salaries, but it must be admitted
that the regional board of directors, familiar with all the con­
ditions, circumstances, and extent of labor involved, knows
better than the Federal Reserve Board—knows vastly better
than Congress—what are the actual requirements and what is a
fair average compensation. At all events the Federal Reserve
Board does not initiate these salaries, and to say that honorable
men who constitute this board should be indicted by a Federal
grand jury because they approve the considered judgment of the
boards of directors of these regional banks is to make a decla­
ration that should not enhance the reputation of a Senator for
sanity or for temperate speech.
The salary of Gov. Strong, one-half that of several officials
of individual banks in New York, was approved by the Federal
Reserve Board on motion of tlie Secretary of the Treasury, Mr.
McAdoo, concurred in by every other member of the board,*
the vote being unanimous. I realize that gentlemen may differ
upon questions of expenditures, particularly with reference to
official salaries, but it is monstrous to charge high-minded,
patriotic men with theft from the Treasury when we disagree
with their judgments.
ASTOUNDING MISCON CEPTIONS.

In this connection, Mr. President, let me show the Senate to
what extent misconception and ignorance on these questions
may go. Several weeks ago a Senator on this side in a burst
of indignation exclaimed:
If the governor of the Federal Reserve Board is worth $50,000, what
is tlie value to the country of the President of the United States?
W hat iw the value of the Vice President?
86469— 22374




3T
Gov. Harding enjoys the luxuriant ami luxurious privilege of
fixing his own salary. That is a privilege which the President does
not enjoy. It is a privilege that the Vice Pr^ident does not enjoy.
It is a privilege that no Senator enjoys, no Congressman enjoys, no
admiral in the Navy, no general in the Army, no member of the
Supreme Court.
W . P. G. Harding is the only man that I know of that has been
given the power to fix his own salary and to fix the salaries of his
subordinates.

Sir. President, I have not the remotest idea that the Senator
who made this remarkable deliverance had the faintest purpose
to misrepresent the Federal reserve banking system or to treat
the governor of the Federal Reserve Board with derision. The
Senator thought his premise was correct, hence the emphasis
and feeling with which he denounced what seemed to him an
extraordinary situation. As a matter of fact, a glance at the
Federal reserve act would have shown him that Gov. Hard­
ing has no power to fix his own salary or the salaries of any of
his subordinates. He can not, except in conjunction with other
members o f the hoard, fix the salary of a typist in his office!
A glance at the law would have shown this indignant Senator
that the salary of the governor of the Federal Reserve Board
is definitely fixed by Congress and may not be altered by
anything that Gov. Harding or the' Federal Reserve Board
may do. He would have seen that Gov. Harding’s salary
is not $50,000. It is but $12,000, so fixed by Congress, not a
dollar greater than that o f any other member of the board.
Seeing these things, the Senator would not have tripped into the
mistake of moralizing about evils that do not exist.
I have no intimate personal relations with the governor of
the Federal Reserve Board; in no sense or degree am I his
spokesman here. But out of my actual observation and knowl­
edge I feel, in very decency, obliged to say to the Senate that I
have seen this honorable public official during a fateful period
work himself to the bone for his country. I have seen him do
the Government's work night and day until his very life was in
peril by reason of physical exhaustion anti nervons prostration.
I myself have driven him from the Treasury Building for a few
hours of rest to avert utter collapse.
DEFAMATION OF PUBLIC O FF IC IA L S.

I now ask the Senate’s attention to a statement even more
astonishing than that which I have just confuted. Indeed,
Mr. President, it is a declaration made in this Chamber which
should engage the very gravest attention; for, notwithstanding
the ludicrous misrepresentations which it comprises, it carries
an implication which, if true, affects the integrity of a great
Government institution, and which, if false, affects the integrity
of the Senate. I am one of those who can not conceive that the
constitutional immunity granted Senators and Representatives
in Congress was ever intended as a shelter for libel of public
men or private citizens, leaving them no means of redress.
Some time back the distinguished junior Senator from Alabama,
according to the R ecord, said in this Chamber:
Mr President, I am not advised as to whether or not any of the
friends of the Federal Reserve Board were speculating in cotton at
that time
The Senator from Georgia [Mr. W a t s o n 3 reminded us the
other day that they loaned to themselves in the system the. sum of

$18,000,000.
86469— 22174




38
Think of it—a board that can not loan a dollar to an indi­
vidual or concern or corporation charged with having loaned
to its own members $18,000,000!
I continue reading from the statement of the junior Senator
from Alabama :
I
want to sav just here, Mr. President, that if they invested any of
that $18,000,000 in speculating on the l)ear side of the cotton market in
the month of August last year, they made a lot of money.
Do you know. Mr. President, bow much money the man made who
sold on the exchange 1,000 hales of cotton for the month of August,
1920?
He made on that 1,000 bales $45,000 in cash.
The Federal
Reserve Board knew what effect its deflation policy would have upon
the cotton market. Those who knew that that policy was going to run
wild in August last year made millions of dollars to the distress and
great injury of the cotton farmers of the country. Between the months
of June and December that policy cost the cotton farmers more than
$200,000,000 a month. Think of that. Senators ! The deliberate and
premeditated deflation policy jjf the Federal Reserve Board cost the
cotton farmers more than $200,000,000 a month between Jane and
December of last year.

What was the value of the entire cotton crop of the country
in 1920, may I ask the junior Senator from South Carolina
[Mr. D i a l ] ? How much was it in the aggregate, approximately
or roughly?
Mr. DIAL. I would say about $2,000,000,000.
Mr. GLASS. I wanted to know, because a multiplication of
the sum given by the Senator from Alabama by the number of
months will make it appear that the cotton growers lost pretty
nearly the entire crop.
Mr. President, the plain implication here is that members of
the Federal Reserve Board had prostituted their sacred trust
by using their positions for the purpose of speculating in
cotton with the funds of the Federal reserve banks. If the
charge is true, these public officials should not only be put in
jail but they should be kept there. The alleged act would con­
stitute a crime little short of treason. If the charge is not true,
then the Senate should contemplate the injurious effect of such
accusations upon its own reputation.
In the period to which reference is made by the Senator from
Alabama the members of the Federal Reserve Board were
David F. Houston, Secretary of the Treasury in President Wil­
son's Cabinet; .Tohn Skelton Williams, of Virginia, Comptroller
of the Currency by appointment of Mr. Wilson; Charles S.
Hamlin, Assistant Secretary of the Treasury under President
Cleveland; W. P. G. Harding, governor of the board by desig­
nation of Mr. W ilson; Adolph S. Miller, a university president
of distinction in California; and Edmund Platt, former Rep­
resentative in Congress and member of the Banking and Cur­
rency Committee of the House from New York—all appointees
of Mr. Wilson. The implication of crime is leveled by thfc
Senator from Alabama against every one of these men without
exception. Is there a Senator here who believes the implication
that would impute crime to these honorable public servants?
If the Senator from Alabama believes that the accusation which
he suggests is not a libel against* their names and character, if
he thinks he can justify his amazing insinuations, it is his duty
to the country to ask for a grand jury investigation of these
gentlemen, who have always borne and now sustain a reputa­
tion arftong men for probity and integrity.
S64G9— 22174




39
But, Mr. President, wo do not Imve to await the verdict of the
courts or the findings of a committee to see clearly the utter ab­
surdity of some of these statements* The Federal Reserve Board,
it is charged, loaned its own members $18,000,000, which vast sum
it is suggested they used to gamble in cotton after deliberately
xising their official powers to depress the price for their own
profit. Perhaps there are cotton pickers on plantations of the
South who may be deceived by such trumpery, but surely there
is no Member of the Senate who does not understand how abso­
lutely preposterous these accusations are.
The Federal Reserve Board, under the law, could not loan the
President of the United States 25 cents; it could not loan the
Chief Justice of the Supreme Court < dollar; it could not loan
*
John D . Rockefeller a dime; it could not loan the United States
Steel Corporation or the Standard Oil Co. a penny. The Fed­
eral Reserve Board has not a dollar to loan and never had a
dollar to loan.
No Federal reserve bank in the system can loan any individual
or corporation in the United States a penny. The Federal recerve banks neither receive deposits from nor make loans to
individuals or concerns or corporations. These banks are banks
of banks and do business only with banks; so that if John D.
Rockefeller, with all his millions, should desire to borrow
money, he would be compelled to borrow it from a local bank;
and the only way that the local bank could get a dollar from
the Federal reserve bank in Rockefeller's district would be to
indorse Mr. Rockefeller’s collateral note, as that of any other
person, and put it up as security for a credit at the reserve bank.
The Federal Reserve Board would not necessarily have any
part in or knowledge of the transaction.
Aside from this, Mr. President, no member of the Federal
Reserve Board is permitted by law to own one dollar of bank
stock or to have any pecuniary interest whatsoever or connec­
tion with the operation or profits of any banking institu­
tion; and every member of tlie board has to take a solemn
oath to this effect Moreover, under the law, the Federal reserve
banks are strictly prohibited from loaning one dollar to member
banks for speculative purposes. Thus the whole charge is so
literally without foundation in fact, and so saturated with mis­
understanding of Federal reserve banking processes and of the
Federal reserve act itself as to render it comic if it were not
pitiful.
IG3TORAy c e

TTD17 M A D !

I venture to invite the attention of Senators and the country
to another interesting discovery by the distinguished junior
Senator from Alabama. On Friday of last week, in speaking to
the Newberry case, the Senator said:
The Federal Reserve Board got an amendment to the Federal reserve
act through a. Republican Congress permitting them to set aside a
certain percentage of earnings to be used In providing buildings and
establishments for use in the service. They accumulated $100,000,000
in a year. W hat do you suppose they did ? Without asking Congress
the Federal Reserve Board appropriated $26,000,000 or thereabouts—
to do what? To build a bank building in the city of New York In
W all Street.

Mr. President, that statement comprises a paragraph of eight
printed lines in the R ecord. It contains sir distinctive asser­
tions; all of it is true except the six distinctive assertions.
[Laughter.] All of it is true except (1) the amendment to the
86460— 22174




40
Federal reserve act was passed by a Democratic Congress,
voted for by the Senator from Alabama, then a Member of the
other House-----Mr. HEFLIN. I should like to see the R ecord .
Mr. GLASS. I have the R ecord . And was approved by
Woodrow Wilson. So we can not make any Democratic poli­
tics out of that. The Senator's statement is true except (2)
that the Federal Reserve Board did not accumulate $100,000,000
or any other amount; except (3) that the Federal Reserve
Board did not appropriate $26,000,000 or any other amount;
except (4) that the Federal Reserve Board can not under the
law or the operation of the system appropriate one dime for
any purpose; except (5) that no Federal reserve bank to cost
$26,000,000 is to be built anywhere; except (6) that the pro­
posed new Federal reserve bank building in New York is not to
be erected in Wall Street.
Mr. WADSWORTH. Aside from that, the statement is all
right.
Mr. GLASS. It is all right with those six exceptions.
Mr. HEFLIN. I should expect the Senator from the State
where the big bank building is being erected to agree with the
speech of the Senator from Virginia.
Mr. GLASS. With these six exceptions the Senator’s state­
ment is true; and this signifies how much reliance may be put
in the accuracy of statements made by the Senator from Ala­
bama with respect to the Federal reserve banking system. His
assaults are made up of fiction and are almost entirely devoid
of facts.
CONGRESS

SANCTIONED BU ILD IN G S.

It is true—and I hope Senators will mark this—that the
Federal Reserve Board respectfully asked Congress to permit
the Federal reserve banks to increase the amount of their sur­
plus out of their earnings to an amount equal to 100 per cent
of their paid capital. Congress exceeded the expectations of
the board by having the increase apply to subscribed capital
plus 10 per cent permanently to surplus. The board openly a n d
frankly stated that the purpose of the request was, among other
things, to provide the various regional reserve banks with better
building facilities. Representative Phelan, a Democrat of Mas­
sachusetts, chairman of the Banking and Currency Committee
of the House, presented and explained the amendment in that
body. It was voted for unanimously.
The amendment was presented to the Senate by Mr. H i t c h ­
c o c k , a Democrat of Nebraska, acting for the Banking ami
Currency Committee of the Senate, and was unanimously agreed
to here. The bill as passed was approved by Woodrow" Wilson,
President of the United States. It is now a law and has been
for nearly three years.
MORE M ISIN F O R M A TIO N .

After first charging the reputable gentlemen who constitute
the board of directors of the New York Federal Reserve Bank
with being criminals, the Senator from Alabama proceeds:
Mr. President, I can not got away from these figures without
at them once more. A bank building in W all Street, ordered to
structed by the Federal Reserve Board of seven men, is to cost
?2(i,000t000 * * *. It seems to me to be surrounded and
over with the atmosphere of graft.

8G4C0— 22174




lookin'*
be eon~
around
covered

41
At tins point the Senator from Alabama was interrupted by
the distinguished senior Senator from Georgia [Mr. H vrkis]
who said:
^ anA A cal1 the attention of the Senator to the fact that this
t0
$2b.00U.000 building in New York will accommodate onlv about 500 em­
ployees, while the State, War, and Navy Building-, which cost one-third
that amount, accommodates several thousand employees.

Mr. HARRIS. Mr. President——•
Mr. GLASS. I will ask the Senator to wait for a moment.
This opportune interruption of the Senator from Alabama* by
the Senator from Georgia, and the fine piece of information
conveyed by the latter to the former, was an inspiring contribu­
tion to the discussion; and the Senator from Alabama with
renewed zest exclaimed;
That is a good point that my friend from Georgia made. The thing
gets worse the more you look Into it. Five hundred clerks and ethnog­
raphers and coin carriers in Wall Street, whose god is g o ld ! This
building will accommodate 500 people, as against buildings of less cost
that accommodate thousands.

Mr. President, it tills me witlrwonder that Senators seek to
discredit the greatest banking institution on earth by giving
currency to statements having no more semblance of fact in
their justification. I now yield to the Senator from Georgia, in
order that he may tell me where he gets sanction for liis stat nlent to the Senator from Alabama that the proposed new bank
building in New York will accommodate but 500 employees.
Mr. HARRIS. Mr. President, I wish to state that in reading
the report of the Federal Reserve Board I observed the state­
ment that in this building there were 512 men, as I remember,
but afterwards in reading the letter from the governor of the
Federal Reserve Board, which on yesterday was printed in the
R ecced , I ascertained that there are 512 iu one building, but
there are more than 2,000 in all the buildings. That is hovr I
made the error.
Mr. GLASS. The Senator does not for a moment imagine
that I am suggesting intentional misrepresentation on his part?
I do not believe he is capable of i t ; and, for that matter, I do
not believe the Senator from Alabama has intended to misrep­
resent these things; he does not just know*anything about them.
I do not say that in any spirit of acerbity. It is not remark­
able that Senators know little about this complex'matter. It is
a problem repellent in its very nature, and few men have the
patience or the foolhardiness to bother with i t ; but I say
that either Senator might have found simply by reference to the
letter of the Federal Reserve Board, written in response to a
resolution of the Senate, that the woman’s cafe alone in this
building will seat 530 persons; that the men’s caf6 alone will
seat 530 persons; that the cafe facilities alone of this new build­
ing, designed to give the men and women employees decent ac­
commodations and meals at cost, will take care of 1,000 people,
or twice as many as these two Senators gave as the measure
of the facilities of the entire hank builrlinr. Either of these
Senators might have easily ascertained that this bank building
is designed and planned to accommodate 5,000 employees, ten
times the number they told the Senate and the country it would
accommodate.
80409— 22174




42
Mr. SIMMONS. Mr. President, does the Senator from Vir­
ginia mean that that number of people are employed in the
Federal Reserve Bank of New York?
Mr. GLASS. Will be.
Mr. WADSWORTH. They are.
NO " MARBLE PALACE.”

Mr. GLASS. I would like to be told by either of the Senators
what sanction he has for the statement that this bank building
is to cost $26,000,000, and I would like to ask the Senator from
Alabama what proof he has that the honorable men selected bythe New York banks as their members of the board of directors
of the reserve bank are in conspiracy with the honorable mem­
bers of the Federal Reserve Board in Washington to commit
tlie crime of graft?
Mr. HARRIS. Mr. President, the Senator has referred to tlie
two Senators, and, as I am one of those whom he has in mind
in making that statement, I desire to say that I read to the
Senate yesterday the exact cost of the building as set forth
in a letter from the governor of the Federal Reserve Board.
The building will cost over $22,000,000. as I remember, and the
furnishings will bring the total up to $23,000,000. I think that
is accurate.
Mr. GLASS. Oh, no; the Senator, I am sure, is mistaken,
and I think I can show that he has misread the letter of the
governor of the Federal Reserve Board.
Mr. President, has the Senate o f the United States become a
body in which the character of private citizens may thus be
assailed without proof of wrongdoing; in which astounding
charges may wantonly be directed against public officials who
all their lives have enjoyed a reputation as honest men?
Mr. President, I should like to put in the R ecord—I will not
weary the Senate by a recital of the figures— statistics show­
ing the unimaginable volume of business transacted by the
Federal Reserve Bank of New York. That institution, as I indi­
cated a while ago. houses $5,000,000,000 of gold and securities.
It moves every working-day in the year an average o f $180,000,000 in cash and $1,940,000,000 in securities. Its discounts
and ^advances aggregate $50,000,000,000, and so on.
The PRESIDENT pro tempore. Without objection, the mat­
ter referred to by the Senator from Virginia will be printed
in the R ecokd .
The matter referred to is as follows:
The Federal Reserve Bank of New York is the largest bank in the
country in resources, in size of its staff, and in daily turnover. It
does about onethird of the entire transactions of the Federal reserve
system. Its present staff is 36 officers and 2,115 clerks, exclusive of th e
Buffalo branch. The volume of its operations for 1920 was as follows :
4 Discounts and advances, 180,462 items, aggregating $50,539,428,847.
1
“ Acceptances purchased for New York and other Federal reserve
banks, 106,237 items, aggregating $2,428,000,000.
“ Federal reserve notes and other paper money handled and counted
558,397,400 pieces, aggregating $2,291,785,688.
“ Shipments of currency and coin, 67,405 shipments.
“ Checks collected. 87,036,424 items, aggregating $55,325,112,827.
" Notes and drafts collected, 563,814 Items, aggregating $1,994,713,245.
“ Telegraphic transfers of funds, 147,302 transfers, aggregating $17,021,509,734.
'* Balances settled through gold settlement fund, $48,840,900,000.
*' United States Government checks and warrants paid, 10,712,243
items, aggregating $2,437,759,34©.
86469— 22174




43
“ Government bond department transactions, 47,797,417 pieces, aggre­
gating $6,955,101,000.
“ Total certificates of indebtedness department transactions, includ­
ing issues and redemptions, $4,897,841,000.
“ Securities handled in custody for United States Treasury and mem­
ber banks, $100,759,404,785.’*
The cost of operating departments handling United States Govern­
ment transactions is about $800,000 per annum, a large part of which
used to be paid by the Treasury, but since July 1, 1921, it is all ab­
sorbed by tne bank.
The bank holds about $5,000,000,000 in cash and securities stored in
11 vaults located in five separate buildings. Some of these vaults do
not alt'ord sufficient protection, but no others are available. The aver­
age value of cash and securities withdrawn and replaced in the vari­
ous scattered vaults daily is, cash $180,000,000, securities $1,940,000,000. A daily average of .>68 transfers of cash and securities are
’
made through the streets and the corridors of office buildings at great
risk of loss.
RELYIXG ONT OLD E ST IM AT ES,

Mr. GLASS. Now as to the cost of this building: I have
here an official statement which shows that Senators have been
misled by estimates prepared a year ago, in March, 1921. It
was an outside estimate of cost. Some Senators absurdly
think that the “ estimated ” cost of a bank building in New
York curtails rural credits in the State of Alabama. The esti*
mated cost in March, 1921, of the building at New York was
$17,990,000, from which must be subtracted the price that the
bsnk will receive for its annex building, now being temporarily
occupied, and which will be abandoned and sold when the bank
goes into the completed building. From this extreme estimate,
over a million dollars has been saved on one item and hundreds
of thousands of dollars on other items. Over a half-million
dollars alone has been saved on the estimated cost of vaults;
by the expenditure of $75,000 in expert engineering investiga­
tions, half a million dollars was saved by these “ grafters ” on
the board of directors of the Federal Reserve Bank of New
York.
I might detain the Senate by a description of this building
which has been spoken of as a “ marble palace.”
Mr. CALDER. Mr. President, will the Senator yield?
The PRESIDENT pro tempore. Does the Senator from Vir­
ginia yield to the Senator from New York?
Mr. GLASS. I do.
Mr. CALDER. Just to permit me to say that if the same
savings are obtained in the other departments of the building, it
will mean that the building will cost less than $13,000,00u in­
stead of $26,000,000.
Mr. GLASS. Precisely.
Now, let us look at this thing relatively. Let us determine
the reasonableness of it by contrast.
The bank building of the Illinois Merchants’ Trust Co. in
Chicago, exclusive of real estate, under contract, is to cost
$10,781,000; and if the contract had been let when these esti­
mates of cost were made for the New York building, it is esti­
mated that the cost of this Chicago building for an individual
bank, doing not one tithe of the business of this great reserve
bank in New York, would have been over $14,000,000.
The cost of the reserve bank at Richmond, measured by the
resources of the bank, is less than that of the combined indi­
vidual bank buildings of Charlotte, N. C., or of Lynchburg, Va.t
my town, of 40,000 inhabitants.
86469— 22174




44
The New York Federal Reserve Bank, even at this outside
estimate per cubic foot, would cost but $1.09, whereas the
United States Assay Building just constructed in New York
under authorization of the Congress of the United States will
cost $2.04 per cubic foot.
The charge to the Government of the architect for the New
York Federal Reserve Bank, covering his services for a fiveyear period with all of his multitude of assistants, was the same
as his charge to the Government for the assay building in New
York.
Senators know perfectly well that nearly all, if not all* the
eminent professional architects of this country belong to the
American Institute of Architects. They have a standard charge,
and any man who goes below that charge will be turned out
of the institute. The New York Reserve Bank paid the stand­
ard charge. It could not have gotten a competent architect
for any less money. The plans were competitive. While the
bank is not to be built in Wall Street, as Senators blatantly de­
claim, it can not be built in a sage field or a Long Island
swamp. It must be located in a business center, and accessible
sites in New York cost more than vacant lots in Virginia or
Alabama.
The latest estimate of the cost of this building, if the per­
centage of savings in other items is as great as the savings
already made, will be $12,836,000 and not $26,000,000; and the
plans show that very little marble will be used in its con­
struction. The description of it as “ a marble palace ” is mere
distortion and in no degree approaches the truth* The con­
struction is very plain, and to my personal knowledge the
present New York bank building is frightfully inadequate; any
Senator who will go through that enormous establishment and
see its congested condition, in rented quarters, with the gold
reserves and the securities of the member banks of that great
district and of the Government located in five insecure build­
ings must admit the exigent need of a new building, for of
the 3,700 employees 1,200 reacted to tuberculosis tests.
Mr. WADSWORTH. On account of overcrowding?
Mr. GLASS. On account of overcrowding. The business of
the bank is being conducted to-day in open and flagrant vio­
lation of the health requirements of the State of New York.
WHOSE MONEY IS

IT ?

Some Senators say, with the best intent on earth, that if
this had been the money of the New York bank it would
have been a different thing, but it was “ the money of the
people.” So was the money expended by this Illinois bank for
a new building derived from the people; and the money to be
expended on this New York bank by sanction of Congress
itself is no more “ the money of the people ” than the money to
be expended on the Chicago bank. The funds of neither bank
belong to “ the people ” in the sense that they are common
property.
Senators should want to be fair. I am sure the Senator from
Nebraska [Mr. N o r r is ] does. He spoke more of real sense on
the pending proposition here yesterday in five minutes than
some Senators have spoken on it in five months. Let us see to
whom this money belongs.
86469— 22174




45
As previously said, the board recommended to Congress that
the reserve bank be permitted to increase their surplus for the
express purpose of providing these building facilities. The Con­
gress, as I have said, not only granted the request of the board,
but it went much further than the board asked. It is this surplus
fund which is being invested in this bank building. To whom
does it belong? By act of Congress, by authority of law, it be­
longs to the Federal Reserve Bank of New York, which is owned
by the stockholding banks of New York. It is the usufruct of
the enterprise, the industry, the thrift, and labor of the business
men of that Federal reserve district. If this money were not
applied to this purpose it would be invested in some other way.
Not a dollar of it could go to Alabama or to Virginia or to any
other State. Not a dollar of it could be taken by the people
of any other section of the country for any purpose, because the
people of no other section contributed a dollar to this fund. It
does not affect credits anywhere on earth. Lt does not with­
hold from agriculture or commerce or industry or any enter­
prise one dollar. On the contrary, it gives work to unemployed;
it puts money in circulation for materials; it gives a decent,
necessary building to house the greatest bank on earth.
Whose money is it?
I will say to the distinguished Senator from Nebraska £Mr.
Nonais] in no event could one dollar of this surplus go into the
Treasury of the United States. Even if it were to go there it
could not be loaned out; it could not be used to erect public
buildings for the Government any where; it could not be used to
prevent wild mismanagers of banks from committing suicide.
It could only be used, under the division of profits provision of
the act, to increase the gold reserve behind Treasury notes or to
liquidate an inappreciable part of the public debt. What a fiction
it is to imagine that rural credits have been restricted by mere
estimates of what this great bank building will cost I
A FIN AIi M ISREPRESENTATION.

Mr. President* there is one other item of the speech delivered
by the eminent Senator from Alabama which is more or less
personal and with which I did not care to have anything to do.
It is a quarrel primarily between him and the governor of the
Federal Reserve Board. It does not concern me; it does not
concern this problem, except that the statement made by the
Senator may influence the prejudices, if not the reason, of
gome Senators here.
On Friday of week before last the Senator said:
W . P. G. Harding voted the Republican ticket in 1920. as I have
*nid here before. Before Senator Warren G. Harding was elected Presi­
dent, he— Gov. Harding— was bowing and smiling like a Democrat, and
after Senator Harding was elected President he bowed and smiled like
a Republican.

What difference does it make, in the discussion of this ques­
tion, how Gov. Harding voted? I have a faint idea, recalling
the election returns, that a few other Democrats voted the
Republican ticket in the last presidential election—a few.
Mr. CARAWAY. And have been ashamed of it ever since.
Mr. GLASS. Mr. President, I w ould like to leave my friend
from Alabama with one accurate statement to sustain his posi­
tion, but I take le av e to read into the R e co rd a letter written
SG4G9— 22174




46
me on January 7 by the governor of the Federal Reserve Board,
in which he says:
M y D e a r S e n a t o r G l a s s : I have
R e c o r d of this morning the remarks

just read in the C o n g r e s s i o n a l
made b y Senator H e f l i n on the
floor of the Senate yesterday concerning me. I feel that it is hardly
necessary to assure you that the slurs upon me, stated mildly, are false.
I do not claim to be infallible, as far as judgment is concerned, but I
do assert that I never made any improper use of my official position.
I did not go home t o vote in N o v e m b e r , 1920, for the reason that I
could not spare the time. The election occurred just at the time when
the strain on the Federal reserve banks was greatest and I was tied
down to my desk arranging interbank rediscounts. * * * I knew
that there was not the remotest possibility of my failure to vote hav­
ing the slightest effect upon the election results in Alabama. * * *
Sincerely, yours,
W . P. G . H a r d i n g .

Mr. HEFLIN. If the Senator will permit me, I will state
that under the laws you do not have to go home to vote. You
can vote by mail.
Mr. GLASS. Yes; that is true, and thus I am prompted to
say that there was one paragraph in this letter from Gov. Har­
ding I purposely omitted to read and did not care to read. I
would not now state it but for the provocation offered by the
Senator from Alabama. Gov. Harding states in his letter that he
was not particularly eager to go home to vote.or to send a
ballot by mail, because he would have had to vote for the Sen­
ator, and he did not want to vote for the Senator.
Mr. HEFLIN. I am not surprised at that statement or the
statement of the Senator who is defending his record.
Mr. GLASS. I am not defending Gov. Harding’s vote or fail­
ure to vote. I am not defending anybody’s record. I am cor­
recting misconceptions and combating misrepresentations con*
cerning the greatest banking system on earth.
A FARMER ON THE RESERVE BOARD.

With respect to the pending measure, I have no objection to a
trained, resourceful farmer on the Federal Reserve Board, and
never had any. I myself am a farmer. The original Federal
reserve bill as presented by me to the House of Representatives
provided that the Secretary of Agriculture should be ex officio
a member of the Federal Reserve Board. Were we to eliminate
from the galaxy of great statesmen the names of those who
tilled the soil there would not be left enough outstanding figures
to make us proud of the country. In my own State, for example,
we would eliminate George Washington, Thomas Jefferson,
Patrick Henry, John Marshall, Madison, Monroe, and other
great men of the farm.
When we provided that the Secretary of Agriculture should,
ex oflicio, be a member of the Federal Reserve Board we had
two sound reasons for the requirement. We thought a political
element should be introduced into the organization of the sys­
tem—I do not mean a partisan political element; I use the term
in its broad sense. We did not want to erect a financial
Frankenstein which might never be reached by the people for
correction of evil policies or the arrest of financial tyranny.
We felt also that the Secretary of Agriculture would be a man
of exceptional force, acquainted with the requirements of scien­
tific agriculture, and might exercise a wholesome influence in
the deliberations of the board.




86469— 22174

47
That was the House hill; hut the Senate in its wisdom ex*
eluded the Secretary of Agriculture. I think now it might be
a good thing to substitute the Secretary of Agriculture 011 the
board for the Comptroller of the Currency. That would pre­
clude the expense of an additional member; but I shall not be
intractable about the proposition to increase the membership
with a view to getting a farmer on the board.
Frankly, however, I find myself in agreement with the Sena­
tor from Nebraska [Mr. Nomus], who in his opening remarks
said, in effect, that anyone who is simple enoyigh to suppose
that this proposed legislation is going to create a revolution in
the policies of the Federal reserve banking system—that putting
on a farmer is going to bring the millennium to the agricul­
tural interests of the country—will find himself sadly deceived.
c o n c l u s io n .

Mr. President, I know perfectly well that, compared with the
great men from my own State who have adorned high posi­
tions in the service of the country, I do not rank as much of a
figure in public life ; but I fervently thank Heaven that no man
may truthfully say I ever misrepresented things to my con­
stituents or practiced the arts of a deceiver. I have tried to
render service in the 20 years I have been in Congress. If I
have failed, it is my fault; and never shall I undertake to
excuse my delinquency by telling the people of Virginia things
that are not true about measures upon which I have been called
to pass. I try to inform myself and to act with intelligence and
composure. I am not afraid uf consequences, because I would
rather retain my self-respect than to occupy a seat in this or
any other body for the balance of the limited time I have to
live.
In this connection I may recall that in the comedy by Eupolis, called “ The Demi,’' all the demagogues in hell, one by
one, are made to come up and pass in review. At last, when
Pericles is named, a character in the play exclaims :
And here, by way of summary, now we’ ve done,
Behold, in brief, the heads of all in on e!

God knows I would rather in the day of judgment take my
place with outcasts than to have any honest person say of me
in respect of a vital and pregnant problem of government what
was here said of this Athenian palterer. Any Senator who dis­
covers his own likeness in the picture is at liberty to appro­
priate the analogy.
SG4G9— 22174




O