Frsorigin Warburg 1930v1

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T H E F E D E R A L R E S E R V ES Y S T E M

ITS ORIGIN AN D GROW TH

R e f l e c t i o n s a n d R e c o l l e c t i o n sB Y

P A U L M . W A R B U R G

I n T w o V o l u m e sVOLUME ONE

N E W Y O R KT H E M A C M I L L A N C O M P A N Y

1930


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V O L U M E O N E


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T H E M A C M I L L A N C O M P A N YN E W Y O R K B O S T O N C H I C A G O D A L L A S

A T L A N T A S A N F R A N C I S C OM A C M I L L A N & C O . , L IM IT ED

L O N D O N B O M B A Y C A L C U T T AM E L B O U R N E

T H E M A C M I L L A N C O M P A N YO F C A N A D A , L IM I TE D

T O R O N T O


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C O P Y R I G H T , 1 9 3 0 ,B Y T H E M A C M I L L A N C O M P A N Y

P u b l i s h e d A p r i l , 1 9 3 0 . R e p r i n t e d J u n e , 1 9 3 0 .

All rights reservedno part of this book may be reproducedin any form without permission in writing from the publisher.

S E T U P A N D E L E C T R O T Y P E D B Y T H E L A N C A S T E R P R E S S , I N C . P R I N T E D I N T H E U N I T E D S T A T E S O F A M E R I C A -


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T O T H E G U A R D I A N SO F T H E

F E D E R A L R E S E R V E S Y S T E M

P A S T , P R E S E N T , A N D F U T U R E

T H I S B O O K I S D E D I C A T E D


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PREFACE ixThe first draft of this book was prepared at Pasadena inFeb rua ry and M arch of 1927. I had gone to California for athree months' rest when the appearance of a series of articleswritten by Senator Glass (subsequently published in book formunder the t i t le "An Adventure in Constructive Finance") im-pelled me to lay down in black and white my recollections of

certain events in the history of ban king reform. A s thischronicle of the past gradually took form, these recollectionsgave rise to reflections upon the Reserve System's presentstate and its future. In this w ay the preliminary draft tookshape and in its essential parts and structure became the basisof the present wo rk. It was some time, how ever, before Idefinitely resolved to publish the manuscript and, even aftercoming to such a decision, I found myself, during the prepara-tion of the final draft, under the strain of highly conflictingemo tions. T h e impulse to correct misinform ation and not towithhold material that possibly might prove of service to thepublic interest clashed with a strong distaste for allowing my^self to be drawn into a discussion of phases in our bankinghistory in which I had played an active part. Friends, how-ever, whose unbiased counsel I sought and who were goodenough to read the manuscript, gave it as their consideredopinion that under prevailing circumstances it was my duty tocomp lete the wo rk, no ma tter how trying the task. A yearwent by in the futile attempt to finish the book in the midst ofthe pressing duties of an act ive business life in N ew Y o rk . B u ta second stay at Pasadena, in the spring of 1928, enabled me tobring it to a close. M y reluctan ce, ho wev er, to publishing itstill continued until, in the autumn of that year, I became

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viii PREFACEconvinced that the Federal Reserve System had entered upona gravely critical period in its career, and that for the discussionabout to ensue i t was highly important that certain vital factsin the orig in and growth of the System be adequately under-stood.

When I real ized that i t had become imperative for me towrite this book my first impulse was to seek the collaborationof some of my former associates in the Federal Reserve organi-zation . R egr etfu l ly , how ever, I reached the conclusion tha t Im ight i l l serve these friends, and the Sy ste m itself , we re I topermit anyone of f ic ial ly connected with i ts administration tobecome involved in a public discussion of its present structureand functioning. In order to avoid exposing them to thecharge of being in sympathy with or responsible for anystatements contained in this book, I f inally, and most reluc-tantly , went to the very extreme of foregoing to mention byname even one-time fel lows-at-arms to whom I longed to pay aword of tribute for the splendid services they had renderedthe country and of personal gratitude for the friendship andinspiration they had g iven me.

One of the best among these, Governor Benjamin Strong ofthe Federal Reserve Bank of New York, has died s ince thisboo k wa s com pleted . I could not inscribe his nam e upo n thesepages while he was l iving. Y e t, now that he has gone, I ma ysafely confess that while writing these chapters, his picture oftenstood before my eyes as the prototype of splendid men who,with utter disregard of self , give their l ives and souls to the taskof making our Federal Reserve System an ef f ic iently and har-monious ly func t ioning org anizat ion,a h eartbreaking under-taking under a law that, s tructural ly , pits against one anotherforces which should be united in a common effort towards ac ommon a im.

On the occasion of Governor Strong 's death i t was my privi-leg e to present a reso lut ion in wh ic h inadequate ly indeedIattempted to express his fellow-citizens' appreciation of the


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PREFACE ixpa rt he had played in aiding Am erica to do justic e to hernew opp ortun ities and duties as a financial pow er. A reprintof this resolution appears at the close of Volume Two.

Beside the name of Benjamin Strong I should l ike to placeth at o f Da vid C . Wi l ls, Federa l Reserve Ag e nt o f C leve lan d,and for a brief period a member of the Federal Reserve Board.M r. W ills died in 1925 at the early age of 53 yea rs. In bo thcases, careers of extraordinary usefulness might have beenprolonged if a complete devotion to the service of the Systemhad not led these men to a ruthless neglect of their dutiestowards themselves. T he fact that i t was m y privi lege topersuade them both to become off icers of the Federal Re serveSystem at the t ime of i ts organization may justi fy my wish todo homage to their memory in these opening pages.

Aside from the inclusion of the above-named resolution com-memorating Governor Strong, the addition of a post-scriptumdealing with the stock exchange panic of 1929, and a few foot-notes here and there, the manuscript has been left substantiallyunchanged as it stood in the spring of 1928.

It is hoped that the array of two heavy volumes wil l notfrighten the reader. M y sto ry in itself is fairly brief , bu t it issubstantiated by the evidence of a col lection of documentswhich have been placed in the Appendix to Volume One.Vo lum e T w o contains essays written by me s ince 1906. T h efirst part of that volume consists of articles composed before Ijoined the Federal Reserve Board in 1914, while the secondpa rt contains writ ings published s ince then. Th ese docum entshave been reassembled here, because most of them are eitherout of print to-day or have become so scattered that they arel ikely to be known only from haphazard quotations in thebooks of other authorsquotations which are often entirelymisleading without the proper knowledge of their context.

No one who for a period of over twenty years has had thetemerity periodical ly to commit himself to print may hope thata complete record of his writings will not demonstrate him as


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X PREFACEha vin g, at t imes, been grav ely mistaken . Fo r the historian,how ever, i t is ju st as im portan t to ascertain w ha t at g ivenperiods human minds did not know as what they bel ieved theykn ew . M an 's fight against his own ignorance and against thatof his neighbors consti tutes one of the mo st instructive chaptersin the annals of hum an progress. From this sta nd po int oftracing the evolution of thinking in the realm of bankingreforma fair ly complete record of the author 's ef forts cover-ing so wide a period may not be entirely uninteresting for acoming generation of students .I cannot adequately express the depth of my obligation tothose wh om I found wil l ing to read the m anu script. It oug htto be dist inctly understood , how ever, tha t their gene rosityin g iving me the advantage of their counsel must not beconstrued as an endorsement of any statements contained inthese pages. I m ay mention only m y fr iends of Pasad en a,Robert S . L ovett , Professor Wi l l iam B. Munro, Joh n Perr in ,and H enry M. Robinson, fur th ermore, Professor Edwin R.A . Se l ig man and Vic tor Mo raw etz o f N ew Y or k , ProfessorWil l iam T. Foster o f Cambridg e , Mass . , Professor H aroldL . Re ed of Cornell U niv ersit y , and, last but not least , m ym ost patie nt cr i tic and fr iend, m y w ife. T o Professor Sel ig-m an, wh o from the days of my first l i terary endeav ors h asalways aided me by his willingness to give a critical readingto my writ ings, I am particularly indebted for introducingto me M r. R . W . Ro bey of Colum bia U n ivers i ty w h o, tog eth erwith my indefatigable secretaries , Miss Margaret Habrich andM iss Ingegerd Nissen, has g iven me invaluab le assistance inthe f inal com position of the m anu script. Fo r prep aring theindex and seeing the volumes through the press I am obligedto Mr. M. L. Jacobson, Statist ic ian of the Federal ReserveBoard from 1914 to 1924.

I wish to extend my s inc ere th anks to Th e N ew Y ork T imes ,th e Ac ademy of Pol i t i c a l Sc ienc e , N ew Y ork , th e ColumbiaU n ivers i ty Press , th e Americ an Ec onom ic Assoc iat ion, th e


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PREFACE ixCommerc ia l and Financ ia l Ch ronic le , N ew Y ork , th e N orthAm eric an R eview Publ ish ing Co. , N e w Y or k , th e Journal o fCom merc e , N e w Y or k , and th e Am eric an Ac ad em y of Pol i t i-cal and Social Science, Philadelphia, Pa., for their courteouspermission to reprint articles of mine previously published bythem.

P A U L M . W A R B U R GN E W Y O R K ,January, 1930.


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T A B L E O F C O N T E N T SP A R T O N E

C H A P T E R P A G EIntroduction 31 First Att em pts at Banking Reform (1903-1908) 112 Evo lution of a Central Reserve Plan (1908-1910) 313 Th e United Reserve Ba nk Plan (1910) 494 Th e Aldrich Plan (1910 -1912 ) 565 First D ra fts of the Glass Bill (1913) 816 From Ow en-Glass Bil l to Federal Reserve Ac t 1057 The Federal Reserve Ac t in Evo lution (191 4-19 17) 1378 Th e Aldrich Bil l and the Federal Reserve Ac t: A Juxtapositionof Te xt s 178Share Capital , 180; Incorporation, Charter, and Pow-ers, 184; Membership, 188; Organization, 198; Electionof Boards of Directors and Officers, 210; Constitutionof the Central Board, 224; Powers of the Central Board,234; Filing of Certificate and Call for First Payment,242; Stock Subscriptions and Increases and Decreasesof Holdings, 244; Tax Exemption, 252; Examinations,254; Earnings, Contingent Funds, and Government'sShare in Excess Earnings, 256; Equal Advantages forall Members and Right to Suspend Members from Useof Privileges, 260; Fiscal Agency Relations, 262; Gov-ernment and Members to be Sole Depositors, 264;Interest on Reserve Balances, 266; Rediscount Powers,268; Fixing of Discount Rates , 274; Power for N ationalBank s to M ake " Accep tance s," 276; Power to Purchase(or Discount) Acceptances, 280; Investments in UnitedStates Bonds and Other Securities, 282; Power to Dealin Gold and Bull ion, 284; Open-Market Purchases,286; Foreign Correspondents or Agencies, 294; Clear-ing and Collection System, 296; Branches of FederalReserve Ban ks, 301; Reserves, 304; Loans on Real Es-tate, 316; Reserves Against Deposits and Notes, 318;Weekly Report of Condition, 322; Reports and Exami-nations* 324; Partial Repeal of Section 5159, 328;Retirement of National Bank Currency and Conversionof two per cent Bo nds, 330; No te Issue, 338; N o Chargefor Transportation of National Reserve Association

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xiv C O N T E N T SC H A P T E R P A G ECirculation, 350; Foreign Corporations, 352; Right toAmend, 360; Effect on Existing Provisions of Law,362; Local Associations proposed by the National Re-serve Association Bill, 364; Federal Advisory Councilset up by the Federal Reserve Act, 367.9 An An alytical Com parison of the Aldrich Bill and the Federal

Reserve Act Based on the Juxtaposition of Texts shown inChapter Eigh t 369A. Organization, 369; B. Management, 374; C. Re-discounting, 383; D. Voluntary Purchases from Mem-bers or in the Open Market, 387; E. Investments inGovernment Securities, 389; F. Gold Transactions,390; G. Foreign Agencies, 391; H. Reserve Require-ments, 392; I. Note Issues, 194; J. Retirement ofNational Bank Notes and Refunding of Bonds, 396;K . Clearing S ystem, 398; L. Depositors, 399; M .Fiscal Agency Relations, 400; N. Exemption FromTaxation, 400; O. Publication of Reports, 400; P.Division of Earnings, 401; Q. Relations with MemberBanks, 402; R. Acceptances of National Banks, 404;S. Real Esta te Loans by N ational B ank s, 404; T .Foreign Trade Organizations, 405.

10 Th e Leg atee of the Aldr ich Bill 40711 Th e Redistricting Intermezzo 42412 Look ing Forward 456

A D D E N D AN U M B E R1 Th e Chicago Inciden t: A Postscriptum 4882 Th e Stock Exch ange Crisis of 1929 5013 Suggested Change for Constitution of Federal Reserve Ban ks'Directorates 5184 Selected Sections of the Federal Reserve Ac t show ing theAlterations effected by Amendments during the PeriodAu gu st 15, 1914 to Ap ril 5, 1918, inclusive 520


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CONTENTS iiP A R T T W O

A P P E N D I C E SN U M B E R P A G E1 Le tter to Ho n. Theodo re E. Bur ton, Apr il 30, 1908 5532 Le tter to Senator Ald rich , Decem ber 31, 1907 5553 Statem ent before the Subcomm ittee of the Com mittee onBanking and Currency of the House of Representatives(Glass Com mittee), January 7, 1913 5584 Report of Delegates from the New Yo rk State Cham ber of

Commerce to the Monetary Conference in Washington,Jan ua ry 18, 1911 5675 Excerpts from Address of Hon. Nelson W. Aldrich, Chairmanof the National Monetary Commission, before the AnnualConvention of the American Bankers Association, at NewOrleans, November 21 ,1 91 1 5726 Editorial published in$he New York Times, March 4 ,1 9 11 . . . 5807 Quotations from a pamphlet of The Nationa l Citizens' Leagu efor the Promotion of a Sound Banking SystemThe Originof the Leag ue 5828 Letter to Hon. Carter Glass from Mr. Victor M oraw etz, April5 ^ 9 *7 ; 5^79 Review of the Repo rt of the National Mo netary Comm issionby the Committee on National Affairs of the RepublicanClub of the Cit y of New Yo rk , February 19, 1912 59210 Dr . H . Parker Willis 's Mem orandum on Scope and Effect ofH . R . T o Reorganize the Present Banking andCur rency Syste m , Ap ril 2, 1913 60411 Lette r to Colonel House analyzing Dr. H. Parker W illis 'sSynopsis of the First D ra ft of the Glass Bill, Apr il 22, 19 13 .. 61312 Extracts from Chapter X V I of An Adventure in ConstructiveFinance by Hon. Carter Glass 62613 Lette r to Samuel Un term yer, written on the " M aureta nia,"M ay 24, 1913 63614 Memorandum written on the "M au re tan ia" for Senator Owenand M r. Unterm yer, M ay 24, 1913 63915 Letter to Dr . A . Piatt Andrew , December 5, 1910 65316 Mem orandum on the Rediscounting and Open -Mark et O pera-tions Clauses of the Ow en-Glass Bill, Octo ber, 1913 65717 Suggestions for Am ending Sections 14 and 15 of the FederalReserv e Bill 670


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XVI C O N T E N T SN U M B E R P A G E18 Th e Educational Campaign for Banking Reform, by A. D .Welton 67319 Miscellaneous Exh ibits pertaining to pending Banking Legis-lation:Letter from Irving T . Bush, Au gust 7, 1913 678Letter to Irv ing T . Bush, September 1 , 19 13 682Lette r from Edm und D . Fisher, July 10, 1913 683Excerpts from a letter of Professor J. Laurence

Lau ghlin , Octo ber 15, 1913 685Letter from J. H. Tregoe, Secretary-Treasurer of theNational Association of Credit Men, January 7,i 9 i 3 685Letter from J. H. Tregoe, Secretary-Treasurer of theNational Association of Credit Men, January 10,1913 686Excerpts from Report on Aldrich Bil l by the Bankingand Currency Committee, National Association ofCredit M en, June, 1912 687

Excerpts from a Foreword on the Attitude of the Na-tional Association of Credit Men toward Bankingand Currenc y Reform , October, 1912 694Facsimile of Leaflet No. 1 of the National Associationof Credit M en, Janu ary 10, 1913 69720 Pa rt of a Mem orandum su bm itted to the Federal ReserveBoard at the Board Meeting of December 3,1915 700Letters and Editorials Relating to Am endm ents of Note Issue and Reserve

Sections of the Federal Reserve Act. {Appen dices 21-26.)21 Lette r to Hon . Carter Glass, Febru ary 29, 1916 70722 Qu otation from The Chronicle of July 2 9,19 16 , Vol. 103, P. 348 71823 Qu otation from The Chronicle of September 30, 1916 , V ol.103, P. 1153 72324 Let ter to a Board M emb er, Nov emb er 10, 1916 72825 Press Statem ent issued by the Federal Reserve Board onJanu ary 13, 1917 74526 Letter to a Friend concerning Fiat Mon ey, Novem ber 3 , 19 13 . 751


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CONTENTS xviiN U M B E R P A G E27 Qu otations from an Address entitled "B an ki ng R eform in

the United States," delivered by Nelson W. Aldrich (beforethe Academy of Political Science, New York, October 15,1913) 75228 Testim ony before the Reserve Ban k Organization Com mittee,Jan uar y, 1914 . 75929 Revised Repo rt of the Federal Reserve Board Com mittee onRed istricting, Nov emb er 17, 1915 76730 Opinion of T . W. Grego ry, Attorn ey General , concerning thePower of the Federal Reserve Board to abolish any of theexisting Federal Reserve Districts, No vem ber 22, 19 1 5. .. 78131 Opinion of T . W. Grego ry, Attor ney General , concerning theright of the Federal Reserve Board to change the presentlocation of an y Federal Reserve Ba nk, April 14, 1916 79232 Le tter to President Wilson, M ay 27, 1918 80233 Le tter from President W ilson, Au gus t 9, 1918 80534 M emorand um to the Federal Reserve Bo ard, warning againstforcing Federal Reserve Banks to invest, and urging the useof Bankers' Acceptances to f inance Trade between ForeignCou ntries, M arch 30, 1915 806

35 Lette r to Hon . James G. Strong, House of Representatives,containing Report of Merchants' Association of New York,M a y 24, 1927 81736 Opinion of the Atto rney General of the United S tates con-cerning the Powers of the Federal Reserve Board to regu-late Discount Rates of the several Reserve Banks, Decem-ber 9, 1919 82037 Rem arks of Au thor , as Chairman of International Accepta nceBa nk , Inc., made in his Annu al Repo rt, M arch 7, 1929. . . 823Index 827


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L I S T O F D I A G R A M S , F A C S I M I L E S O FL E T T E R S , E T C .N U M B E R P A G E S1 Facsimile of Postcard showing Lis t of Officers and Plat-form of the National Citizens' League 72~73

2 Letter to Au thor from Hon . Carter Glass, Nov em ber 22,i9 J 3 1 1 63 Letter to Author from J. H . Tregoe, Janua ry 7, 1913. . . 1354 Let ter to Au thor from President Wilson, Apr il 30, 1914. 1445 Diagram s showing Condition of Federal Reserve Ban ksbefore and after Am endm ents of June 21, 1917 167-1686 Diag ram s showing Federal Reserve Holdings of Bills andSecurities, Movem ent of Open-Market and B ank Rates,also Growth of Brokers' Loans and Stock Values, to-gether with Changes in the Call Money Rate, 1926-929 : ; 53~54

7 Facsimile of Lea flet No . 1 of the Natio nal Association ofCred it M en , Janu ary 10, 1913 697

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PART ONE


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INTRODUCTION 23Nisi utile est quod facimus> stulta est gloria.

( P H A E D R U S )

In an artic le entit led "The Money Power in Poli t ics ," 1Professor William B. Munro makes the following remarks onthe process of law making:I am told that Congress and the State Legislatures makethe laws. . . . Instead of saying that legislators make the

laws, it would be far more correct to say that legislaturesmerely put the finishing touches on the law. T o say that they"make the laws" is like saying that the books are made bybookbinders, forgetting that there are authors, printers, andproofreaders too.The motive power in lawmaking is all supplied from some-where outside the legislative halls. . . . Some intellect outsidethe realm of active politics first conceives an idea. It spreadsto the minds of other individuals, slowly at first, but graduallygaining mom entum. Presently there is an organized move-ment in its favor; then comes the deluge of propaganda, untilthe proposal becomes an issue and the politicians begin to takenote of it. A law is half made, and more than halfmade,whena large body of aggressive support has been mobilized amongthe voters; yet during this part of the process the legislativebodies have nothing whatever to do with it.

No one conversant with the history of the Federal ReserveAct is l ikely to read this passage without noticing how closelyit applies to the origin of th at measu re. T h e ideas so suc-cinctly stated by Professor Munro seem not to haveoccurred, however, to the principal commentators onthe origin of the Federal Reserve System . As a rule,these writers have treated the technical work of framing thelaw, the debates in committees and on the floors of Congress,and the incidents relating thereto, as the chief matters of his-

1 Atlantic Monthly, Ap ri l , 1927, p . 447.3


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4 THE FEDERAL RESERVE SYSTEMtorical importance, indeed, as though they were the wholedra m a. T o the period, on the other hand , during wh ich thebasic ideas cryst allized and during wh ich public opinionwas mobil ized in their supportthe period which consti tutednot only the prologue but also the f irst act of the dramathey have g iven very scant and inadequate consideration.Yet the way a law looks when i t is "half made, and more thanhalf made," deserves close study; for in this stage, if it is theresult of the labors of men uninfluenced by self ish motives, itrepresents, as nearly as may be possible, the law in its idealform . It is the neu tral mo del of a non -partisan p ropo salun tain ted by poli t ical considerations. In order, how eve r,that a proposed bi l l may be placed upon the statute book,it is its inevitable fate to become the subject of political andof ten of part isan ac t ion. A par l iamentary g overn m ent c an-not function ef fectua lly with out a pa rty system. Pa rties , inturn, are bound by tradit ions, platforms, s logans, and, mostof all , by the fear of oppo sing faction s. A m odel law , ofsufficient importance to be considered as coming within theominous circle of party politics, is bound, therefore, to lose itsneutral character and to be remodelled so as to harmonizewith the tenets of the party that undertakes to enact i t .Thus the labors of parl iaments may result in deplorable per-versions of the original non-partisan proposals by dint of con-cessions to the right side or the left, depending upon the par-ticular pa rty which happens to be in pow er. An d the m oredif f icult i t be to muster the necessary majority , the heaviermust be the toll of concessions to extreme wings whose votesm ust be secured. Com promises thus are the frequen t frui tsof par l iamentary law making .

In spite of such handicaps, however, a law enacted in suchcircumstan ces m ay denote great progress and, for a while atleast, confer benefits of the highest order. B u t as time pro -gresses and as the economic structure based on such legalgroundwork grows in height and weight, the weakness of the


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INTRODUCTION 5very foundation will be revealed whenever so\ind principlesand convictions were compromised.

Fortunately , in a world of constant evolution, public opinionadvances and, as time loosens the stranglehold of prejudicesand party commitments, the "poli t ical necessit ies" of yester-da y cease to exercise their sw ay. Ev er-ch ang ing economicand psychological conditions call for the adaptation of old lawsto new circumstances; and defects in a law which had to beaccepted as the price of i ts enactment may subsequently becorrected with com para tive ease. T he law in a process ofgradual evolution may thus lose i ts partisan color and adopta form more c losely approximating the orig inal non-partisanmodel.

A comprehensive scientif ic account of the origin and devel-opment of the Federal Reserve Act would have to record somesuch evolu tion. T h e first par t of such a history shouldstart with an analysis of the soil in which the early begin-nings of the neu tral law had its roots. I t wo uld then tracethat model through its f irst stages of development, describethe gradual spread of the movement for i ts propagation,and show how the propaganda gained momentum and assumedan organized form.

Th e sec ond part o f th e s torytne part devoted to par l ia-mentary recognition of changed public opinionwould depictSenator Aldrich's entrance upon the scene, his assumption ofthe leadership in the banking reform movement by the presen-tation of the National Reserve Association Bi l l , a bi l l whichmay be regarded as the Republican version of the neutralm odel. T h e educational cam paign carried on by the Na tion alCitizens' League would f i l l an essential chapter of this part ofthe story, which would end with the fai lure of the AldrichPlan . Th en cefo rth, this stage of the analysis wou ld deal withthe ascendency of the Democratic party and with i ts crowningaccomplishment in banking reform, the enactment of theFederal Reserve legis lation.


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6 THE FEDERAL RESERVE SYSTEMT h e third pa rt wou ld reveal the law in opera tion. It wo uld

show where practical experience led Congress to removesome of the undesirable features forced into the law either by-poli t ical considerations or by faulty estimates of future needs,and would indicate where errors sti l l remain to be corrected ifthe System's future is not to be impaired.

Ever s ince 1914 I had hoped for a comprehensive his-tory o f th is k ind. U n fortun ate ly , h ow ever , wh i le we h av eseveral excel lent books treating the operations of the FederalReserve System since i ts organization, 1 th e most importanti f not the only books dealing with the genesis of the FederalReserve Ac t are th ose o f Senator Glass , Dr . H . ParkerWill is , and Senator Robert L . Owen, al l of them the pro-ductions of pleaders in their own cause and not of unbiasedhistorians. Th ese writers fai l to g ive an ade qua te acc oun tof the work done by individuals and associations in theperiod extending from 1908 to 1914, and particularly of theimp ortant contr ibut ions ma de by Senator Aldr ic h . Som e ofth em, indeed, h ave g one to th e extreme of making determinedefforts to disprove any direct relationship between the FederalReserve Ac t and th e Aldr ic h Bi l l .

Thus the true connection between the half-made law, asProfessor Munro puts i t , and i ts outg rowth , th e Federa l Re-serve Act, has yet to be ful ly described and justly appraised.It is of the utmost importance that this connection should beestablished, for without an adequate knowledge of the orig inand evolution of the Act we cannot understand the presentproblems of the Federal Reserve System nor wisely determine

1 H a r d i n g , W i l l i a m P . G . Formative P eriod of the Federal Reserve System(During the World Crisis) , 1 9 2 5 , H o u g h t o n , M i f f l in a n d C o m p a n y ; K e m m e r e r ,E d w i n W h i t e , A B C of the Federal Reserve System, P r i n c e t o n U n i v e r s i t yP r e s s ; R e e d , H a r o l d L y l e , Development of Federal Reserve Policy, 1 9 2 2 , H o u g h -t o n , M i f f l i n a n d C o m p a n y ; B u r g e s s , W a r r e n R a n d o l p h , Reserve Banks and theMoney Market, 1 9 2 7 , H a r p e r a n d B r o t h e r s ; Go l d e n w e i s e r , E . A . , FederalReserve System in Operation , 1 9 2 5 , M c G r a w - H i l l B o o k C o m p a n y .


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INTRODUCTION 7what changes should be made in the law or in the methodsof i ts administration.

An equitable assessment and frank acknowledgement ofSenator Aldrich 's work is further necessary for the specialreason that unless the System be considered the child and wardof both parties its futu re is no t secure. If , from time to time,the needs of the Reserve System are to be dealt with by Con-gress in a spirit of disinterested sympathy, if Congress is toplace the R eserv e Syste m in a position of unassai lable autho rityand to safeguard i t f rom poli t ical interference, the ReserveSystem must have the undivided fr iendship and goodwil l ofbo th politica l parties. It is im per ative th at it should be re-garded not as the work of a single party, but as the product ofthe combined efforts of all those who helped to bring it aboutand as the property of all the people.

Moreover, i t is dangerous to permit misinformation to re-m ain for long unr efuted . M iss Clio, the M us e of H istor y, isa stubborn lady, entirely devoid of a sense of humor, and onceshe has made up her mind, it is exasperatingly diff icult to alterher ve rdic t. It is inad visab le, therefore, to de lay too long thecorrection of inaccuracies, particularly in cases where silencemight fairly be construed as assent.

Fin ally , the Re serv e Syste m does not stand stil l . I ts prob-lems are immediate, and legis lative action may be invoked atan y time. W he n the hour for action by Con gress does arrive,i t is of the utmost importance that the problem be taken up inthe ful lest knowledge of the true facts and without partisanbias.

Considerations such as these were uppermost in my mindwhen I reached the conclusion that i t was my duty to ventureupon the dif f icult and in m any respects unwelcom e task of writ-ing this book. It ought to be understood, how ever , that I donot present it as a chapter of banking history, or as a completesto ry of the stru ggle of the n on-po litical tho ugh t in ban kingreform. It would have been impossible for me to attem pt


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8 THE FEDERAL RESERVE SYSTEMto cover the m an y contem poraneou s ef forts m ade by o thersstr iving for the same goal; I could g ive a description only ofthe episodes of the play in which I personally took part either asacto r or as spe ctato r. I could offer such a ske tch only w ith thevery dist inct and l imited aim in mind of contributing bui ldingmaterial which some day might be useful to historians who,in chronic l ing the genesis and evolution of the Federal ReserveAct, would seek to f i l l in the gaps and throw new l ight uponphases of the drama which have been incorrectly presented,or have remained obscure.In order to avoid any misunderstanding, may I be permittedto state at the outset that I do not c laim to have orig inatedan y new ban king principle. I was trained in the practicesof a banking sys tem wh ic h under vary ing forms h ad workedsatisfactori ly in almost every industrial ly advanced country,excep t the Un ited States . Fro m the t ime of m y arrival inAmerica I felt impelled to urge the adoption of the fundamentalprinciples upon which that established and proven systemwas based, and by submitting several plans I tr ied to demon-strate the possibi l i ty of a practical adaptation of this system toAm erican cond itions. It was owin g to the interest I hadsh own in banking reform th at , wh en th e Aldr ic h Banking andCurrency Committee was appointed, I was invited to assist i tin formulating a plan providing for the creation of a CentralRe serv e Association with regional branches. I had opposedplans envisaging systems of large numbers of divis ional re-serve ban ks entirely disconnected from one anoth er, bu t Ifavored plans providing for a moderate number of regionalbanks intimately connected with one another so as to consti-tute a prope rly coordinated central ban king system . H enc e,when subsequently a bi l l was introduced in Congress for thecreation of a system of regional reserve banks t ied togetherby a central board, instead of one reserve bank with regionalbranches, I endeavored, just as I had done in the case of theAldrich Bi l l , by posit ive and negative recommendations, to


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INTRODUCTION 9keep the Act, a highly desirable project , f rom being jeopar-dized by dangerous concessions to extreme political demands.When the Federal Reserve Act was passed, and I became amember of the Federal Reserve Board, I continued, hand inhand with others devoted to the same task, to work for thesuccessful development of the Federal Reserve System bypressing for amendments as practical experience in operationrendered them necessary and possible. In this wo rk I wasat al l t imes an opponent of the poli t ical view, championingthe non-political side, and it is in that spirit that as a f inaleffort I now present this book.

In the f irst part of the book the form of a personal narrativehas been adopted, because by this method i t proved possibleto establish authentically the chronological record of events,often in refutation of assertions made by others , withouttiring the reader by specifically mentioning in each instancethe statem ents to be disproved. W here it was im portan tto leave no doubt as to the nature of the case involved thepassages relating to these statements have been quoted.

While I do not deny that, having devoted the best partof my life to the solution of our banking problem, I am anx-ious to keep the record of my work clear and undistorted, them ain obje ct of this book does not lie in tha t direction. M ynarrative is but the background for the conclusions to bedraw n therefrom. "Re collection s and Re f lectio ns" serve onlyto show tha t the Federal Res erve A ct o n e of the greatest ac-complishments ever recorded in the annals of Congress, an Actconferring untold benef i ts not only upon the United States butupon the entire worldis st i l l weighed down with the burdenof political compromises which menace its future; that this dan-ger could be removed without af fecting any fundamental partof the structure, but that the necessary remedial action may behoped for only if the problem can be dealt with in a thoroughlynon-partisan spirit.

The principal message of this book thus remains that the


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10 THE FEDERAL RESERVE SYSTEMReserve System is the product of the labors of many minds,that i t is the common property and ward of a l l the people, andthat all must feel an equal degree of concern and responsibil-it y for its we lfare. In order to be accorded its proper plac e, theReserve System must be looked upon as a nat ional monument ,l ike the old cathedrals of Europe, which were the work of manygenerations and of many masters , and are treasured as symbolsof nat ional ac h ievement . Bec ause Bram ante c onc eived,Rafael Sanzio elaborated, and Michael Angelo carried out,the Cathedral of St . Peter 's at Rome, this monument of theircombined genius, is all the more cherished by the people ofItaly as one of their most sacred possessions.

If this narrative should help to awaken in the minds of itsreaders a l ike att i tude toward the Federal Reserve System,the author 's aim wil l have been accomplished.


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CHAPTER IFIRST ATTEMPTS AT BANKING REFORM 31

(1903-1908)W H E N the full history o f the Federa l Res erve A ct comesto be written, it is to be hoped that in addition to acomplete description of the banking laws and con-ditions prevailing in the United States in the last decade ofthe nineteenth century, it will contain a careful account of thestate of mind of the people of that time concerning the broadproblem of money and banking.

W ith ou t a clear comprehension of the attitude o f the businessmen, bankers, and economists of that period, coming genera-tions will find it impossible to visualize the obstacles whichhad to be overcome and to gauge the distance which had to becovered, when the way was blasted for the gradual advanceand ultimate victory of banking reform.Such a history , how ever, mu st be penned by others. I can-not do more here than attempt to sketch the rough outlinesof the picture of men and conditions as I saw them when,after several visits to the United States, I moved from theOld World to the New, and settled in New York as a bankerin the fall of 1902.A t tha t time there were in existence some twen ty thousandnational and state banks, stock savings banks, private banks,and loan and trust companies, of which about one-half had a

cap ital of $25,000 or less. Th ere were abou t five tho usandnational banks, the largest of which had a capital of $25,000,-000, a surplus of $8,900,000, and deposits of $138,000,000.The largest state banking institution had a capital of $2,000,-000, a surplus of $2,500,000, and deposits of $34,000,000.There was no organic cohesion between these approximately11


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12 THE FEDERAL RESERVE SYSTEMtwe nty th ousand banks . Indiv idual i sm in banking was th egospel of the coun try. T h e view was general ly held thatcentral ization of banking would inevitably result in one of twoalternatives: ei ther complete governmental control , whichmean t poli ti cs in banking , or c ontro l by " W a l l S tr eet , " w h ic hm eant ban king in poli t ics . Ab horre nce of both extrem es hadled to an almost fanatic conviction that the only hope of keep-ing the country 's credit system independent was to be sought incom plete decentral ization of bank ing. A s a consequ ence,there existed as many disconnected banking systems as therewere States , and even among the banks of a s ingle State therewas no machinery for mutual protection except the "c lear-ing-house assoc iations." Th ese organizations were to befound, however, in only a comparatively small number oflocal i t ies and, even within their restr icted areas, servedrather inef fectively at thatto assist their bank members intimes of grave f inancial convulsions, rather than to preventthe occurrence of such calamities.

Th e N at ional Bank Ac t h ad been devised in order to c reatea uniform though str ict ly decentral ized credit system, with adecentralized inelastic note issue secured by the deposit of col-lateral consisting of certain United States Government bonds.U nd er th is p lan a sys tem of ob l ig atory indiv idual "re ser ve s"was relied upon to limit the possible extent of credit and depositexpansion. Ta ki ng account of the variou s type s of ban ks, theAct divided national banks into three c lasses , viz . , central re-serve c i ty banks, reserve c i ty banks, and country banks; and foreach c lassits t ipu lated a di f ferent " required rese rve ." Co un tryban ks were to m aintain against their dem and deposits a reserveof 15 per cent, of which n ot less than 6 per cent wa s to be held inlawful money in their own vaults , and 9 per cent could be rede-pos i ted wi th oth er nat ional banks ac t ing as "reserve ag ents"in reserve or central reserve cities. N ati on al ban ks in reserv ecities w ere to m ain tain a reserve of 25 per cen t, of wh ich n otless than half was to be kept in lawful money in their own


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FIRST ATTEMPTS AT BANKING REFORM 13vaults , while the other half might be redeposited with "reserveag e n ts " in central reserve c i t ies . N atio na l ban ks in centralreserve c i t ies , that is , in New York, Chicago, and St. Louis ,had to maintain a reserve of 25 per cent, all of which wasto be kep t in law ful m oney in their own vaults . A num berof State laws had copied the National Bank Act in dividingtheir state banks and trust companies into similar classes,requiring them to maintain similar cash reserves againstdeposits and granting them similar authority to redeposita portion of their required reserves with "reserve" and "cen-tral reserve ag en ts ." Indee d, certain States perm itted theirinstitutions to include national bank notes in the cash reserveto be kep t in their vau lts . Th us national and Sta te legis la-tures had combined to create a system of pyramided reservesa system which was bound to produce an arti f ic ial and un-healthy concentration of funds in the reserve and centralreserve c i t ies , and particularly in N ew Yo rk . Res erve fundsneed not inevi tab ly h ave ac c umulated in N ew Y ork to anylarger extent than in Chicago and St. Louis , had not the cal l-loan market o f th e N ew Y ork Stoc k Exc h ang e proved th e onlyrel iable mo ney reservoir in which reserve funds in vas t amo untscould be easi ly placed, and from whichas long as thingsremained normalth ese funds c ould be wi th drawn at th epleasure and convenience of the lender. It should be remem -bered, in this connection, that in those days commercialpaper in the portfolios of the banks, instead of being a liquidasset, consti tuted a lock-up of funds and that there was nofree supply o f , or wide market in , U ni ted States Governmentsec ur it ies . T h e only g overnm ent bonds norm al ly ava i lab lewere those that could be used as collateral for the issue ofnational bank circulation, and these had been absorbed andwere f irmly held by the national banks and commanded afancy price.

The sett lement of balances between c it ies was entirely inthe hands of the comm ercial banks, which maintained elaborate


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14 THE FEDERAL RESERVE SYSTEMc h ec k c o llect ion departments . "T ra n sfe rs , " in so far as th e ywere not accomplished by shipments of actual currency,were g enera l ly e f fec ted by buying or se l l ing "exc h ang e,"and "c o l lec t ion and exc h ang e c h a rg e s" p layed a ve ry im-po rtan t part in the bank s ' dai ly routine and par ticu larlyin th e case of the smaller ban ks furn ished a substa ntia lportion of their revenues.

If industrial conditions had not undergone revolutionarychanges, this host of self -centered local banks might not haveproved so inadequate . B ut wh en th e c oun try outg rew i tsprovincial ism; when our new industries started upon theirphenomenal careers; when a l ively and intimate dai ly exchangeof goods and funds began to develop, not only between theseveral sections of the country, but between ourselves and al lthe rest of the world, the national banking, system , with thestate banking system superimposed upon i t , was bound toshow the fatal consequences of i ts inadequate structure.

It became painfully manifest that extreme individualism inbanking had rendered the country incapable of coping withits growing requirements and had made i t hopelessly defense-less against dangers both from within and from without.If gold was withdrawn for export, the bulk of i t could only betaken from the cash holdings of the bank which made theshipm ent, or indirectly from some other insti tution. I f thebank losing gold strove to regain it by calling in some of itsdemand loansc ol lec t ing in lawful money th e ba lanc e th usmade avai lable to i t in the dai ly c learing-house sett lementsome other bank of necessity had to be the loser of a correspond-ing am oun t of reserve m one y. A s long as al l the b an kscollectively commanded reserves well in excess of the legalrequirements , th ese adjustments c ould take p lac e wi th outcreating d if ficulties or alarm. B u t when he av y dem ands forgold from abroad, or excessive domestic demands for c ircula-tion, or an abnormal increase of bank loans and bank depositshad brought excess reserves down to or below the legal require-ments, f inancial conditions became at once critical.


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FIRST ATTEMPTS AT BANKING REFORM 15W ith o ut a c entra l org anizat ion, wh ic h by d isc ount ingor buying commercial paper could furnish additional currency

or additional reserves, a heavy rise in deposits or a markedincrease in the volume of c irculation were bound automatical lyto tie up the ban ks. It is true tha t a certain elasticit y wa sprovided by the wil l ingness of European bankers to grant usaccep tance credits . Th ese credits served to f inance the m ove-ment of our crops and, in the form of f inance bills, to providefor the additional demands of industry and speculation. B utwhen these credits became exhausted, the mere knowledge thatthe end of the tether had been reached created a situation ofsuch tenseness that even a slight shock could cause thecollapse of the insecure structure . W he n, in such c ircum -stance s, Eu rop e wo uld atte m pt to curtai l credits , or drawgold, or when the depositor would become alarmed and beginto hoard i t , when the vic ious "gold premium" would put in i tsdreaded appeara nc e pand em onium was inevi tab le . W ith nocentral insti tution to provide rel ief , nobody could strengthenhis posit ion save by attack ing his neighbor. Th us naturalinstincts of self -preservation, when cal led into play, unavoid-ably led to panics and wholesale destruction of values.W he n the fran tic att em pt to sell securities at an y p rice,while nobody was in a posit ion to buy, precipitateda crash which at times forced the stock exchange to closei ts doors, s toc k-exc h ang e ca l l loans " f ro ze . " T h a t mean tthat the liquid reserves of the banks in all parts of the countryhad become immobil ized and that a general suspension ofcash pay m en ts was inevitable. W ithin the conf ines of ac ity banks m ight m ake ef forts to sett le at least the mostpressing transactions by accepting clearing-house certif icatesin sett lem ent with one another. Ou tside of this narrow circ le,however, payments between c it ies and sections entirely ceased,as banks refused to ship currency and declined to accept pay-m ent s in chec ks on other cities. It wa s one of the tragicdefects of the American banking system at that t ime that,


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16 THE FEDERAL RESERVE SYSTEMwhile disasters of this k ind were the automatic consequencesof over-expansion, there was no possibi l i ty of averting themby t imely preve nt ive c o l lec t ive ac t ion. Th ere was no g overn-mental or private authority that could assume leadership inwarning the country, or that had actual power to put on thebrakes if the car were moving too fast and heading for theprecipice.

Indiv idual i sm in banking demanded th at everybody sh ouldbe free to have his own individual f ling, while the subsequentdisaster wa s the common prop erty o f a ll , engulf ing the innocen twith the gui lt y . A t t imes, when excesses had not gone toofar , the unwil l ingness and inabi l i ty of the banks to makefurther loanswhich might express i tself in interest chargesof from 50 per cent to 100 per cent for cal l loan s wo uld bringabout a contraction; at t imes, the very existence of such rateswould tend to broadcast the cr i t ical underlying conditionsand precipitate the panic that i t was hoped such prohibit iverates wou ld forestal l . E ve ry bo dy wil l agree to-day tha t i twould be dif f icult to imagine a banking system more crueland more ineff ic ient than that prevai l ing in the United Statesat th e beg inning of th e twent ieth c enturya sys tem wh ic h ,instead of scientif ically regulating the f low of credit and moneyso as to secure the greatest possible stability, was designed au-tomatic a l ly to produc e ins tabi l i ty ; a sys tem wh ic h permittedexpansion and contraction to go unhampered to their veryextremes; a system which knew no better way to turn theebbing t ide of credit than to lay the country waste, makingits ruins an attr activ e sho pping place for domestic andforeign wreck ers and barga in hun ters.

It is very important, however, to real ize how l i tt le thepeople of that period understood the fundamental organicdefects of their ban king sy stem . Am erican public opinionwa s stro ng ly inclined to dispose of the question by lay ing theblame for these dif f icult ies upon the "self ish and recklessma nag em ent o f c orporat ions ," on "ov er-sp ec ula t ion/ ' th e"g r ee d of ban ks ," or th e wi ly prac t ices o f "W a l l S treet , "


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FIRST ATTEM PTS AT BANKING REFORM 17T o a person trained under the central ban king system ofEuropean countries , such conditions seemed bewildering and

strange. T o him Am erican bank ing m ethods appeared to doviolence to alm ost eve ry ba nk ing ten et held sacred in the Ol dW orld . In Eu rop e, reserves were cen tralized, note issues wereelastic , and commercial paper permitting of immediate saleformed the quicke st asset of the banks. In Eu rop e, the "b i l lm a rk e t" formed the mo st im portan t field in which ban ks soughtto em ploy their l iquid fund s, wh ile a certain limited portion oftheir secon dary reserves wa s investe d on the stock exchan gesin fortnightly or monthly loans under the term-sett lement sys-tem general ly prevai l ing on European stock exchanges, insteadof a dai ly-sett lem ent system such as that in vog ue with us. Inthe United States , the note issue, based on government bonds,was inelastic, gold reserves were decentralized, and invest-ments in unsalable s ingle-name commercial paper were lock-ing up the funds of the banks, while call loans on the stockexchange constituted their chief l iquid asset.

The idea of a central banking system being anathema to al l ,attempts to obtain relief generally centered in proposals forthe creation of more currency to be issued by thousands ofindividu al bank s. W h at the general state of mind was withregard to the banking problem may well be i l lustrated by aconversation I had shortly af ter my arrival .

In order to clarify the problem as it had arisen in my mind,I had ventured to set down, in a short memorandum, thecardinal defects of our system as I saw them . I compared ourmethods with those employed in Europe and pointed out thedirection in which, I bel ieved, the remedy might be found.I stressed the fact, however, that, aside from psychologicaland political resistance, any attempt to establish in theUnited States a banking system more nearly approaching theEuropean models would meet a serious and almost insuperableobstacle in the fact that, while central banking systems inEurope were largely bui lt upon a foundation of modern


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18 THE FEDERAL RESERVE SYSTEMcommercial paper and bankers ' acceptances, these modernforms of paper were then non-existent in the United States ,and that, therefore, progress could be achieved only by s lowdegrees.

This memorandum was shown to Mr. Jacob H. SchifF, thenthe senior partner of the banking f irm of Kuhn, Loeb &Co m pa ny , o f wh ic h I h ad la te ly bec ome a mem ber . M r .SchifF read the paper w ith interest and told m e, wha t a f ter-wards he often repeated, that, while theoretical ly he agreedwith most of the thoughts expressed, he bel ieved that I wasmis judg ing th e psyc h olog y o f th e Americ an people , wh o wouldnever, he said, accept any system approaching a centralban k. B u t s ince he alw ays appreciated earnest ef forts on thepa rt of his junio rs and never missed an oppor tun ity o f en-couraging them, he suggested that I let him show thepaper conf idential ly to two of his fr iends. O ne of these wasMr. James A. S t i l lman, Pres ident o f th e N at ional C i ty Bankof N ew Y o rk . I t was s ig nif ic ant , h owe ver , o f th e a tmosph erein wh ich we were then l iving tha t M r. SchifF warn ed m e to becareful not to have the memorandum go any further, lest ,h avin g ju s t arr ived f rom Europ e, I m ig h t impair m y s tandingin the banking community by creating the impression that Iwas urging a system which, in the f inal analysis , would haveto be bui lt around a central ban king organization. I g lad lyaccepted Mr. SchifF's suggestion, and a few days af terwardsI found M r. Sti l lman stand ing over m y desk. H e looked atme s i lently , as was his wont, through his half-c losed, heavydark eyes.

" H o w is the great internation al financier?" he asked w ithfr iendly sarcasm. H e th en added, "W ar bu rg , don ' t youth ink th e Ci ty Bank h as done pretty wel l?"

I rep l ied , "Y es , Mr . S t i l lman, extraordinar i ly wel l . "H e th en sa id , " W h y n ot leave th ing s a lon e?"It was not wi th out h es i ta t ion th at I rep l ied , "Y our bank

is so big and so powerful , Mr. Sti l lman, that, when the next


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FIRST ATTEMPTS AT BANKING REFORM 19panic comes, you wil l wish your responsibi l i t ies were smaller ."A t this , M r. Sti l lman told m e tha t I was entirely w rong ,that I had the mistaken notion that Europe's banking methodswere the most advanced, while, as a matter of fact , Americanmethods represented an improvement upon, and an evolutionof , the European system, America having already discardedits central ban k. H e had no dou bt that progress would hav eto be sought, not by copying European methods, but byelaborating our own.

Four years later , in the midst of the panic , I found Mr.Sti l lman once more standing over my desk; and when I lookedup, h e asked, "W ar bu rg , wh ere is your pa pe r? "

I sa id to h im, " T o o la te now, M r. S t i llman. W h at h as tobe done cann ot be done in a hu rry. If reform is to be secured,i t wi l l take years of educational work to bring i t about."

This incident is related for the sole purpose of showingthe status of banking and business opinion in those far-offda ys. W h a t M r. Sti l lma n had said wa s typical of the gen-eral att i tude then prevai l ing.

A t th is junc ture , th e U n i ted States Senate was dominated byth e Republ ic an "O ld Guard," o f wh ic h Senator Aldr ic h was th eal l-powerful head. Th is group believed in bond-secured cur-ren cy and, at a pinch , in sti l l m ore bond -secured curr en cy. Intimes of emergency, further rel ief was to come from Treasurydeposits , as long as they were av ai lable ( the gover nm entborro win g as far as it had the powe r to do so). A s a lastresort , when panic was imminent, or had actually set in,clearing-house certif icates were to be issued.

There were other groups in Congress which advocated so-c a lled "a sse t-c u rre nc y" p lans . Represe ntat ives o f th is sch oolof thought were moving on sound l ines, when proposingto m ake comm ercial assets the basis of c irculation. T h eywere preaching unsound doctr ines, however, when they urgedthat individual commercial banks should be authorized to issuenotes against their own assets, and that they should be per-


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20 THE FEDERAL RESERVE SYSTEMmitted to do so without providing a safe machinery for secur-ing such notes and redeem ing them in gold. Un de rsuch plans the weakest bank would have been al lowed toput its notes into circulation alongside the strongest, andproposals for the guarantee of deposits were the logicalcorollary of such schemes (Fowler Plan). It is an am azingfact tha t comm ercial organizations and ban kers ' asso-ciations of that time favored such asset-currency plans in oneform or another.

To complete the picture, i t ought to be added thatthere was also at that t ime a powerful faction in Congresswhich stood for the theory that "the issue of money is thefunc t ion of th e g overnment , " and only a few years h adelapsed since the champions of free silver had alarmed theworld by their sixteen-to-one proposal.

After i ts f irst g l impse of daylight, my init ial memorandum,like a ground hog, went back into the sti l l darkness of mydesk unti l , when banking conditions looked very cr i t ical , atthe close of 1906, I was invited to write an article for TheNew York Times. I then elabo rated the ideas I had expressedin my memorandum and, in i ts revised form, the artic le waspublished on January 6th, 1907, under the t i t le "Defects andN e e d s o f o u r B a n k i n g S y s t e m . " 1 T h e artic le was prim ari lyan argument for the creation of modern American double-nam e paper, a discount ma rket, a central note- issuing organ iza-tion, and an appeal to bankers to cooperate, at least to theextent of modernizing their conceptions with respect to accept-ing and endorsing. It a lso contained an argum ent urgin g theconsideration of term sett lements on the New York StockExchange, in order to discontinue the excessive use of thecountry 's surplus funds on the stock exchange's cal l- loan mar-

1 Defects and Needs of Our Banking System, T h e N e w Y o r k T i m e s A n n u a lF i n a n c i a l R e v i e w , J a n u a r y 6 t h , 1 9 0 7 ; Essays on Banking Reform in the UnitedStates, P r o c e e d i n g s o f t h e A c a d e my o f P o l i t i c a l S c i e n c e i n t h e C i t y o f N e wY o r k , V o l . I V , N o . 4 . S e e a l s o V o l u m e T w o , p . 9 .


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FIRST ATTEMPTS AT BANKING REFORM 21ket and to deflect a substantial portion of these funds into adisc ount market .

In connection with a suggestion for the creation of a uniformissue of bank notes against the deposit of legitimate commercialpaper, the fol lowing thought was expressed:

Certain committees would have to be appointed in everyreserve and central reserve city in order to scrutinize thebills deposited as security by the banks. 5These committeesmight be thepredecessors of future local committees of a centralorganization.

To attempt to g ive an adequate description of the panicw hich occurred in 1907 wo uld lead us too far afield. Oc tob erof that year, with the weeks of s laughter and despair fol lowingthe fai lure of the Knickerbocker Trust Company and the runon th e Trust Company of Americ a , wi l l a lways remain v iv idin m y mind . Ba nk s and individuals with hundreds of mil lionsin call loans at their disposal could not save those that weredrown ing. A s already men tioned, with out a central reserveorgan ization and w itho ut an elastic note issue, one ban kcould only strengthen i tself by weakening another, andany attempt to cal l in funds from a debtor would only throwhim into desperate confusion and set in motion a chain offurther embarrassments and insolvencies .

In the midst of the panic , on November 12th, 1907, whenthe gold premium was at its highest, and when all possibilitiesof making sett lements between c it ies had ceased, I publisheda paper ent i t led " A Plan for a Mo di f ied Centra l B an k. " 1In this paper, i t was proposed to create a bank at Wash-ington, endowed with a capital of from $50,000,000 to$100,000,000, pa rtly paid up , and to be ow ne d, one-halfby the gove rnm ent, and one-half by the national ba nks.

1 A Plan for a Modified Central Bank, Essays on Banking Reform in theUnited States, P r o c e e d i n g s o f t h e A c a d e m y o f P o l i t i c a l S c i e n c e i n t h e C i t y o fN e w Yo r k , V o l . I V , N o . 4. S e e a l s o V o l u m e T w o , p. 2 9.


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22 THE FEDERAL RESERVE SYSTEMThe management was to be in the hands of a salariedpresident or presidents , to be appointed by the board ofdirectors; the board itself was to consist of delegates from thevarious c learing houses, the Secretary of the Treasury, theCom ptrol ler o f th e Curre nc y , both ex officio, and some addi-t ional directors to be appointed by the stockholders and by thechambers of commerce and the Supreme Court ( the lattersuggestion rather an evidence of my insuff ic ient acquaintance,at th at t ime, wi th these Am eric an ins t itut ions) . T h e objec tin mind, however, is c learly shown in the fol lowing paragraph:

It is intended merely to show how it is possible to createa board which would be independent of politics, which wouldcomprise men of business knowledge and experience, andwhich, by its composition, would afford a reasonable guaranteethat it would not be swayed by selfish motives in its actions.The proposed bank was to establish a general rate of interest ,

to be modif ied from time to t ime, at which i t would al lowadv ance s of m oney against c learing-house certi f icates . Th er ewere also provis ions enabling the bank to buy three months 'paper, bearing at least three s ignatures, payable in dollars orin certain foreign currencies. A ut ho rity for the gove rnm entbank to buy three months ' paper, bearing at least threesignatures, including a bank's or a banker 's endorsementor acceptance, i t was stated, was needed for the purposeof encouraging the creation of such paper, the lack of whichwas one of the main causes of the immobil ization of theresources of American banks.

The fol lowing is a quotation from this "Plan for a Modif iedC e n t r a l B a n k : "

The Government Bank would act as the clearing house forthe clearing houses.It is not beyond the bounds of imagination that local boardsfor branches of the Government Bank in the various citiescould be established, taking the clearing-house committee, or


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FIRST ATTEMPTS AT BANKING REFORM 23some members thereof, as a nucleus around which some otherindepen dent members might be added. It is also possible thatthese agencies would receive moneys in one city in order to paythem out in the other. . . .W e need some centralized power to protect us against othersand to protect us from ourselves, some power able to providefor the legitimate needs of the country and able at the sametime to app ly the brakes when the car is m oving too fast. . . .We should aim to transform our commercial paper from anon-liquid asset into the quickest asset of our banks. Th ischange, however, is so far-reaching that it would take years ofeducational work to carry it out, while relief should come atonce. . . . Instead of giving vast and vaguely defined powers,properly belonging to a central bank, to one or two politicalofficers (the Secretary of the Treasury and the Comptrollerof the Currency Author ) and instead of putting the burdenand responsibility on them alone, we should define the powerand responsibility clearly and should associate with our politi-cal officers in bearing it a large body of our best-trained busi-ness men. Th is would mean a dem ocratic, a conservative,and a modern way of self-government.

In the turmoil of their daily struggles for survival, it wasonly natural that bankers did not f ind t ime to study this plan.Indeed, in that t ime of panic , they could hardly have beenexpec ted to do so. Loo kin g back wa rd to-day, how ever, i tseems that had it been possible to arouse Congress to quickaction along the lines proposed, prompt relief might havebeen secured, and a grea t deal of trouble m igh t h av e beenprevented.

But as far as the problem of devising remedial f inanciallegis lation was concerned, the Senate and the House ofRe pres enta tives were, at tha t t ime, wide apart. T h e Senatewas wedded to Senator Aldrich 's proposal for the issue ofadditional notes against government bonds and other corporateobliga tions , while the Ho use w as endorsing a propo sal of theH o n. Ch ar les N . Fow ler for an "as set c u rr en c y " a proposal


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24 THE FEDERAL RESERVE SYSTEMwhich involved the creation of "currency associations55 coupledwith a provis ion for the "guarantee of deposits ."

It was inevitable that, af ter the panic , the general interestin the question of banking reform should become very keen.In January, 1908, under the leadership of Professor EdwinR. A. Seligman, a series of lectures upon the banking problemsof the hour was arranged at Colu m bia Un ivers ity . I wasinvited to join this forum and delivered an address entitled" A m e r i c a n a n d E u r o p e a n B a n k i n g M e t h o d s a n d B a n k L e g is -l a t i o n C o m p a r e d . " 1This address dealt with the problems covered in the earlierarticles referred to above; but for the f irst time, the "concen-tration of rese rve s" was urged. W hile one thousand mil lionsof dollars were lying idle in our banks and trust companies asso-called reserves, that is, as the final resort in case of need,this money, by virtue of the law, could scarcely be touched.But what, my audience was asked, was the use of such re-serves if they were not available in emergencies and times ofneed and if , even in contravention of the law, they could notbe used by one bank without fear of being ruined, unless allban ks agreed to cooperate in using them freely? T h e in-evitable conclusion was emphasized that the road to reform layin the direction of concentration of reserves, and in the co-operation of the banks under the leadership of one centralorganization.

Although i t is twenty years s ince this address was del iveredat Columbia University , certain passages contained in i t mayhave an interest not altogether outworn, as , for instance,the fol lowing:

W e c a n n o t h a v e a n e f f e c t i v e m o d e r n c e n t r a l b a n k , b e c a u s ethe re are n o m o de rn A m e r ican bi l l s o f e xchan g e , an d w e can n o t

1 American and European Banking Methods and Bank Legislation Compared.The Currency Problem and the Present Financial Situation , Columbia University-Press, 1908; Essays on Banking Reform in the United States, P r o c e e d i n g s o f t h eA c a d e m y o f P o l i t i c a l S c i en c e i n t h e C i t y o f N e w Y o r k , V o l. I V , N o . 4 . S e e a l s oV o l u m e T w o , p . 3 9 .


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26 THE FEDERAL RESERVE SYSTEMTh is Columbia U nivers i ty address bec ame th e subjec t o f anumber of editorials and stimulated a good deal of interest

among bankers and business men in the problem of remedialfinancial legislation.

An exchange of letters took place in the spring of 1908between Mr. H erbert Parsons , Mr . Th eodore E . Burton,and m yself . Bo th of these gentlemen were at tha t t im emem bers o f th e H ouse o f Represen tat ives . Some passag esfrom a letter I addressed to Mr. Burton throw l ight upon thelegislation then under discussion.

N ew Y ork ,March 30th, 1908T H E H O N . T H E O D O R E E . B U R T O N ,

H O U S E O F R E P R E S E N T A T I V E S ,W A S H I N G T O N , D . C .

D E A R M R . B U R T O N :According to your desire I have studied the question how toamend the Aldrich Bill so as to embody in the same theclearing-house certificates as a basis for issuing additionalcirculating notes. . . .My draft of the bill as it stands now is rather amusing,because one cannot imagine two bills more opposed to eachother than the Aldrich and the Fowler Bills, and still by weld-ing both together with comparatively few changes we get a billwhich takes away the radical features of both of them andcontains enough of both measures so as to make them appearas a compromise to both contending parties. . . .It would be carrying coals to Newcastle were I to try to tellyou wh y this bill, as suggested, would be superior to theAldrich Bill, and why it is more conservative than the FowlerBill, while it retains the good principles of the Fowler Bill of"b as ing additional currency on commercial assets." W ha tI like about my bill is the fact that it will remain a voluntaryact for each bank to join the association and that each guaran-tee will be given after full examination, and that these guaran-


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28 THE FEDERAL RESERVE SYSTEMthe privi lege of issuing notes against commercial paper, shouldbe required f irst to take out a certain amount of circulationsecured by bonds.

M y c orrespondenc e wi th Mr . Bu rton and wi th M r. Parson sfinally led m e to send M r. B ur ton a dr af t of a bill , in theformulation of which I had the advantage of the col laborationof my late fr iend, Albert Strauss, who subsequently succeededm e as mem ber of the Fede ral Re serve Boa rd. Th is bi l l wa ssent to M r. Burton in pam ph let form and was ent i t led " A M od -ified Cen tral Ba nk of Issue: A Suggestion of a B i l l . " Ac co m -panying the bi l l , I sent a letter to Mr. Burton under date ofApri l 30th, 1908 (see Appendix One), asking him to introduceth e b i l l in th e H ouse "by c ourtesy , " and h e c ompl ied wi thmy request.

For convenience, the bi l l , as introduced by Mr. Burton,has been reprinted in Volume Two. 1 It wi l l be noted tha t thebi l l contained the express provis ions that balances of memberbanks with the central bank of issue should be counted asreserves of member banks, and that the notes of the centralinsti tution should be counted as reserve money in the hands ofthe mem ber bank s. T o the best of m y kno wled ge, these tw osuggestions were novel at that t ime.

The pamphlet in which this draft of a bi l l f irst appearedcontained a preface which gave a synopsis of the provis ionsof the bi l l and which stated certain facts and fundamentalprinciples to be recognized in dealing with the question.T h e y w e r e :First , that the United States must f inal ly develop somekind of a central bank system, g iving the country an elasticcurren cy pa ya ble in gold and based on modern com me rcial bi l ls ,a system similar in principle, i f not exactly alike in form, tothose of the important European central banks.

Second, that, while this must be the f inal aim, our political,1A Modified Central Bank of Issue: A Suggestion of a Bill, New York, 1908.Volume Two, p. 71.


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FIRST ATTEMPTS AT BANKING REFORM 29legal, and economic conditions preclude the possibility ofcreating an institution with powers and efficiency equal tothose of the European government banks.

Third, that, therefore, we shall have to be satisfied toadvance s lowly, ful ly real iz ing that what we create now canonly be an initial step. But it mu st bea step in the right direc-tion^ a measure which has clearly in view the final aim and whichdoes not neglect any of the fundam ental principles on which mod -ern central bank systems have been erected in other countries.

Two passages dealing with the legis lative proposals thenunder discussion may be of interest and are quoted in full:No measure is acceptable:(a ) Which bases currency on long time obligations, like theAldrich Bill.(b ) W hich would tend still further to decentralize thepower of issuing notes, and which would vest this power

in banks doing a general com mercial business. Th e is-suing of notes must be centralized into a few organs, oryiffeasible, into one organa plan, which will insure effectiveexpansion and contraction of currency and concentration ofreserves. Such a note-issuing ban k, in order to be safe beyondquestion and in order to provide safeguards against any abuseof its vast power through favoritism or speculation, must becarefu lly restricted in its scope of business. (T ha t is wh ywe could not accept a bill like the Fowler Bill, which p racticallywould create thirty to forty thousand note-issuing nationalbanks, doing at the same time a general banking business,while the smallest and most speculative bank, through theproposed guarantee of deposits, would be as able to attractlarge deposits as the largest and most conservative bank.Such a measure, although the very antithesis of the AldrichBill, would be quite as much in contravention of well-estab-lished econom ic principles.) A note-issuing bank in thiscountry should be exclusively a bank of the banks.


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30 TH E FEDERAL RESERVE SYSTEMOn the front page was printed President Lincoln's campaign

speec h at N ew Salemfor wh ic h I was indebted to my f r iend,t h e l a t e G e n e r a l J a m e s H . W i l s o n o f W i l m i n g t o n , D e l a w a r e as fol lows:

Friends and Fellow-Citizens:I am plain A be Linco ln. I hav e consented tobecome a cand idate for the legislature. M ypolitical principles are like the old woman'sdan ce short and sweet. I believe in a UnitedState s Ba nk ; I believe in a protective tariff; Ibelieve in a system of internal improvements,and I am against human slavery. If on thatplatform you can give me your suffrages, I shallbe mu ch obliged. If not, no harm done, and Iremain, respectfully yours,

Abe Lincoln.


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CHAPTER IIEVOLUTION OF A CENTRAL RESERVE PLAN(1908-1910)'

T H E m o st im p o rt an t p a ra gr ap h in th e A ld ric h- Vr ee la n dBill , enacted on May 30th, 1908, was that whichprovided for the creation of the Monetary Commis-sion. Th is Comm ission, organized under the chairmanshipof Senator N elson W . Aldrich , had for its purpose the m akingof a thorough investigation of banking methods in other coun-tries and the submitting of a report and recommendations toCongress. M y first meeting with Senator Ald rich had takenplac e on De cem ber 26th, 1907. A t tha t time, he held a posi-tion of unparalleled power as the Republican party leader inthe Senate, which had been almost uninterruptedly under Re-pub lican control for over a generation. I had developed afeeling of deep resentment towards him because, whenever thequestion of banking reform was raised, one was told that solong as Aldrich was in power there was no hope whatever ofweaning the country from the system of a bond-secured cur-rency to which he had so strongly comm itted his pa rty . Imet the Senator when he called at our office to secure informa-tion about certain practices of the German Reichsbank andparticularly about the issue of a certain type of Germancurren cy. I availed my self of the opp ortunity to write toSenator Aldrich on the following day, enclosing a copy of my"Plan for a Modi f ied Central Bank," 1 providing for the or-ganization of a national clearing house.This letter was followed up four days later by another inwhich I took issue with him concerning a plan he must haveoutlined in the course of our first talk, a scheme which con-

1 See Volume Two, p. 71.31


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32 THE FEDERAL RESERVE SYSTEMtemplated granting national banks the power to issue notesaga inst certain clearing-house certif icates. I urged the Sen-ator to consider the possibility of organizing a central clearinghouse which would issue a uniform circulation instead of per-m itting every individual bank to issue i ts own notes . T h efull text of the second letter may be found in Appendix Two.

Whether or not Senator Aldrich ever gave serious consid-eration to the arguments of my letter or to my ColumbiaU n i v e r s i t y a d d r e s s , " A m e r i c a n a n d E u r o p e a n B a n k i n g M e t h -ods and Bank L eg is la t ion Compared/ ' 1 a copy of which wassent to him in February, 1908, I have no way of knowing.The proposals he made in connection with the framing of whatbecame the Aldrich-Vreeland Act, and the form in which i twa s passed in M a y , 1908, of fer convincing proof th at I hadno t succeeded in winning him over to m y point of vie w. O nthe other hand, we f ind the following passage in the speechwith which Mr. Aldrich introduced the bi l l in the Senate. 2Analyzing the several proposals under discussion, he said:"Th ere i s one advoc ated by many th oug h tfu l s tudents o feconomic history and teachings, who are led by the experi-ence and practice of other commercial nations to favor someplan for a central bank of issue which would be in effect acentral c learing house with very l imited banking functions,unde r gove rnm ent control . Perso nally , I bel ieve tha t in t imethis country is l ikely to adopt such a system, but I agree withother members of the committee that i ts adoption at thistime, or in the near future, is out of the question."Looking backward, one would be incl ined to conclude fromthe above that the seeds from which, later on, the "AldrichPlan" grew had begun to germinate and were struggling totake root.

1 Se e V o l u m e T w o , p . 3 9 .2 Speech of Senator Aldrich of Rhode Island on Senate Bill No. 3023 to amend

the National Banking Laws in the United States Senate, M o n d a y , F e b r u a r y 1 0 t h ,1908, p. 9.


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34 THE FEDERAL RESERVE SYSTEMbefore th e Am eric an Ec onom ic Assoc iat ion ent i tled " A Cen -tra l Bank System and th e U nited States o f Americ a . " 1

In this address, the f ield which had already been dealt within previous articles and speeches was covered once more; buthere, for the f irst time, I ventured to attack the problem ofthe national bank currency. I proposed an " inv erse con ver-si o n " to the ef fect that the 2 per cent govern m ent bonds w iththe circulation privilege should be exchanged for 3 per cent'swithout such privilege.

The suggestion was also made in this address that of thenet earnings of the central department only a l imited portionshould be turned over to the stockholders , while the remaindersh ould be made over to th e g overnment wi th power in th elatter to use i t for the purpose of gradually increasing thegold cover behind the greenbacks or of retiring them.

The address shows a further evolution of the plan of acentral c learing house, as evidenced by the fol lowing para-g raph s:

"Th e Centra l Department o f Issue sh ould h ave th e r ig h tto ask from time to t ime that the banks, through the associa-tions, deposit with it a certain proportion of their cash re-serves, and the law would have to be amended so as to allowthe banks to count as cash their deposits with the CentralD e p a r t m e n t o f I ss ue . . . . I h a v e a v oi de d c a ll in g t h e in -sti tution of the future a central bank, because, as proposedhere, it is no t a centra l ban k. If , instead of the indepe nde ntcurrency association, this Central Issue Department were en-dow ed with active bran ch off ices depend ent upon the h eadoff ice, such a nam e wou ld be correct . N o dou bt, a centralbank with active branch of f ices would be the more ef f ic ient,so far as concerns the controlling of the country's gold, itsm on ey rates, and its f inancial sa fet y. B u t w ith our presen t

1A Central Bank System and the United States of America , A m e r i c a nE c o n o mi c A s s o c i a t i o n Q u a r t e r l y , 3 d s e r i e s , V o l . X , N o . i ; Essays on BankingReform in the United States, P r o c e e d i n g s o f t h e A c a d e my o f P o l i t i c a l S c i e n c e i nt h e C i t y o f N e w Y o r k , V o l . I V , N o . 4 . S e e a l s o V o l u me T w o , p . 9 5 .


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EVOLUTION OF A CENTRAL RESERVE PLAN 35political and financial conditions, it would probably be impos-sible, and in many respects unsafe, to vest such vast powersand duties in one body."

A conference grew out of this meeting of economists when,in the fall of 1909, a dinner was arranged at the suggestion ofProfessor Davis R . Dewey, o f th e Massac h usetts Inst i tute o fTec h nolog y , th en th e Pres ident o f th e Americ an Ec onomicAssociation , for a further discussion of the sub ject . Am on gthose present, I remember, were Professors T. N. Carver, ofH arvard U nivers i ty ; E . R . A. Se l ig man, o f Columbia U niver-s i ty ; H . R . Seag er , o f Columbia U nivers i ty , and J . H . H ol-lander, of Johns Hopkins University .

From then on, my correspondence with economists becamec onstant ly wider ; 1 and th e "g ive and take" involved was mosthelpful in bringing out the positive and negative needs of aplan which was presently to be tested by being subjected tothe criticism of a deeply prejudiced public.

It was natural that the radical changes involved in theproposals outlined in my articles should have encountereddetermined opposit ion from m an y quarters . O f the sc ienti ficwriters, the two most gifted exponents of the anti-centralbank doctr ine were Professor O. M. W. Sprague, of Harvard,a n d M r . V i c t o r M o r a w e t z , o f N e w Y o r k . T h e y b o t h h a d p u b -lished highly interesting articles in which they had not onlycrit ic ized the central bank doctr ine but had presented impor-tan t con structive proposals of their own . I und ertook toanswer these two critics, for by so doing I hoped to meet theentire range of the arguments of those opposed to the adop-tion of a central bank plan.

An analysis of Mr. Morawetz 's and Professor Sprague'sarguments and proposals and my reply thereto may be foundin an address I delivered before the Finance Forum of the

1 L a t e r o n , t h e l i s t o f my c o r r e s p o n d e n t s i n c l u d e d P r o f e s s o r s F . W . T a u s s i g ,o f H a r v a r d U n i v e r s i t y ; O . M . W . S p r a g u e , of H a r v a r d U n i v e r s i t y ; I r v i n gFi s h e r a n d Fr e d R o g e r s Fa i r c h i l d o f Ya l e Un i v e r s i t v , a n d c l h e r s .


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36 THE FEDERAL RESERVE SYSTEMY oung Men's Ch r is t ian Assoc iat ion of N ew Y ork , Marc h 2 3rd,1 91 0, ent i tled " A U nited Reserve Ban k of th e U n i ted S tat es . " 1

Shortly after the publication of this address, ProfessorSprague changed his point of view, and from time to t imepublished studies very helpful to the further progress of cur-renc y re form. M r. M ora we tz a lso soon abandoned w h a t wasthen his main proposal , a plan to solve the whole problemsolely by regulatin g the note issue. T hi s regulation wa s tohave been accomplished through the establishment of a centralboard at Washington, which would have f ixed the reserves tobe maintained against c irculation.2

As an a l ternat ive sug g est ion, h owever , Mr . Morawetz h adm entioned , in passing, a system of "divis ion al ba n ks ." T hi sis , to the best of my knowledge, the f irst t ime that "regionalba nk s" were proposed. W h a t , a t th at junc tu re , M r . M ora -wetz had in mind was, however, a system of entirely dis-connected divis ional reserve banks. In our deb ate, I urgedhim further to explore this scheme; but expressed the viewthat such a system, in order to be successful, would have toprovide for a linking together of these separate reserve banks,so as to insure their ope rating as a un it. T hi s me an t, ofcourse, that his system would, in ef fect , become a centralban king organization. In a later chap ter , we shall reve rt toMr. Morawetz 's c ontr ibut ion.

Arguments such as were used in the controversy with Pro-fessor Sprague and Mr. Morawetz, together with an elabora-tion in detail of a specific central banking plan presented inconnection therewith, f inal ly won over my fel low-members ofthe M erch an ts ' Association. In the end, they gav e me their

1A United Reserve Bank of the United States. P r o c e e d i n g s o f t h eA c a d e m y o f P o l i t i c a l S c i e n c e i n t h e C i t y o f N e w Y o r k , V o l . I , N o . 2 ; Essays onBanking Reform in the United States, P r o c e e d i n g s o f t h e A c a d e my o f P o l i t i c a lS c i e n c e i n t h e C i t y o f N e w Yo r k , V o l . I V , N o . 4 . S e e a l s o V o l u m e T w o , p . 1 1 7 .

2 M o r a w e t z , V i c t o r . Address on the Banking and Currency Problem andthe Central Bank Plan at the Finance Forum of West Side Y. M . C. A.y N e wYo

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