The Federal Reserve System : a study


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The Federal Reserve System : a study
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ix, 237 p. : ; 24 cm.
United States -- Congress. -- Joint Economic Committee
Keefe, Arthur John
U.S. Govt. Print. Off.
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Banks and banking -- United States   ( lcsh )
Federal Reserve banks   ( lcsh )
bibliography   ( marcgt )
federal government publication   ( marcgt )
non-fiction   ( marcgt )


Includes bibliographical references.
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Also available in electronic format.
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Prepared by Arthur John Keefe and others.
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Reuse of record except for individual research requires license from Congressional Information Service, Inc.
General Note:
At head of title: 94th Congress, 2d session. Joint committee print.
Statement of Responsibility:
prepared for the use of the Joint Economic Committee, Congress of the United States conducted by Hon. Wright Patman, the late vice chairman of the Joint Economic Committee.

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University of Florida
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aleph - 022410445
oclc - 02764775X
lcc - KF49
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Full Text

"th Congress



A -STUDY '7.

TUZL46 Wee Chairman of the
-B -amuditee
Jokt Noomomic.

rVT '31

"..K 1A

JANUARY 3, 1977

"Anted for the use of the Joint Fkonomlc Committee


For sde by the Superinteudent of Documents, U.S. Government Printing Office Washington, D.C. 20M Price $2.25 Stock Number 052-070-03861-4





ARHRJ IDFE rfe8oa tafMme, ucmite3nEoomcPors




Thi~sud o the history af the Federa R reserve System, inis way, is n eitph to a charter member of the committee and one of the most,
p i minded Members at Congress, the lte Representative
mawhe died March 719-76.
'atprbjectin his long etart torconvince the: ogress an the Amrian publicithat a stable, fll empleyteen economy_ requires ix~nngdu reform of :the Federal Reserve- System and Federal bank regultoryngencies. To this endlthe study and the accompanying documents emith transmitted to members of the connmittee, refle 'et his c~itmtmehttof"dducte his colleagues and the people thronghout the Nix~ atiotthe. Fedral Reserve System, how and, why it came to be fdrd, hearay in.wbieE it functions, therucial effect its activities haveonher economy, and its, relationship to the American banking inusryad other financial institutions.,, ,,'I n ee, the study is a final demonstrating of Wright Patisan's unswrvig thin our idemocratic system and the people of thepNatio. e ever doubted that the American public would demand change if itws:armed, with the facts. As a result, he devoted much of his ts~eer ->th as chairman and vice chairman of the Joint Economie C)Dmmiwead late as chairman of the House Banking and Currency Commtte, to sustaining a public dialog concerning the intricacies of the Ferl Reserve and the signidienetofitsmonetary policies to the wefr fthe Nation.. The cre of-his. cdneern with the Federal Reserve S-ystem. was the wayin hich its monetary policies affoot the availability and cost of creitto"the common people--the little people wheo go out and fight for~he-stion during time of wear and build it up in peacetime." Many 4d d~whoserved with hinifok the Joint Economic Committee,, which was st~lishad by legislation which he cosponsoted, can still hear him lecurngthe Federal Reserve on the relationship between monetary ,Paib- On inatirA rates -which 'affect ethe price of groceries on the ;1*1P all other: products., and services which are essential to the Worki~g>eople of the Nation.,
respect. he was convinced that establishment fa"od e
liihksorce, of funds at reasonable cost" is essential to meeting the 'N~ions riority needs ohring the country's chronic low- and" mod6rae-ncme family housing problems, providing State and Iceal govOmmntswith the resources to finance vital public works and facilities and ssuin g that-'small business achieves and su1stainis a. position of M1 emnetitive strength in the market place. As- ohirman: of rthe, Subcmmittee on Economic Progress of the J~it.Ecnomic Commi*ttee, Mr. Patman authorized, and personally di(II

retdti ealdsuyo h eeral Reserve, Board Chaiodute

cbyMr. Patman dea li fso efecmpee h eerhte unesw, akrdicosr the t h gnyfo t neto n11 thog the air an 9sb sequetrtsmeftredt tecm ites whil e ate areae proihlbkkhwihwilcm rovtertshisoal reofth Federal Reserve. pamndinge thn one sul~ nc tese lseso fCn grs hc cotdf saiuesalsigt~ eeral Reserve in 97ywic tmr. Pawtma"he Fedell- r* nk veeogaie %o i W Yorm, Ban ,"Wht's Wronk ponnri oiin fteSyt h ulat d o ve 3 hth ylerd bye sttcueo h3ytiterJo Feeral Reserve System-pariAMkiiiE~s y rt~tTd fro, ndthe f 6 congressin condn ohsnadFerlR liTe ref1oms ro p ed i ic MM6ue4crepnec n speec1. Reucn the P tm s deln ihoeain fbn odm m with tatr ofd thbqen PresidedrakinNtinL~a h o rmesit Fiscral policy.eaypoiy cioswic esle in~2 Cxancigteiney alsutpl $ hl rsdn ionwgrnig oeleion and requiring th rsve Soeayplc aotdb h thuonrs aing iht ttalyac The portfolio wouldgt be tw elkonlwaeiwatce Refor3. RernghtsWoWt the Federlsre,,yt n ariudisouted o-e h eby MT amnfrenigurfomf the

4he reatins arpoe bin rl nicue


ance~ ~ ~ ~~. Croainioretoemnate costly overlapping jurisIt s i hi adocay o reormof the Federal Reserve System that
his valuable sevio the Congress and
th Ntin.Noon hd qule teteacty withwhic he has endeaore t riet atona atenionontheFeeral Reserve Board and
theOpe MaketComitte ad tiedto hld them accountable to

Comitteto ee hepubicaio ofthi sudy Itcoveys information

cate pu lci te etc am i nis e u e

/v i f



Letter of -transnuTz=_,____. ------------------- -----------------THE FEDERAL RESERVE SYSTEM
1. The Federal Reserve Act of 1913 becomes law ------------------- 1
11. The Federal Reserve goes into operation -------------- 25
III. Postwar adjustment, 19 -21 ------------- m -------------------IV. How ihelq ew York bank came to take over all open market operatiom ----------------------------------------------------- 50
V. Monetary Policy, 1923-28 ------------------------------------- 61
. ......... VI. Andrew W. Mellon ------------------------------------------- 68
VII. The history of the payment of adjusted-service certificates of
W. World War I_.; -------------------------------------------- 86
VIII. The Banking Act of 1933 ------------------------------------- 96
IX. The Banking Act of 1935 ---------------------------------- 113
X. Mardner Eccles before and after F. D. R -------------- m -------- 128
XI. The disagreement between President Johnson and William
McChesney Martin on the Reserve Board's December 1965 decision to raise interest rates ------ -------- ------------APPENDIXES
1. Law Review- Articles of Wright Patman
The Federal Reserve System: A Brief for Legal Reform," St. Louis UniN t La vol. 10 at page 299, 1963 ------------rers! w Jo 143
Whafs Wrong With the Pederal Reserve and What To Do About It
meiican Bai Association Journal, voL 61 at page 179, 1'975_______'_ 161
11. Letters of Wright Patman
Letter -of "February- 24j: 1975, by Mr. Patman complaining to Ray Garrett,
Jr., then Chairman of the SEC with respect to certain nondisclosure and accounting practice of Citicorp in its prospectus for the age of $650 millian, of iO"ating notes. redeemable on demand, on and after June
12 169
On February -24 4975, M Fattaan also
Moke on this subject to the Hous* ial, Repr4mittatives. His speeeh to tb House appears at p. H 1117 and omitting the above letter to Ray Garrett, Jr., ialprinted at the end
of the.,letter-l-,
A seriesWiletters by Wright Patman as vice chairman of the Joint Economic Committee with res0ect to the sale of the Franklin National Bank % to sit 4 Utir(ipe'ff largest banks:
LeUet 1:of April 247 1975, to Arthur F. Burns -Chairman of the Board
of Governer5of-the Federal Reserve System raising five questions; namely,.- whether the six European baskv- that own European- Baiak and: Trust 0).,ghould not be subjeeWd to the Bank KbMing Campan Act, whether: the bank'ff sister instltutior4 Euro#A A Maeriaan L king Corpi, lik 4isa owned by the same six
= an Mks; is not doing -a bank business 'in violation of the
tGissi4teagan, Act and -the ownership' by each. of these
10tvign bankaof subsidl*desthat underwrite security wisuesdoes not
also, viblate the Glass-Steagall Act?
----------------------- 173
Letter of May 14, 1975,,to AttorkeyGeneral Edward H. Levi with
a memorandum of law asking the Attorney General to investigate whether the purchase of Franklin National Bank by six of Europe's
largest banks was not a per se antitrust offense-----.---------- 175

Bankij iiiiiii Hodn.op n .At...... ....
Mayte 14 ad 27, 1975, in wtthrhey dees h is arova of t ophse an fFrpnlinationaln by a on european-rAmerica bn hong Tutcopne toetbihanwbnki.eokSae
Letter of Augus 16, 1975, byo MerW. Mthll Attore Odaimno
inquiorin whetherM. Kaupher' eter ofsev Ju yst, 1 og7he wpproal and askirn i so w i, treset Mr. Phtinan'sletro

Letter of ugus -1975, by Matr.Wlla Patmanr to ricel
(o ) Aping with 197 nat Prxie foan adirnintrnolt harn
o dteribns whc conl European-American BE k v
Trust C o. ; jitvnue oto t ois bcm:sbett
B) Potesng themandfActhrc inthe-Federal
fonreig bAnkrs biion tha woul give congressional 1 o Euroe an -Amer75icns -will ea acqudsis poa of ther
cae-oFrnlngtional Bank byandenAeiunBn

Letter of Novembe 0,1975, e Ge uta t torge ey VieW

Letof e iL Federal Reevet Mr. Patman encosM.itin staff n in iiii~ iiiiiiiiiiii t h reeiiiiiiiiiiiiiiiii p i s : ,

(a) Asigwt eao'Pomr o nariitatv g

iiiii~iii ~ ~ to Aetermine who controls European- American Bankiiiiiiii~iiiiii~~i~ iiiiii~iiiiii~iiiiiii !iii~iiiii~~~~i~iiiii~~~~~iiiiiiT r u s t C o .;iiiiii!!i~iiiiiiiiii~~iii ii iiii iiiiiii~ ii i~~~~iii! ~~iiii(b ) P r o t e s t in g t h e g r a n d fa t h e i iiic l~iiii~~ !!! !i! ~~ii~~~iiii~~~iiii~~~iiii~~ !ii,,,iiiiiiiiiiii' '' ''''' '''"" ieiiiiI .........................h e F e d e r a l ................. R e................... ...........e psi,,,. .i
foreign bank bi~l tht would give, c onressional blessing t i~iiiiiiiEuropeaiiiii-American's' illegal aiiiiiiiiiiiicruisidiiiiin of 'Yiaii !iiiiklin Na-~ii iiii i iiiiiiliiiii~iiti i onal B ank;, audii
(c)... Cotingiii~i tht4.....a frthFd opei i~ii~~iiiiiiiiiiiiiiiiiiiiG u aran tYiiiiiiiiiiii... ... ....... andiiii i so meii do e .............. A y w ica b aiiiiiiiieiiii 0H ea pp, ,
iiiiiiiiiiiiii~~iiiiiiiiiiii~~~~~~iiiiiiiiiiii~~~~~~~~i n a socuritiesi biiioiiessi abr ad hic G wiieap l PiW


(e) Ascertain whether as an enclosed article in the New York magazine, December 1, 1975, indicates there is an American bank exposure to foreign countries of over $25 billion;
(f) Confarm. that Franklin National has been unable to sell $500 million of such loans; and
(g) Enclosing an article (Sept. 15, 1975, from Forbes) indicating
Senator Williams is to investigate domestic violations of Page Glass-Steagall and urging him to do so ------------------- 200
Letter of December 29, 1975, by Attorney General Edward H. Levi M: to Mr. Patman saying he agrees with Assistant Attorney General
n. Kauper that six of the largest banks in Europe are free to form a
joint venture and purchase the Franklin National Bank ---------- 215
Letter of February 24, 1976, by Wright Patman to Attorney General
Edward H. Levi asking him to rule:
Whether European-American Banking Corp. organized under
article 12 of the New York Banking Law is a "bank" within the meaning of the Glass-Steagall Act enclosing a Patman staff study which concludes it is a "bank"; and whether if his
answer is that it is not a "bank," how this point of law;
The legality of a joint venture's buying Franklin under our
antitrust laws; and
The question whether the six European banks are subject to the
Bank Holding Company Act and how this question can be presented to a court for decision when the Attorney General
refuges to do so -------------- 7 ---------------------------- 215
14 Letter of Januaxy 29, 1976, inquiring from Attorney General
Edward H. Levi whether the Board of Governors of the Federal Reserve System had the legal right to name the new $50 million
Federal Reserve Building in honor of William Me Chesney Martin 222
III. Speeches of Wright Patman in the Congressional Record
Congressional Record of July 8, 1975, at p. H 6370 wherein Mr. Patman
questions the methods the three banking agencies employed in

% The United States National Bank at San Diego;
(b The Franklin National Bank in New York; and
(c) The Security National Bank on Long Island;
and questions in particular the rights of both creditors and stockholders, as well as the Federal Deposit Insurance Corporation with respect to the
$1.7 billion advance to Franklin by the Federal Reserve --------------- 223
Congressional Record, March 14, 1975, at p. H 1774 wherein Mr. Patman
contrasts the few changes in the discount, Federal funds and prime rates prior to Dr. Arthur F. Burns becoming Chairman of the Board of Governors of the Federal Reserve System and pointing out how Federal Reserve under Bums increased the money supply in 1972 to reelect President Nixon and thereafter abruptly reduced it, thereby bringing on
the recession of 1974 ---------------------------------------------- 226
Congressional Record, October 31, 1975, at p. H 10539 wherein Mr. Patman
points out how the Federal Reserve sabotaged the tax cut the Congress
ordered in the spring of 1975 --------------------------------------- 228
Con 0 cord, november 4,1975, at p. H 10621 wherein Mr. Patman
oints out t e conflict of interest inherent in Dr. Burns dual role as of the Board of Governors of the Federal Reserve System and as Chairman of the Committee on Interests and Dividends which led to
the sham "dual prime rate ----------------------------------------- 230
-Congressional Record, December 18, 1975, at p. H 13023 wherein Mr.
Patman points out the extreme extent of concentration in this Nation's
banking industry ------------------------------------------------ 234
Congressional Record, February 16, 1976, at p. H 978 wherein Mr. Patman
points out the poor record of the Federal Open Market Committee in achieving its own goals for monetary expansion, due to either incompetence or duplicity ------------------------------------------ 236


189 he JyouanJbls" trmisk o ernerd gold c
W. Tursay, 18hn at ensryil npca ti iral oderocs, pt
brokrag,.i11iorn iand gold, n the Mati.e Natiea Bnks foA4-~~e lh n f19 eavnBig othroelrs in bendrn tredead
nX -*hebHee iaindt ite other grte. coWen
the payent to lodfr Stke hoWhrdi
Per ('keld tke ren O le Stoh ree:AHsor of Am6erette
Ilitancal st Hotellin CoNew rk 1681)s. 1 .4
B.At TmAt 188
'The paidM y 189decneoWlbl Spee aft toh inruaload
a~y OU~d anf "uis Fiknuressltri anoth er .Wth thld market~ ~ A byprhsn h etel atmartifieralo inltdies eim, scheme~~ Walle ShnteTreuyuet grededt man' ivores, int an~ddii $0 mlNortherolonacificmalway. ItHobems efre no of the~~ ofmien otah embic lold atd he k tme, & or ofrellt

d~f wth' toir he ewn Yothr socuxanges oer temfirsdtim ,ba andu n thaatonfrthoet er fte. walowi

Of Grand C~enl, supra, 154e-Yrk(ob196.) 1514.

stookandthe acreovering horted dvaing teffeac.ofth de s eel'awel rspctd all Sree t wne.4-el,1,p w m 1any iv sor 411

ure of Grant and Ward and the MarieNtoa aki 84 rn' partner, Ferdinand Ward, and Jamen .FsPeidn fMrn a tional, used the funds of investorsadepitrtolythsoc market. Bad investments outnumberdgoadbt e utie
heavy losseesat theqexp s of unw r ,e N to als... Once the shaky condition of arieNtoa a nt, positors wasted no time in withdaigterfnsThfile sparked a n an therLas an th& ag erplia akfie shortly thereafterr. Naumerousnk anbrkaghossfloq. suit.

debts by wrtn hi eoirswihbcm etsvr u rn
did not enivhi eyfm asanatolrogbeusheucumbed to cancer of thethotith alof18.(Ksur 197--299.)

But the panic pheomenon didno awihGntde Alg
came the pose a 6fp89. Duringthlatdceofhe1h iuy
the country suffeed froae preso tht4pcb upasdi severity for30 years. Sobe,aspr, c.7a 3-7. At the turn of the 19th century mrawsalndoubuiu' dissent. Business Interests wanted ahge aift rv~ ~rO foreign goods into the country. Farmr atdanisivrPrhs act to create more money. To satisfythCogesi180psdte Sherman Silver Purchap Act, an< 80teAeilyTrf Neither act produced the desired financing American enterprises, touce f cqVn.V creditors who demanded that hencfrhAekndbteP04i gold. This caused depositors, to withda'hi oe rmt]b and the tremendous strain put 'on thmb asv1ihr~~ ol not be eased even through the issuacoflernhueetictsscrip which acted as a new currency. Stocks and brokerage houses at vcimt-h anoA
Roberson B'urr, in her biographybyJaeStlmn li-stt
within a year of 1893 panic there weeoe 0sanfiu)W 13 out of every 1,000 businesses failed "otatO .Bne, rn Press, New York, 1927.)
The banking commu nity was clivie.Jhx.Rokf a a
at Morgan,'Jamb Schiff of IKuhn 1obadCws11vdwt at the expulsion by the Republicanso hooeShpofo l
Union League Club because he as eih n 9&re ,wr
down to A million with. a check fo 1 ilo aott rs" In this aftermath eDf the .1898 pancima 6ya-l PMra who saved the country from finianca.dstrwihheidoEupean bankers, by ngtating with PeietCeeadfrtefoa tion of a $100 milliottbad issue. (So.$spac.7,s.2925-6-

and indstrial production was increasing along with the, amount of ii~q11tAirculation. However, a weridwid demned for investment
ackId wI-dwide god production decreased, causing' a

i~nAmric.,coder over t1he 6ta state of the busiHaess world
bd the andtisies Tianr 190 PArx
Mmi6aQ agin Augudst 1q7 190t,*when New York City trid in -iiia~~~ t la igh-yeldig (1ar milkon bupd< iss Many corporate
-isim aekhe afae t4There waerarnp ontird of New York's 1ags trusp anies, the Trust Co. of America and the Lincoln Trust C,
-iw~l nur~trinvestems amn housed Mloore ad Schley, was

The,197 crash occurred when the Knickerbocker Trust Co., headed hy r6riki Aiigustus se~ Cales Morse, and Charles T. Barney, lale.ix sem of the tio's spcltin with deoios ud.Bar-m cnimitted'anicide and, to aoetlfnnildsseJhn Piergntook charge .
Ddig the panicof 197 Morgan, thmn three score and ten, again ,swr th ontr1961 finaeeial diasterwith profit for himelf Bie forcedforse andHeinee -t riaign their*)positions as diretors at the
afi the. orgaizedla group wof 'aiRIT Stratbankers to yor
-Skeey to the rea r iving hank& Maru eve asked the eg

*6 Ie~a*t oosevelt arad T haeary S~tr eorge W. Crtel,yw oit ~iiin'e icik oftime bteGo eaet and bankers
i" JohndD.lancke&Holmand George Baker, exabld >rgan to save the surviving banks wla European Thom.
handedly,, Morgan browbeat the othat trusth.o es into
$25 Min convinced Secreta-ytof thie Tresasy fjre uto
pamitibn *I Governmant funds in needy New! York Ms
Mal 4kepen both the trast mmpaniendwLbakstolonathe ft~ly B1t trade companies, and MooreahakSchley were saved,,,(Sobd *4 sh.@a.pacially pip. 318-41A amb8A19s SA)
1s temwas not entiedy altmaishie. For his servIcetrk
tw t fm.!ra oance more beteted. H1is pridewas to forestreet bustU**- a evweth to eatoCrew and consequ ar thePurchae by United Stats Stel of the lucrative Tennessee, Iron and Coal Co. at a bargain
or4. aham (Sonhl) sopra ch. & at1--1.
or66e. and Schey and other stockholders* Big Steelissued bonds vo~h'at. $74 a share. The iron ore of Tennesse Coal and Iron Co. saiiii orfth "in exceess of $250 a share? (Sobel, supra, pp. 38
Romse L.4 OWEW
-Themilnoth ef4tho Panics was alwaYsthe same&,As Robert L.
animanof the Aenato Ranidng Comtte during theWin

enabling thein "to take over the pro )erty of thousa.nds" on a 6siis that was 4truinous," causing hundreds bonkni eas I'viglent &1ocat46n of business," and vast unemployinent. (Robert Ow Iche re&ral Reserve. Actill The Centur r QLNew York, 1919,
Banks, moreover, wouU re .even certifie or gr"
and insist on gold. In: these..,P'8xa*c$' lv;ien anks w6m 04.1 mane Andrew Mellon and the "Witch of WAR S 'reet;l Het Gre'ep, ay. in 0i
pick up bargains. It was in. this w the pame 13 4Y
Vou'lld acquired control of t6'Union Pacific Railroad. (Sobel, supra, at 24-25,181 and 193.)
During the 1893 panic, Senator'Owen, coauthor with Senator Carter 'Glass of the Federal Reserve bill of 1913, was President of the Mrst National Bank of Muskogee Okla., which he had organized*,His little bank lost 50 percent of its de'posits in as many day& (Owen, sapm,,p. .181.)
To Owen, the panic of 1893 "demonstrated the'comip instabilky ,,of the American banking system and the hazards whi& businessmen had to meet."
Robert Latham, Owen was an interesting figure in American .1i& He was born on, Candlemas, or Groundhog Day, Febr ary 2, 1856, Of Wealthly. parents. His. father, was President of the Virgma and Tennes see Railroad; his mother, Narcissa Chisholm, -was a chieftaiii 0of the Cherokee Nation. His maternal grandfather was Chief Arni-Kilawki, Thomas Chisholm in English, and a friend of Mr. Thomas Jeffersom Ow Is Indian name was "Ophstots" (Groundhog
'On graduation from Wa hington and IAN? in 1.8117 Owen, began'...
Pra6tice of law in 0 where he came to represerA thefive civ]
ized Indian tribes, recovering over $2 million: fourth Choctavs= 1891, $800,000 for the Westem, Cherokees in IL894, and ov'ef$51milRon for the Eastern Cherokees inthe8upreme C ourt.of the United States in 1906. (Ph. D., thesis of Edward Elmer Keso at Georo Peabody Collp9e. Nashville, Tenn. (1938) on file at Federal Reserve'LibralryoWashinjton D.C.)
I Taking his sent in the Senate in December 1907, Owen was reolected
in 1912 and 1918, retiring, in March 1929. He died on July llp 1947.
Fortunately, for his, country, Owen was a weaJth.Y,..we11-edixa&ted mftn, and was determined to reform our miadequate I nk,; system. At the Democratic Convention of 1896, Owen souglit in vam to 6b. tain a plank promising currency reform. to rated the Imuntry
1 ature panics. Then in the summer bf 1898 he went and Germa y studying hi w the London Paris, and BerE
0 a bsn]m were
able to weatheir the same panics that raised havoc withoi;r,. system. (Owensupra, pp
bankipq ose, coun
Owen found that government regulation of: in th
tries wasquite differiept, and that panics, such as the United States inexperience, vrere virtually impossible. In England,. for, Instance mi 1866 when Ovendt:Gurney, and Ce. failed, 4he Bank of '. 'I
"loaned one day $20 million and in one week $50 m illion,'. and when the Baring liquidation threatened, the Bank of Emil once again borrowed gold. (Owen, supra.)
1:4 his studies abroad, &n6for Owen'had sbo.'seo6n how timigy intervention by the large, central bank could prevenc aTemona4ly sound bank from failing Ife knew,,as few men of 1istims dikthat when

-eureliy. s, car te9bstand mstu ovntca bak witslul fad90mhi peronaexpriecak vabeoadthe ao n The i creyfthwa unee s:& i te outr'atidp ankste'ates.g B s100teCdges.d
Nno ABAI f iae&V0 td
U~derhe ac paeds th18ech natqiea bank iepcertein r ~~~~Mi nthei mtolrothCurnyUSond hruto, aprentey one-hir of tso st, lad e Asis naoal lan gostes oe-hialfo the er ofth: ar r aelito va 1fpthents he rve c heefiftheo t. bak .tdnsia Hema E. rons,
cou~ ~~b tyt ethep bn Sitats," 3By r 1911 the.' Nmgessa ha tt akntial mut o f 'eite eihty d b T r, rbe&-a ls, th baks whqihd loand in ceih intret rewr~~e etetomitninthr n v anks a 2- abi to pesry in awul onyaant depo1ts Iotelamiiserhaf thre,
25-prcet reerv coud b hiet rbpitn Ne Yklac butksthere cou~ary bnks e-emd tob oly flkrency ofere the-unty fo whichcoul be i a t bank hoPeal Rtingal, ank noesa E necessatin "F~~aneil 6isor o.teUngre at Mn 1913 of some, Naes.

deposit.t hadh laglewYr aned wasicha orgait aih iterdid
".1n~~ ~ teclmoe saryt hIf bne hes kbaenk thwasta to paye
C6,demnd he epecusiowee telt nneyshouet the dca Ofcure thedv~fingbaksWee pwad tee on:thirrbalad drdte wasno ssup~i o lanceit o 17.S Turesury note o.S aonment.i
,Strange~ asitmyalm ou toay 1t. curns. ofnte Alunry then
,97ntp 113.ejecited o-thes mndmeont. Iank 1908 SeeiatJnes
bthe e am Enmen hadbn: acceptsoe it60 wolave, "Ie the pani of 197. (Oen surap.22.
.."One tling thetr Jo lane a amedmetOwen, says thaith c~~~~~epne the pc~ay(ffo ieau a'er currein the aonal bansm
ear ndn~it u thNorngthe baunk At issue curenc hagainsttwo = ded:fto the of app rima te on an oe-hlm er c ent
for~op' re bthe Vamuenmt of the. bnatioSnaltBan Actrofh1900. il o 1 te il .remeedf the curraeyt rmIned98inatc although W ~ ~ at 6.)f

fiv hudremiliosen ahrn thmas ose camenklaoairstw

U.S.Senaors.Whe Owen, as a new Senator, began speaking out aganstourbaninglaws, Senator Hale of Maine rebuked him. In his

Te eated thfro I.hC mamea ptanieof19
Wen'h Areuest, en a.pwd n10,Oea had -reekstod Prlact ju Vao w 1 kmml o

PlasrveAct of 1918. ItJ adt asam WPudiI* hi at te sart of World Wa ,w .P opa&'b A* x chw~eclosed for several =,s gis vn&ooetohvyr the povision accepted i 98ad11 iie h-ax tC ~ emergecy bank notes to$Mmlin Own(~~,4"1

In10$ there was noSnt mitwWhp
Owen~ame to the Senaehiatdona~W 4
on ConuniwhchdiidteheSo lZM60ommittee
A wen's urging,qjtrr da, WP 11Min March 8, 1913, atn ath P4teseiJsso '.iweaMI soncaled to rush thrcuUhstrf n ur n' msqfw,

Whl in the 62d Conges h eulcn a raia-h"Sn ate Inthat CongressthDeorthabenIaoogni,, A

burg~W19Rk Faltesad dac.Pold 1899 to 19a he was nteSsente. wen toCongress in 1902 when the. incumben(PtrJ 0UY.Y delandsered ntil 1919 when he resigned to beoeSrtai of-,te Teasry aWhn Senator Thomas S. Martinante:alo .1919~~~~~ di&Gasbe eaUS., Senator and served untilhsdahi I#N' 0fo hicl Dretory af the American Congram,17416,
US rjiqe~rintng, flece '19,61.)

Beaue f h..paic'.epecialy the panic of 197 herewrnpak forctrr']CTreor i teplatform of all the partiesi:te12 pli"Uta cmpagn Natio. Party Platforms, 1840-16,1Kr M.:artr vcl-onad ruce Johnson, University of IliosPe,

ThePrgrssveParty of Ted Roosevelt wanted, currec oto in~~th;ad Goenet tiathe bak,as in theAldrich -eng il We elev ter eish i~te tve aeed for prompt legalatto rth m provanen ao 1 ationa urency syte up e bettera the presn ehdo isojugno"thrughprivate agencies is armful and unscientifc

lodedwit tegoermenue andat ul ertecstearm dominaio nk Mad bWILtretor any spca eests
We re ppoed o te sa ledpAldri4ch curre bill, bcueispoiin woud paceourcurency and credit 'system in private badntsbett effctie pbli cotro.. (Porter and Johnson, supra, 175 and19.
RepuheanParty of."Big Bill" Taft, while reco< mgh

mens o crret cndtions. We need measures which will prevent tercrec of one paicsandfinancial disturbances and which will promtthprs periy o busnes aI the: welfare of labor by producing constantepoyet We ned ettr erracy faculties for the movement of crops. inzh es n Akth : e nedbacing arrangements under American auspicefotheewaagefint nd eter conduct of our foreign trade. In attainin hm nj W, ideWudince individual banks, whether organized undenaialo
musk'b carfuly protected and our banking and curnyste
01rom gny Dosiiity of domination by sectinlfaca,
a u~ema. Portig and Johnson, suplra, 171.)
n bi~oeriicPairty of Woodrow Wilsoni, in accordanewt h findnm o thpPu0 conunittee,, rejected the Aldrich billprosdb Ole, ~al)40neary, Conunission, and favored Governwncotl out C. thatbanks, exist for the acconunodation of teibi, 4. rv'-='ft tbtooalled. Aldrich bill or the+ establishumet of & etaaak
We, 10eour ountry wIll -be. largely freed from panics an ostkt 0MV=JVLV7Ag"A 1sigs depresgon by such. a systematic eviz ofou beadc, tws a WMrendey temporary rilitin localities where s'h eifI X"#K *J* R"Owt %rowt thatol at despidoh by what is known ah oe
Bans eistfortheaccommodation of the public and not for cnrlo

Its purpose the securing of these accommodations on terms of abiolute.: security to the public and of. complete protection from the misuse of the power, phat wealth gives to those, who possess it. (Porter and Johnsor 0 .. I
Because of these campaign planks, after his election in N11DVember of 1912 Woodrow Wilson announced he would call the 63d Qougress into special session in April 1913 at the conclusion. of the laMeduck session of the 62d in March to enact tariff and currvomybills.
1nasmuch as. the Democrats were to control both, tie Smate .and House in the 63d Congress in 1913, this meant that.. Senator ] rt L. Owen of Oklahoma would chair the newly formed Senate Ba Committee, and that Congressman Carter Glass of Virginia, who ha5 been in Congress since 1902, would succeed Arsene Paulin Pujo as chairman of the House Banking and Currency Committee.
Glass feared the banks would tr to thwart his. succeeding Puio, but the threat -never materialized. 19en Pujo retired in 1913 Glass,,becartie chairman of the House Banking and Currency Conimitted,: axid thus it was that the Owen-Glass bill of these two boys from Lynchburg became the'Federal Reserve Act of 1913.
In, his book "Adventures in Constructive Finance" (Double-day, Pacre and Co., pp. 68-69,, New York, 1927), Glass tells us that the lealing figii.res in the Pujo investigation were so pleased with themselves that they were "imbued with a desire" to take over his subcommittee, but "a quick end was put to this. intrigue" by the refusal of himself and his colleagues "to tolerate interference." Thus,, between the election and the special session, Carter Glass was able to M draft of dnew currency bill for introduction in the spec, r1mion" of the 63d Congres;3,,
The Glass subcommittee began hearings on January 7, 1913, and heard.. bankers, businessmen, and specialists on currenev whose PrOtical su estions wqre incorporated into the technical provisions bf-t%6 bill bg r. Henrv' Parker Willis. (Arthur S. Link, "Woodrow Wilgon and the Progressive Era," New York, Harper and Row, 1963, 46.)'
The hearings, concluded February 17, 1913, covered 745 page's 16f printed material (remarks of Senator Owen, Congressional Record, Vol. 501 pe 6002) 0'
Professor Willis who assisted Senator Glass was born in 'A408 "!I Wis., attended Western Reserve University, B.A. 1894, -and Univer4 sity of Chicago. Ph. D. 1898. From 1898 to 1901 he was 9; prolessor'of economics aCWashington and. ike Uni'O'ers#y, aim1..4ier1 ;*umed to organize its 'school of commere e. In 1910' he, 1;s'e'am '*'Pm-. essor of finance and dean of the College of Political Science at GeorW Wmhington University.
Willis.was an editorial writer in 1910 for the New York EveAM9 Post and, later,' Washin&n, D.C. corres ondent for the New York Journal of Commerce and the SpringfielTRepublican. In 1912 when he joined Gla-sl subcommittee-he was associated editor of the Jciirmil of Commerce and teaching part time Columbia Uniyars4V 91"34
assisting Glass on theEankiwand &neney &MMi he V:V: "'.4'im
on the staff of the Ways and Mbans Comtniiiee aiding on": t14 Uh&rwood tariff bill. A

From 94i to 1918 Willis was Secretary of te federal Reserve
Board and ,thereafter, editor of the New York Journal of- Comunerce
and professor of banking at Columbia University.
In 1915 Willis wrote."The Federal Reserve Study of the Banking
System of the United States": (Doubleday, Page And' Co., 1915), and
in192a' "TeFederal Reserve System Igslain Ora itonan
ta" Ronald Press).
1994 q2 work contains a goldniine-of pertinent Federal Reserve inat atign.It cntais. drafts of the legislatidfi rmtefed ow
> Wodrow Wilson,'to the last as iedrafted by -the conference complitN.11ttid Federal Reserve Act of 1918.
i s as k discusses the ruinors he picked up from banker in
Ne-viYork who hped to hipek Carter Glass from becoming chairmn
~flelAbuse Banking and Chrrezicy Committee. Mfor imiantif
hel ixonwledges that Glass had hoped. to. pursuad6 Wilson to -allow trebankrs to be made members of the ]Federal Reserve Board and
ha4t,int is, Senator Robert L. Qwen opposed Glass. It was. Owen and William Je6nnings Bryan that made sure -the Federal'Reserve Board he a Government agency.
Od De hber 26- 191q,, tSe'ator Glass went to Princeton rWit1r
Wllis -to see Ptesident-eidet Wilson. The President was then ih bed with a: cod, 1but Ghiss went over with him "'a written division memorandum of bill." While Wilson told Glass he was "on the right track,"
Glass stated he "offered qtd'ie a few suggestions,'the most notable being one-ths aresulted in the establishment of an altruistic Federal Reserve
rs 'st Wasintn to supervise the new system."
Glass and Wiis had a second, meeting whih lrsident-elect Wilson,
time in the Governor's executive olces at 'Trenton. At that meet1gWilson approved "ftwio vitally important provisions -not pref iouely maiioned to hini," o Ine "for open' market transactions by reioinal bok" whicli "encountered bitter oppose, ition from the largertbnks,"
andtheother for "an abolition of exchange charges and the establishaet f par colleetions" -which wass'%-antickally opposed by a be abinaon of small bankss" Nevrertheless,' both provisions remained id the
fi"b1l, While not complete, Glass stated the draft he showed Wilson
at Trenton "contained nearly every' fundamental provision subseque,,tl e ae into law." (Glass, --p ,94.)
mGlass and Willis had yIosd that the Cmtoler
or th'ure "already tearistic hed of he'national bakn syspasoutry":eqame the- head 6f tinew l ederalesrv

bc"*Rson lauhngly said he was for '"a plenty of centralization, but not for
to much."' Therefore, he asked a separate central board provision be drafted, to a us~ned .or not4; asmight subseqluentlybe dtrmined, "as a capstone"l to the
system which had been outlined to 'him.' (Glass, sura82.)
As Glass tellsit, at this first iconferencehe wsable to -ptline the
rincipal partsnof what, wasto, become the Federal Reserve System.
Ihe conversation covered thes ponts:
1. Reioa reserve banks;.,,
2. Use and transfer of reserve balances;

0. Omuvelrsock owesi 5. Geiaotnit he

woul haeI tOf go dra oeevTnts
.tl randa ta et ofntoaIakntf
che againt the f taebns t inge i
9.egTis bat k he sa=,agnsofzrVjttd
10identrion f US 71M r M
lerwood tariff bill pevnt, r the esev eG hooe an iscr~e httdnwco s tte P o

Yaor Owmen, (Mn and 193T4peitn'h hlb th currency -th.... .

srnce aant Ge ra ilnn t A
.qgland businessmers
)ot th iere i ahntntru6 aite ule would beo Th is exeted saetm Arl2,91)wspit' tta Prsn follos:thnedAth akbl oprtc gi h
1.y Whant, teTmdcare d the urnybl.wst eWlo' on
3d Sh oulnd hSeretay fte rauyWila .M -o md,318 ifete tt e, ih O we n ls bu m a

trilthe urey -th or nk byteGvrmet e.d~td tta in~6 Shoul ad temn Alloenen'cnrlstecre~q n inain buin es m n 1914 ba Ifnro th .B nk A soul hindBivkidgCmitewsapme adM imn hitionlcur encyo Owna'none NwokTms pi 0

9. Should r eerv eni jld tt swl snt ak
3Shudteeiiinietalrsreasiiii, r nme

eihrb hmo yte oemno ybi
6. SouldtheAldrch-Veelnd At. e exoqid 06r it ex
PiainM 9VI f o hml t eaene
7. Shoulddiiiionailurreniybe permannt b .........
9.Sol niitl:bnso etla-tn 8U fi d
iti onal currenc ...........
9.i Solreevaciainbesokomabt.

stapp, bew ao serreaury, ana coli ..rmesvsM
t&6%thei wfut Pnd i at. ownrefer e Pesideon
c.Soyd wthc Coleon Hisouse te adfo pae d a ould
In~o Knkn"a oe b o. WuhCapbel Glasslae late bf thate ]Deocrl& shongalibl% Mikese Glass redhshabild ito t illia

frinds o his own, and then, for the first time, sent Senator Owe
wa,.t until June 3,1'1913 iat the 1othe Bankinghand Curenc Oommi Awas ppit and tasis mae iontts chirman. Untilta
time 4 P ag &s i1A doubt as to who were tobs menbers of his conitte aaoq c~uw,.couldI not be positive he weas to be chirman. As Gas expline, this made it inporth'it that he keep his draft bill sect. 44E j~viqvsly mentioned, in Jaguary 1913 Dr. Willis had"nr vouly earned Glass that 'a verypwru baintpr" in New Yr had old im that "there is stich a h .4' -a anmittee chairmn h IWU aceP our plan." Also, the "air was flle with reasers1 oftncf fQA ~ asod 54id side of seniority in selectingthe ne chairman o
Whethr or not this was related to the delay mn aamu'ng th omm t tl%,in0elear. Glass: neust specifically eriticized the lpadership o 06 dda bough he regretted it, tbut itmay have been a factor i i
-iminedse**** iii@in g the bill Furthermnore, G ssate evey ohe currency bill had ben battered to pieces yhsieitr
es~: o.hekut is"clossiy gured"(Glass, supra, pp. 86-87, 9.
In-a OoACartr Gasswane to keep his draft of the bill sce
eatil, ~ ~ 4 adlrd~yPe o adlso.It was wel a did. henSe Oar~ Owas the Wss draft he was outraged-here is how hetel

T GUA4t~t~tj6 tiraft avalded thb enittababatent of a central bank it Wabcksad: provided twitty Federal Reserve district banks under cotl,
e~e, q w Federal Reserye Board,, woith. forty out of fgh t-three tnmbe
ages Mebon' (Owen, spra, emphass Senator Owen"s.)S
imehe ave is. draft to)wen, Glass planned to add a oiSio t~a whic -the directors of the Reserve banks selected. by ewoUldanaMe thWeea Reserve Board. But Owen~say
V~~t~a cone*0trol Of the systeak I regarded it. as practically the same sth Aldrih BL which. wpald have put the management of the system in the hns 9r pat :hcoen to represent the banks, and I insisted that the .control o h
a gvtbin aetIon t6,o eeesed alone by the Goierknment o h 90fti dfte. About this feature I felt great aniety because a, power Pmasio hd been created that the banks of the country would not entra iffvermen-controlled system, would not take stock in the Reserve banksan
*4"M~a *tVthei-r reserV#s int th4 Reserve ank niiless they cotild centoth F4OTRsetwo 'Boar. wn spa 9 18--74,ephai-etrOe
absty in theAnteon h waG~sbleao
hanedthat Gasdrtdrah gave.0the banks absoluteco tro ofthesystem," ad that it Mais a, Ahalf-bhkM &'measure" arms b

eOwnand lasdsusdno atr '

sprsen 7-7Hen ~i~sC~m~~u- o WN N Rk.

thek o eviein h f~trlo h il n ipt gvf comittee hasie wihY B'a"a fntbne'cwto )d attitn isiwhth ee ''wetodt

whatever else, Carter Glass was a fighter. He conferred tha vnn at -his hotel with.Bulkley a his epmmittee who was ",for a gvrmn note issu niiR for e rt isnI government 'chatro1. "IM H re Wi noeak
inghm."1to take Mr. McAdoo'k suggestion" and,,as Prsdet slc the three bankers from "A list proposed by the banks. Bu ilo was "Kint? (ass, supra, pp.t11: Undaunted, Glass thereafter led a delegation of bankers(ogn bo ,If t, National of Chicago; ,Wade, of Mereantile TrustS.Lus ex ekr, of Whitney Central. New Orleans, land Perrin, o ess Penthg ]Drake and Riley, Ios Anigeles} to the White Housetpres his decisiohi. It was then that Wilshn'tuishd to Forgan and Wd n said \q: diRtly
Willane of yon-gentlemen tell me ii, what civilized country of the Attr what Glass tW11s us was a "painful silence,"
1 A~sdent.Wilson inquired:
,Wh.of you gentlemen thinks that. ralroady shotild select membesohh n it e Com mere, Commission ? ( Glass, supra, p. 16-117.) ...t as-st this, conference that'President Wilson suggestedta a comenstio to the bankers for denial of reresentaion onthcera bo Gls "~set up a Federal Ad visory CI niauthorize: o ia s~hdtians .with the Federal -Reserve Bea n a purelyavsr
doxicaly Glass, who fought so hard for bnker repesnato qn~t6 'ederal Reserve 'Board, stated "there could have bee ocn vinu~greply to either questionn" (Glass, suprap. 1,16), anSeao Owe) ays that afterwas "Mr. Glass gave the provisions vr cri support."1 (Owen, supra, p. 76.)
Willis, in -his 1M2 study, confirms Owen saying that whl ls a ep ted he change "with grat reluctance," he "subseuentyhail 4kPProved,"1 and -' m several public addresses he later testiedths change of view expressing in unequivocal language the beliftath ea proposal had nben wise."
anald, the bill was changed to provide for a Boad o ee miemb Est, the Operetary of the Treasury and the Comprllro the a:Qrrency, and five to be appointed by the Presidentwtrh advce andi consent of the Senate. Owppy*90 the bill,.."in final amended form," made itsa
an aj thus ireconstructed, met the approval of Mr. Bryao
1 ~ b argi y .msaig statement *which the PhiladelphaPbi Lederprinted[ on June 26, 1913. .
A: erqBpassay that:
1ie IN 'mosidemed upon lIts merits, one at once realizathtItt
Wfite, rom-;ostandpoint of ,the Magle rather than item the standpito h
clers Theliter are..Anitp unanimous in the belief that sthe isueomoe 'a hnetOof the banisr' andI that "the government oright not to oit h
tw beknocraiPary 13? Iwmman amnastently/ taken ionr positionta h
bas l.' sotedto th -artsnet'and bold 1s4eteeae tjo.I lfeewsupntepin fve from widq ,chonsersti
questt ofrthat matr,,al ileqeto p 5)


not h oe sudms eb tegvr L0p4t h

fnttors rdiiua
bil.ha hblla mne osevste ,OWr

latd" io epeevr1hont h atoa akcuighmt ps owe ol pos s ie esr. ThnGasadtefubakr. ett wTxdn isnt hilles thi en etofteFdrlR1rv orte otese h rsdn' eiint aeot!.hpoi (eige"treieitie ainlbnnoe.NM thonur oSatoOwnthPrsdnhaagedtelmnei.

dentr s io d ae pins Shi neext ove was curready bil a te pe il t sCabig and er gaeiu mphMreol, a s caml hsp : Uoeiscusoking thme biloal, seo hyrectonilwth thfeDemo-s 'hlosse Bankingand Curincy nnthe rencl ghu
U? ,and i bre14 werey ashtoudcrbfe i itpt bReer feryteoA-d
4.~aw1Wfh ils curencyibillidido e isa dn
'ln6ki~tass t6 l ankerg Prsdns, a' ag et ed wtask to wond VO~W 2/ ork Tims Jnst 1i2l, 1918b etin it h- eo

-' nthe showmanhipg ofd P.Tarniim Coi J ine fro 913orsiet
M. m fao6ecmet, ba coparre
and.ogh b~e anr eaf,6etto h
ith eL curen arddre cot Necbrsa extsiankfnth

minSfutelesa11g,1m a loa diedd attaehin to rwed on ite Nerk Ties Jnes e1 ne2t2,s169us1h3e ee

With ~ a ui the shwasiofPT.Bruonid Ju 6ne C3,913 Pressdet
0 .. irwheat of aj Washhiton =smer Howeaed, waaed ( Bek hhi copltn g htaers. to mie a lear, nt th
AD~pok~veh a i scre bl nd taddhirefnsugttespiveed aofn sesou in he

Tb*. 4uge to the catansdtta Wolso reisaefhig to beceead
-Wd~omfor:te erp ines o eofJ 4 93 sI nsia hiae pbesn tohit o e9, a~y apuges in th3* e bMeane y ackoweging u that~ wy ealn tea weor to enc ths sorbing and ow rahtwthe M wrsonbaltscrice WW tenwin he presene ofhn oedaonIti thxrpcpatie hat we ashdgethe business. Hofeer thi countyd ]Pt 0 tnd 'ttrecympussembymn of whichrs teya clean merifte freey thatIeppseotind iust ionisutite whivihewe ofaresn bu ou to eeide11 nt Wiso said iti o wuhfrteUdroTarf stik te hakle frome businss."tOe a iuof uh chie whing
deeds dowq Ais the proper Ina s, yh c to reoe aily vit az
if eorpsete and tindiver iiduaitso oiginaiv bravien an
viW ~ -40. $foft tsthefeei eae ot to have th f beip ar$mobt s seem Tr smiittiwen thmercoe ndoneriprssingt anm sofproaut wthb big : cneunlesweo that we know howt bot #94t aid andr to oecgant it Waty

sak weay fwemke fresh ehterhish necesary and also maeIt vey dl~ibult by Ieaving all else exept the tariff just as we food It9 .: .
The tyranies of buisanes, big ad little lie within the,,feldo atUL ageithstat that. Shall we not act upon the knewledge? Do we not knew, gyapn fa mancannotmake his assets available at pleasure, his aeii a
,cdharatrad resres, what snataction Is it to him to see y'bckq
Ing to him 4)n evpry Ihand when othersahave the keys at inat Wupk and treat them as all but their own private posseseton s It Is. bedfectly ciear tWa it ia our duty to supply the new taing and carrencey apptmgethe 400pr nedks and that it will innmediately need It more than ever. The anl qpuestion Is, when shall we supply It now or iditbr after tho demands saatt have become reproaches that we were so dull and so slow? SWhkllie hasten to change the tariff laws aggd then be Jaggard about making it abhi ad easy for the country to take advantage of the change? There can be mny one answer .to that question. We mukst act now, at whatever sacrlfiee to earselves. It Is a duty which the cifcemtances forbid us to postpone. I should be rant to my deepeat convictions at public obligation ddI not press it uplauryou with solemn and urgent instance. (New York Thaeb, June 24, 1918.)
The President saw how his free trade tariff bill might well afeet the economy of -the countrN' anewtanted a n ling systan capable of controlling it, boom or bust.
Our banking laws must mobilize 4, eserves; must not peanit the conepatation anywhere in a ftew bandleof'the nionetary resources of the cutyor their se for specaive 1urDoses In aueb volume as to hinder or inpede or Aty th the way of either*.more legitimate more traittal uses. And the control df tah6 system of batin ad ofrissue wbieh our newy laws- are to set up must be pabt, not private, mus be, vestial In the Governuent &itl, so that the baks may be the instruments, not the masters, of business and of Individual enterprlde ad initiative.
The commintes of their Congress to which legislation of this charade is referred have devoted ceahnddispasionateestudy to the means of 'acnompanpIng these obet. They have honored me -by econiuting ae They see ady to suggsatin
Coming specifically to the need for a, saund. currency, President Wilson saild.
We must have a currency, not rigid as now, but readily, elastically respoigi to sound credit, the expanding and onrcnXedpite of everyday m oins, th-ormal ebb and flow of personal endlcogorate ., .3
Noting there had been, objections to the 'l2 -sattered and indeyende nks"'in the prpse Federal Resd'ive Systema, W i tI dthe
crtiism went "srih to the m~rk"so--.
We have purposely seattered the regional reserve banlsah# silil Wintense~ disappointed if they do not exercise a very large meaurdl'ot h inaene.m

,.. Hovs PASSXS Bz
After Priesident Wilson's -currency message, the first order of business was for Glass to get the bill through the House. Having held hearMonetary Commission had studied the -problem for 4 year and was pushing, the Aldrich bill.

Caucus vote of 168 to 9 to make the bill an admnsrtonmaue and then for the first time, consult with the Republican -members of
hisiicom m ittee.iiiiiiiiiiiiiiiiiiipp.ii141iiandiii4 9.).

mg. effet ufcts made the -bill knpqsibleB to change in floor deat. ourse was G bet in, convening, the caucs
Surpismlythere is no indication that Wilson, our political seientstPrsidnt(wholia written against the caucus, "ongresional Govenmen: AStudy In American Politics," pp. 326-832 1905, reprit 158 PeerSmith Pubbishing, Inc.,'Gloucester, Mass.), raised a
1 hnd o sop imas he did later in the Senate with Owen. TheRepblia members of the House Banking, and Curren ComJ'Atte'vopoed"variance minor amendmenpts," which, Glass accepted, 14it~dig prvision for a savings department foprpationad beanks" fro: Rprenatire Everis A. Hayes -fCalifornia. However, this pr~vsio wa "sricken out in the Senate." TheGlss-bllwhen reported promptly -assed the House wih48 ..Rpulianjonag the Democrats (Gls, spa,pp. 149-150.)
sensteabuchrs a aedt him for, drivAngte eurewybill throughthe House and bLeing so sertie about it.Risanser Glass, supra, p. 150). was that th proposed Federal

Had been eow irrmonths In the ommittee.- (from January 7, 1918), Usused te ftys a pirty aaque ebated in, general for five days in the Houese its~l, amendmtpost, number, offered to. its provisions and the freest
el persist In the, Housefothewe.
As lfts~oine-d,,out, this conduct was in sharp contrast to the way theRepbliansin 1908 had pushed through the- YreelandsAldrich e~inrgecy ~rrney law by a c auous that discharged the committee before th6id be printed. In fact, Glass stated, the House debated
*theW11 hor. efore the hill, reached the floor from the printear, then pased t i 5 ors and nbt 10 lMembers knew what wee-im it. Glss 40d.Repblia deserved charge of "R ing caucuna ed."ga law;
-Gladecare.tWe"nothing in (President)Jaekeen's battle against hars. :exeeded tekins ty tthlorrenmy bill Ag (las, ispra p,$. T,'Phe:19ew)Thrk Tlimes fully corroberates
te A~es damns the: Corniwttee on .House Banking (*4having "roacor toward, the rich, and considerations
and teritalrial' etionalism."1 In -the Times of August23, 913>rgan, presidents of Firt National Bank, of Chiicago,
-qmote'Gjaw a avinglamitted, as a country editor o being incomthsban billd causing Glass todnucYorgan as
violtingA co lednce and speaking falsely. What Glass elisims he said wastht h flt"at a -great diaatage.t" (New York Times, Aupis 23 113,p.8, col. 1.) For this outburst Forgan apologized, and Glsf~rf nei. (Glass supra, pp1718. Tcr the lsh banks sought! changes in'the Senate decording to the b 4911, pageS 3,cluman, 1. Editorially, the Tms ise -Fbrita and: tlie'bankers; and, dennt Brva. Wil-

.tnocrat take thue bil sd draemanadrecj~i) tT ..
29k4Times, Sept ne it, 191" p. 1,t sl. i.)
ten~-A wrt a lete toJ mheim ,v
d Co. of Chiaon wDl Sai
in afae to aec hkfmilo dolar th

rnes t4.o itoe iR on thet Hous floo. (New "gf

M rt wae Glass tM ou tha pAni aed

Deort b tace Mtlo, thlSi emnd'~e biga. (o Y tembT191s p A9ol 11 o.8)h h ae'ae s ao
we' resia lte de Jmnde them th den ofuse9ft

heany ld pased, an tid hemi Seacsrbe hmo pan to fasgat Ne York Timeue Septr. 11,Yr. iejSei 0 p1 1,1 8 p. 8, col. 1.)
oM*ed ist Gasais ointedaun thugt thme are dnniladnt demerl Repsee bks tod La50ll thn aWl os2 tog

er utl lake. (LNewdokimes, Spt. 1, 1913,P Whl the ondto TLra ouh t viwdwthe apprewnat ii h F enlaRssrv bills pentingu foreilninbnhe' o4t nsae he Huse pa Tmed the bill, nd thn& wth WiVte:trf lIand to aaig the Snte bill. (Nw York &*At-1~bie Io

3 c ol 1 .)b 2 .
AUs the currenc bll~p mved romth Hobsni~f' &ei ter attackas o)) e~~glrin thehe bill'ot grw oae ad t S ,1supr, 'p. 168) col and te3 Tims oth Jq-tod iaa pres rSpote wolbiveyubll.iXi 1,

hAn the Oeny s bill would fal to peu ab Sa h

ta1vl go over to the next Congress.

&O,&n~~~~~teod thatm tef, SO Ma wn noned a:ssl

4~ ~ ~ use a" iteCthr reseveT. fund tobyso the
J.. tionallan'tBneed new M.Ian 1ik thuhtee York Tinkes
1.W. The Time litta 17 Profesor
Thesuld I not he assency becaoser ito is:he
andbahe Glas iosay the Nona hreeta-lse
Cbnmisgonsis Gf'o ve~nht me .ha tew ork 8mes

biR~~~~ iilkwhk 6~k o h sth evber0s noh admisn_.or 12aiaedd%1di.(Ne or-Tne:S. '1

wen-ata ill New orkTs8eypt o, 193. Wi-lson beandw Qlassmi tht baks cold learse te guds bankstoc nlne toe
Fe~ra. kewved 'Gt eeomn fund I(ichocw Yopomsd
JKBI a e%. IC, 11,)p Tho Ti.e nitel crtcie Prfso
J4ASV~~~~ saitirig atqppo billan fhudittb asdmrl ee il h Brynani 9,Qmne isGmesrnenoe. (New York Ties,193 QA~~~li beaker atBso-eoaneed te as ag ner Oat.r, 91,4 1.)
Timsa*oie ad idth Owe-Glass big, phebst th ombl n~o," an tat on s e Boar bhe bakesthm oe gr te
Tlis aepredatR byi Wisoeawtardm't
hoodL.*.JN~~~w0 19 im Oa 1, * 16o.1)Wlonbcm
with theintedy outahow the banks, an sported te
seeSenat 63 wer Oposian th oc wenolas billoand
Ow ~~~~r of1 RrvNniw YNrw York, Timt, Oct 11. p o. .
Tim onined tsedta a attacks on the bill thbanks Gassd said
WR gudl ak a.a axt.,ea te. Prsient (Glasims, supat 81113, P%,10.1 .USA Xd aen t Hoseonbilluce"ath roare
Mom~~ wa1 ,t YrcTms wth t9e New1 Yor OhmeroCm
The Tim'"13 attakdteOc s CoubiaaUniversigtat h coth
1111W'n44W1R&r&:R~eal Glas fe illand st h spee which,
ir~r1bilold beersnoastvemente cponte apondhic

how~~~~tsetea chee ha was unaseneonBynsia wYr imos, endorse
We he'ropadtf It*s nt il the require espias scipLn Itn iss nonee ofhthese

tin that otitalqarement tof the blta.i h ftrfpso adepotet in ote natmnt bat prctlofeavade la lgtree~. pron timemedaeanitseo prowis trqnyeakt s- a mmd1%frei h ~ ruthcesill hent enere aswit he pbi#-dI stePopc

assocateos thtlai it." (Ne Yhoraie Tpollq t h il Banerghs drie feas fof fmreiio toI0a ont- Afci mitnetin foetwgn brhes new Yor]dVfiisc u*ad h tckiot Althougthankeorsaid absltl itwas teVolm uteBnigls Frank Vand erisbli proposed u -ane aTi w rps. ~operd ohreysi amnmnts. (Ne Y ne OtA19,p.8 L2;nhas copl.ed .) Vnelpcntttdw
ofwe bners wattack.eant. FrankdVnelip tse frdedo bPslica imeatheRdlAq inNtio City n. (ctlass, pr Snto:NesnalrihgV ptheprsinple Pddeer Dunnce and 2pmw lgs n4ere't "sotuthpa" f a lweft-hasbla ~ided pitcheri

Sox.tan park face Sovih Chcago (" ofthe Chicagon Assiationk Qsppr of oinkeWigetcate, t nx Necew Yosrk City the a dinne at ts agru oti n nie

Sol Welerof the WhicotneyC etahn feodisf n by o

Inlf dissinld thdae in this "te.mnltuehto *fnte

i~~ance~lo Gls srota "lvng asnre was eared toiesmni evnn wapss topasttonndonerisn
at Chase ng trfsoo o.nsown, fNeYork tnceriy pdre ferrm' ~aegralem oupf ol icSece at D.AtthnOt 14ok ~ ~ I unm? .:0ato les toncltend ent ul whomnhldq the baker ha pe-and ifor theatd lasselught d on oboe for~~~~m thm~.(Gas ur, who finihesla. thld hw bE ompetiaktoIt as Owenfirs telsast(e the Oen-Gla~s i in thr Suaer Demor, 193p.8 col I.) oweerJaork and ichcck of ebraskCo, oppoe adr 7 I bil an supothe Sth e wnas till oling heeaion s.(e So~rk'Tim see Reed27 91, O'GorBt hema, andtHitchc saln the lie f te Vndrli 16, 913 mbe saw13 the thre separatel As~~ ~; 17' mp. 10,n col. 8) tuht "he Prfiut esithth ill M* hisegallers,"hbutGthat heditenHed : g te is

weilk~~~~ towr al'by veaot toe straindrlaton hatd haCllgea Owen had donen igt publcaon ofas his nteion to tun hebil

I~~~ ~r wheeve askh tigtod.Oed his inin, sPromt elo
eab lttr fromic the former Psiented'Oen nta c mbl -ord.,. Ymeea.a im Reed SnastoriallmOreiasout
-Ag uso.11 l io ararkl toowain Soty Owebswtho

1M.) ~w canom thisa atettthd flecond rilswVM&Ma
Th tbtbk Oen had withliim (iti ib~i
on ctber28IO, when five M fthee th t)db, i
Hitdh ock v t r As I Singe 8 Rah p ititl t bil. nl sx crate, O*wn 6xevene, Shafrb
andHoliswer fr the Owen- I biln-d its rgs in the ~ : &omte t t66. (r York Tiis, OM. *01
Woodrow W io, ain usual, coine to t esnb. In "tvbItttd~ Wilsonwon oerLibed ."the tefritary Missourian" O uet~~ "went~~ afty wthhi As.' (Glass, supts, Inwption O'ormin sitbhed, and thb 61-6 tie, became an 8 ictt ~
Even ~ ~ thihte itch of Reed and O'Odfian 4 needctOwenclfidd iit td. Oitom to have his abriitta6f~r bill Inefl tt reouthfendatibs, it rprted thi&-bM4 Owe-Glsg iiiasit panked the'House, a slighl mtidii41tebl) anda bll onore by Sefitor flitchesek. Oew* York fi) q6V21
Due to Ow n otion,_ the Oke-n-G1ass et ey bil 5ftte Senate's 6 I'hedbusiness,.but the future 6f the bill 'sthcan go. hi ~w Gas pictured the Senate situation: Thechirman toh Senate. Committee was, not able to reotah ila agreed~~~ -o;h eotdIt without reentraendation to'tlis 8ue Ths.reule iti frtherelay tidolonged conteion, until the Ptignt col e oe to prtycacusprposal. On the pote Mr.. Wilson, Wouldtrs ar-Y,6 Atfisthewa dspsed to assert bvgtulei estabidhed aeso 6-rl
by aucs" nd.toput repo14blity frfailure of eurtey refomontos h ippeared~~~ tbecnprg-aainst it. adhe persisted tere mt hveben.n refrtaof he urrneyforyears ; anid fthe war Which lar~t 61h oth ae would~ ~~a hvcagthesutty unpreared' for the ffightftf tknM#tan 'If~ht o wa" isof o value to the huota a be gets killed alsig i;s h praticl oliicansfially convinced the President that there mut1 ~ qun or anabanonmet fall ho]pe for legislation. He sigreed to 1eeue:i hc was uphnioslytened "a conference", and did the cleverest id:VWr amon th Neatoa n healing differees and imaparting a ri*adtfltn spri o h woe cement. oGa4spd p. 194-195&) As SeatorGlas conceded, "the memorable part of h80446 bat onthicum y, bill was it 1>hour a6eh & #ArZfi by Mri Rgans i. Te pech -was so good that orityIde 8firWsai tht uless the Republicans iti 1916 ~ e nonifo
the Pary- Bw ork Times, Dec. 14, 1913, and Glass, fi 2 SentorRoo bean by lamig that the"eauus," Ie of "cnfeenc,"mde the bill a, party measure thus ( r h njorit part I the country, of the lbieft of tb h it~ ai ermgview. hgh he recognized the futility of the
Federal Reser e te to be isoed at the discretif Of the.edrt'f6v Boad fr he urpseof znmitag avanes to WId= e~bs fffb FederalResera seat &qereinatthr Pet foratuff bn r #a obm ie hereby~~~ auhrie. a id. notes, shalthe otatons of the. Ift.a shal b reelvbiefbrall tards castothfi a"i mother, Mubies ue Ait i


redeemed in gold on demand at:the Treasury Depertment of the United tj*'City of Wlasliington', D.C., or in gold or lawful money at any Federal Reserve
slight change had been made in the wording of section. 16; (12 C., 411) thatpayment would be in "lawful money" instead of gold.
se6ti6n to4ay. reads substantiaRy the same as when Elih i Root'
1913 said-this about it
You will perceive that the provision contains in the terms no limit whatever
upon thevantity of notes that may -be isued: Federal Reserve notes to be issited a:i: the discretion of the Federal Reserve BQard for the purpose of making advinces to Federil Reserve banks. The said notes: shall be obligations of the
L-Tafted SULtes.
Ar,, is to my.view.a plain, simple enlargement.of the national currency. of
the VuittO. Rates. It is authority for the increase, practically, of what we call gre&backg 'The notes will be obligations of the Government of the United States I* re 11 Auld'sibiple. T'hey are not creditsof -any-body else; they are credits of the Government of the U-nited'States. (New York Tiine8, Dec. 14,1913, and CongressioRal 1 word, Dec. 13, 19131 p. 831.)
What Root sai& then is as; true today. The Owen-Glass bill then, and
the Federal Reserve Act today delegate to the Federal Reserve Board
the power to issue currency without limit.
What was said by Root on the floor of the Senate on December 14,
1913, others have been sayinz ever since in successive Presidential ad7, ministrations, namely, that since the power "to borrow money on the
credit of the United States" and "to coin money" are powers conferred upon the Congress by the Constitution (section 8, clauses 2 and 5), they are powers which the Congress cannot constitutionally delegate to any agency. Moreover, the Constitution, in section 9, clause 7, clearly P provide that "no money shall be drawn from the Treasury but in con4 sequence of appropriations made by law."
As Elihu Root so eloquently pointed out, the Federal Reserve, Act in
section 16 delegates to the now Board of Governors of the Federal Reserve S t "m 'the awesome power to issue currency without limit.
It is 11 'exercise of this unlimited power that the Federal Reserve
Board, thr
y -6ugh its Open Market Committee, buys U.S. bonds in
amounts far beyond its needs so that it can draw interest upon them
out of which to pay agency expenses.
The net result is th it the Board of Governors of the Federal Reserve
doe not have to apply to the President, the Office of Mansgement aild. Budget, the Banking or Appropriation Committees of the House
and Senate.
The Federal Reserve collects interest on the U.S. Government bonds
it buys, deducts its expenses, and yearly returns the excess to the Treasu. :So long as it holds, as it does today, upwards of $90 billion of
U.'s. Government-bonds It can keep the wolf from the door.
.k1though altered in many respects, the Owen-Glass bill passed the
SenxtA *A D eomber 19,1913, by a vote of 54 to 34, and was immediately sent toconference with the House. (Glass, supra, p 212.)
..I* tbe conference, Glass and Korbly (Democrats),- and Hayes
M6publican), represented the House; Owens Reed, Pomerene, ShAfroth, O'Gorman, and Hollis ( Democrats) and Bristow,'Nelson and Crawford (Republicans) the S6n-ate. There Glass und, Owen won back, almost 6very provision of their bill that the Senate had changed.
(Glass, supra, pp. 317-336.)

77-752-76 3

At the White House on the evnm of Deceamter 23, 1913, President Wilnt signbe the Owen-Glass 'iftlaw'to eef6 t 9 P rst
I 'erve Act of 1913. (Glss, siiprd; 0; Ne ir or he
It was a festive occasion. ang4 1 Cb'ima esn In who was surrounded by higt fsinity,'li fti6 'Seit M S
the Senate Maj6rity'TAaer, Chant e th5
Oscar Underwood, the House majorit leAader ait wnCoi
(wesn Glass, andl amwhrs ofth 1k .uin amite As so vividly mentioned .i4 the New York. Times of December 24, 191.3, in signing the bill the Peintudfur gold pop~g ofwhic he presented to Senator Chilton of West Virguna, and te other there wern presented by the President to Senator Owen, Congressman Glas, and Secretary McAdoo. 'In additiop, 'the reiMdent sqt .~ f appreciation to both Glass ancl Owen, a4: appke for about 10 Miulnts to a very happy audience.
The Times, which had been so consistently critical, wrote two favorable editorials for -the first time, and the act becam law. The trouble was about to begin.


ilJul y 1914, just as the "1Rexra -Banlk Opganization Committee" nbaoeg to, the CoasptrollerdbofthCurreiney, the- Secretary af the any,4 shd: the, Secretary. of Agrioulture set about, puttin theL Fekal, Reserve, SstemL into operation, World: War I bro1de out. Inhvidas: ad banki;6:hoarded $000 thelin, tsli kl market closed, andth banks were in trouble agi.("Thededral Reserve: A Study' ofidn!anking System of the Taited States,"'by HenMry Parker Willis, ~ished. in 1915 by -Doubleday-Page and Co. as one of a series called nie eican Boolds"'. See ch. V, especially 104.) .O-Aprildt1, 1918, J. P.: Morgan had died. in Romeat the age of 76. OnJue 8, 1914; Serbian -terroitst assassinated Archduke ordinand of!mtrh On July 28,,1914 Austriandeclared war on Serbid, and gold rdcs&mnew highs. On Friday July 29, 1914,minutes befoeites scheduld 0 a.m. opening,- the stocalexcag, which had remained open dbig the, pahics of 1898 anh 19t coe. There were thde who said it lmd not-huve done s had J.P. Mogn been alive and kicking. By a othr week's end, World War I had started. Within 2 weeks over $8 dallo was withdrawn fromn New' York banks, and the situation wasseintsu (Sobl,akura, ch, -l0, especially 822, 328,330, 335.) uAsted earlierpasayoung man Senator RobetiL. Owen, president a mbfuneo dithe First Natzioixa Bank of Muskogee, OkI., had lived asabake thoughthe panic of 1898. Owen knew, as few men of his bueitht Whn currency iascarcebhe lms and &mInst solvent bank will AmL rm hi preenal experience, and studies abo des knew ahtlaswao nnaeeardyit the country Wadthegorbakn system.
.108 Owen was the Senator for new ly a & e Oklaoa. He w a s d -irtodiskth is fingr at Senator Aldridh, say "todyeuso,"1 aeFoer frisamendanent agan to the then Vreeland-Aldrl8 ,Act.'lThis ti k idtisit acebpted the amendment, but he put it into the act,
.w.. .may restrictions
m GassOwen Aet provided- for the repeal of the Vreelkind-Aldri~ At'wfih wasto, take los after the Reserve Organization Coma Bytem into operation. Oi July 31, IWI ,,hear th6 Ebropean war broke out, -Senator Owen rose in the emq*- and. samenided, the, emeged banknote provision in the VreeIa-Adrich Act, removing from the section all the many restrictions A ihawd'tadked onto it.,
tim i em r000y

ofatqmilrerenya total: issue of $500, million, shd a certain pcintage of the bank's capital and surpus. The Ow*en 1914 amend dvrbemovedral restrictions, and left th Sertr 16fth Treasury. fret assist a bank applying to anyextent: he wishfed. .(Owen, sup-ra,
( 25 1


Professor Henry Parker Willis who had been consultant on the bank bill to Glass in the House, and afterward Secretary to the Federal Reserve Board, tells us that the Aldrich-Owen amendment, as amended by Owen "gave free range" to taking out emergency bank-notes.
Before the Federal Reserve System been operation, "more than" $30-0 million of emergency banknotes were issue& Togmt"hotmith wer $200 million of clearing house certificates, Willis estimates that "in alb" $575 million "of now media was injected into circulation within a short time." (Willis, supra, 104405.)
Sobel says the provision extending the emergency provision, until June 30, 1915, was an afterthought, and. almost failed to be induded: in the final draft." Thus "accident and. chance;enable the Government to use a huge amount of paper under conditionsWall Street could not have imagined in 1908.11 (obel, supra, 337.)
As American business improvedand foreign money came to America instead of leaving it, the emergency bank cur en was gradually retired. By June 1915, it "had wholly disappearz." Ivvillis, 122.)
This is but another example of Senator Owen's -farsightednem it was Owen who convinced Senator Aldrich in 1908 to provide inthe Vreeland-Aldrich Act for the issuance of emergency currency', andit was Owen who removed Aldrich's restrictions. This simple provision of Senator Owen prevented hundreds of bank failures in 1914.
One would have thought that Professor Willis would have thought well of the Owen amendment and appreciate how well it enabled the country to meet the 1914 emergency. I
Alas, Willis was a banker, and even more conservative than.Senator Glass. Along with his brother bankers, Willis firmly believed in the so-called "real bills theory," to wit, that banksmust confine themselves strictly to financing "commercial" transactions, and the banking system must only issuecurrency against such transactions. Foe instance, a loan to a man who "has sold. -goods to another and draws on him, at say 90 days siaht," and the buyer "accepts the draft by writing the word 'accepted' an;d his signature across the face," is llaODMmeivial transaction." (Willis, 177-178.)
Also, when B, whoibuys goods from A, finds it to his advantage to induce his own bankers. to accept, the loan becomes a "banker's -itemptance "commercial paper of the purest type."' Seller, A often finds
it much easier to sell such an acceptance in the open market than to discount it, at his bank- Sometimes.the banker's acceptance is "so g66d that it can be, sold without any endorsement or undertaking.110f course Professor Willis says that had "the reserve banks bden in operation. at the begginnin(r of August (1914), t4ey would naturally hav e: su-pplied' the great vopume of currency which wao, called for." (Willis, suprair 180-1811123.)
This is wishful thinking. Section 13 of the: 0 Federal Reserve: AaV .gtates clearly that "commerciaJ paper" to be 91 1
0 1 ble for diwount mitst
btal of a self-liquidating character and matu within 90.daYs, unless for P-gricultural purposes.when it can mature iu, 6 months.
Put into the Federal1leserve Actis the monetary tM14a"Ithenry that Willis embracks on every pagei,,'
You can look from one end to thb other' of the Federsl Reserim Aet i of 1913, but you will not find in it the provision that the farsighted Owen bad in' his amendment unler which member and nonmember

1ne 2u7ec nemrnces agamnrt government

te=; sun FoMM Rahsmn STArse
M. el i1ine man itisinte 1United State felt they
wer enitld t aFeder~al Reserve hanrk. Professor Willis states that
gIo s.. -ara (, r, 85-86.)
Durng anury ndFebruar 1914, the committee traveed to as
Man I ,P~a itcolda met wth rereenives of all.
The ct rovdedtha there be not less than 8, nor morethan l2 reaks o ideal presurhe lieicre such that 12 were
selcte, ameyBoston, New York, Philadelphia., Clevelarnd, Rich.."ond Atant, Cicago, St. Louis, Minneapolis, Kansas* City, Dallas,
.. illisspra, 94-95.
Theactof 913also provided that membership in the Federal Resere ystw ws cmpulsery for national banks, and opponents of the lega~tonhadftely -predictdd that many national banks would withdra. Bt ot o.Of the more than 7,600 national banks in the country exep 15joned. In addition, by April l914 a dozen State banks
plede tothe ommttee ao join. (Willis, supra, 88.)
E~c ditrit Rsere bank was to have a board of directors with
stagerd -yer ters.Since underA the act class A banker directors and lassB buinesmen directors of the regional Raserve banks were to e sletedbymembaer bankes in the regxon--ne by large, one by mofiu,.andone y small banhe in each bank district--the committee
went ahead acoducted these elections.
How.nmittee had to leave the appointment of the isov~leddws pubic directors of each regional Reserve bank to the Boari Uder he.act itswas to designate onie of these elss C.directprs as haiman-an FedmustalRserve agent", and another vice-chairman.
(Wili, spr, 39,and see. 4 of the 1913 Aet.)
V.:.Despte t e at o the, act, the Board 4SUggested that the- chief k Wwotiveoffi end ec regional Reserve bank should be designated
49 "overor, andanothe"Weie Goyernor, Dbotha to be eldcted by
ewhban bord f director. HWlis, supra, 98.)
Not~oly, w soer no statutory authority for the creation of this

Vblod Rerveaoet. Wilis explains the salary difference bysoying thdtthe Feera:,Mserve -agents were Tower: paid Goverinent erFPlovew,,whe e theovernors"l were "lhfiedon a commercial basis"
eng te employ of an ordinary commercial bank.,"
jA* -IowlheAetprovided for banker representation through a i~edralAdvioryBoard." After their election the board of directors
ift~f th 1M istrict -banks selected ,oneperson from its district to
be .1ithewbmd-wich, by section 12 of the set, was to meet in WashA -DiC404i imes a year.
A ih& edeal e rve ,Board under the, 1913r Act! was to. have seven 1ft0abe44*aof hom: Wduldibe the Secretary. of the Treasury, tind 'th, omprolerofthe :ICurrency, ex ,officio,. One Board membervwas to
gnal~-"sernor'A and one,"Vice Goveriir))-On August 10,9

Charles S. Hamlin-Governor, Augast 10p- AO$ 6; 1916 And leredntil Ferur, lose--anecessor okOM Frederick A- Vice--%71 Governor, u 14 1.014-Tulf 1 0Srsgpl
Paul K. Wabug Ags 0, 1014-Augas ,"8-ejr expre. William .G. Harihg, August 19, 1914-augual 9, SUS2--tenr prd Adolpth Q illerAugust 10, 1914; ft 94.+ Of course, no one ia eligible for an appointment f is a ~ar i rector, employe or stockholder -of a bank, and not moe ta n a be a resident of any one, of the 1Federal Reserve ditit.8fls supra, 3194929, antd see. 10 of the 191 8At.). Two are to e"xei On November 2, 1914,4the member banks were asked osbtr
steolk, Under section 7 at there 1918 act the stook was topa-, iecn dividenkL The subscriptions were to be equivalent tote64%iorbakI capital and enrplas: ene-sixth on oughnnzation, one-asixhi nnts ad one-aixth in8 a mnbths. The rweinng thisixt:xhi~to was payable on call of the Board.
Besides buying stook inthiFederal Baservebank o itisre a anember bank also had to postreaervYes upon which no neeta~ be paid. Under the There was, therefore, guest opposition to the FederlRm At particnlarly by sadsontry banhawhich melied for tmrermpe 2-percent interest on these city balances. To -meet thso01tbn.. h
banks in Isrge Reserve cities were to keep 18 percentof& udan percent of time deposits. medium city banks 15 pefa Vf and 5 percent of time deposits, and small country hek-11111 1 e* cent of demand, and 5 parent of time deposits. itedeA w*Ac of 1918, sec. 19.)
Professor Willis very neatly illustrates how this reem2.rdaif
rrmulmrl A mium & csmmi yaknd has $1 000o n# Under the new Federal: Reserve System, the wmr akW4 keen its reserves in cash with its regional Federal Reerv hc

i~w~s pro Ij from paying it interst W hon, however, the reserve requremntsfor country banks were reducedby the aederal Reserve Aep thereby released for, the country lbak to use as it
I .pproont were the prevailing aefIlietth,$00
Ax~ud bloaed and return the same $180 that. the $9,000 had earned jn Ne York But,. since our banking system is a fractional reserve
onethe 3,0) could be used to enstain new bank loans.
thpe country bank could Aind borrowers, the $3,000 would
supprt $5,0O of new loans. At 6 percent the bank would epan $1,500, ,..s wns te $80it was drawing in interest on its New York balance.
As sonasthe'ederal Reserve System began to operate, it then provide a ethd toclear cheeks of member and nonmember banks at -parlieingAmperican business of a, harden that cost them from $75
millon t $15 million. (Glass, supra, 300.)
S'Piorto te eutanent of the Federal Reserve Act of 1918, the soaled Y~rasoabe colletion charge" was a "flimq pretense for rea,ambleess Sosucesu ha Reserve's accomplishments in check
colectonbecmethat Senator Glass, writing in 1927, could sy:
lie rseresysemha lrely done away wt te enbrmous aind hazardous
'%mV whih armerly legged the mails and prevented banks front knowing

pf~ilokga terwise somewhat depleted exchequer. (Glass, spa 0M.)
F~deal Rs erve banks from the beginning were set up to admemer ank b~Macsounting their paper. However, as indicated, the paper li&Ato b sef-hiquidatmng growing out of ,commerce, industrial, or Agrw~tur.1 ransactions. If the litter, the paper should mature in 6
nioth- ohewis, he apr must mature in 90 days. (Willis supra,

A fcous inth open markt, Reservewaauthorized to buyadsell
accptncsnd Government securities. (In truth, th pwers of the
utdtat created by the Organiaton nomittee
and~ ho kse nw ones.
To ralate the esablishment of branches atFdrl eev
Tod~gnate three (c) of the nine moms of te board
qfPeanr of each1 Federag Reserve bank, pne afths to be cliki of the board with6 the title of "'Federal ,ereAgent."
.A VadeiFa Rserve Agent to maintain a local offce of the
"N~ima rsve Phard on the premises of the Federal Reerve
shal make regular reports to Federal Reserve Board
i M"'d edi'cial representative.
npveany director of class B bs nen) if it should
i P ar at he does not fairly represent the-commercial, agricult AustrAl inteets of hsdistrict.
reove oficers of Federal Reserve bank with due notice.
TO etbloish ruleis governing applications f roin State banks and
ya sessianaX sssmn upon the ]Federal. Resrv
stim uate pxnses for succeeding 6 months, together
wit defat caried frad

To xain a s discretion teacutbokadAfiso eac Feem Rere bdank ofoals tof redieraN~saemns reotsa t a eeiiieetyarauy.rdee Torequ e rnaiction dto per,6 eetiR sebn toreiscouto furthaer oprain ofeany Feserebn. To suspeceier thperidnef.n dy an o ee such~~~ dutseunions fo eid o or sxcerd c5ds) yevr

Reseve equregultionsciford iurhe and1 To superiiad eermine the ratue aof rei1s nto ritsb FederlResre banks.

Reserverities ofde eitstn anbsisued. albakigg soci ~ creationss f jc o erv bstitutio se6orh7 section1 p9o heatromlgte relations governii o cnta Resere ciiesng Fe deriae Reere banks.te staeda on in bnsa its discretioneealRsr To req or sareold 'igl fFdeeev banksfo incmpeencxtdraexainai of memberau, r bacit To~ 1 aeur rn reort annobual tor Contlssastsuo
theboksan bla cemtet of Federal, Reserve'banks.
To usendth ro roeaioso n Federal Reserve banksio mn ofpin an naeiertibnlraneinthrdst To perfopplicadtios fronctional bankrics 1pcfe r ip al for thastbismnto.bTo detejecte or aciep such appipationh hratro

To author whaihmn uc branchma e on edrlRme

To require examinations of foreign branches as it may deem

(Wilhs supra, 141-144.)
For ins tance, Reserve could not only buy and sell Government, Stateand inuniclipal securities, but also receive applications from national banks to establish branches abroad, and establish foreign agencies there of its own to buy and sell bills of exchange. (Willis, supra, 323-324 and see. 14,of the act.)
liowevorthese early American bankers had a very narrow concept of the purpose and effect. of these so-called open market operations.
Willis says the purposeof the Federal Reserve System (Willis, supra, 190-191)... is to enable persons who have debts to pay to get the funds with which to meet them, and that banking is.a. process of equalizing the supply of fluid funds Mong those who require them. The Federal Reserve System is intended to proVide j;pst thi's means- of liquefying and equalizing resources. It is not a method of supplying capital to borrowers for investment. Such investments as it makes are maqe for the purpose of affecting the rate of interest in the market, and Of enabling banks to meet their own maturing obligations without difficulty. While this service appears to be directly and primarily for the benefit of the commercial world, it is beneficial indirectly to every member of the community.
bank's suspension effects the whole community,'and the same is true of the 'failure of any commercial enterprise.
Important as. is the function of supplying capital to those who need it for long tirm investment, this Is the field of finance and not of banking. Preventing susPension of payment and insuring constant convertibility of demand obligations into cash- is quite great a service to the public at large as It is to those bankers, merchants, and traders generally for whom the service is Immediately performed.
Youcan see from this extract that it never passed Willis' mind that Reserve's buying and selling of Government securities could regulate the money market and protect our economy from- extremes of boom and bust.
Of course, perhaps the greatest change effected. by the Federal Reserve Act of 1913 was to'provide for'the gradual withdrawal and cancellation of thenational bank notes which had constituted the curre ,erof the Nation since the War between the States. The printing of this currency required a plate for each of -the 7,600 national banks in exifAende:in 1913, whereas, since'1913, the Bureau of Engraving has needed but one plate to print ou'r currency I since the Reserve System opened on November 16, 1914.
A's section' 16, of the Federal Reserve Act of 1913 makes clear, Feder*l notes are to be issued st the discretion of the Federal
Reserve Board to make advances to Federal Reserve banks through the Federal. Reserve aorents in each of the 12 regional banks subject, of eewrBlo Raetve requir6ments set forth Fit some length insection 16.
*the currency'is Issued in the first inst nee to the Boardon applieation, the Federal Reserve agents are not authorized to give it to the Ved&ml Regerve banks until those banks secure the issue by eli ible
Suffice it to-say that the Federal Reserve System began operation on T bveoiber'16,1914, possessing thesbov6-mentioned powos. When the [M-.uks, oMn4 in 191,,ktbeae wero: 4e ."Govqnor, eaph.pff tjie disC ft
vstrict I-Bosion, Alfred:L. Aiken-Resigned 19M.

District 2-New York, Benjamin Strong, Jr.-Died while fice
District 8--Philadelphis, Charles J. Rhoads--Resigned lot. District 4--Cleveland, E. R. Fancher-Died while in o" 66 5 District 5--icmondy Geo'ge J. Besyt-Retired 193$ District 6-Atatan, Joseph A. C Mea Resigned l91& District 7-C0idago James B.-McDoagal-Retired 1984. District 8--t Lanis, Rhila Wells-iResigned 1918. District 9-Minneapolis, Theodore WedRetired 1910. District 10-Kansas C~ity, Charles M. Sawyr-Rsigned 1to5 District 11-Dallas, Osear Wells-R ig 1918. District 19--San Francisco, Archibald Kains--Resigned 1910

As we bave seen, overcoming even the closing of the stock exng in the summer of 1914, as World War I broke out "in Europe, theFd eral R~eerv Systpem opened for business on November 16, 1914.
It s rgt to say that the Federal Reserve Systm was a biim provement over the banking system that precedeed it. There i o much question but that the Federal Reserve banks were of greatly in the dlay-by-day colection of checks. The Federal Reserve was ot the effort for its check coletion system alone. Theoretically, as the 4 pitqs hoped, the 12 regional -beaksol shift money quickly from one: end of the country to anothat to i beleaguered badlt. But how good the System was to be. at thatts remained for the ftttre.
Then, the question was open in 1914 as to who wotdd run the edea Reserve System. Treasury? Congress? The Presidentf. Tfe Fee5 Reserve Board! The Federal Reserve banks? Or, -as it turned au, h Federal Reserve Bank of New York of which Benjamin Strongwa Governor?
'Likewise, problems arise 'if Reserve is buyigo selling accopane in the open market. Ras buinlg power is so great, that from the bgn ning Reserve khew that ith transactions could control in lsrge msur the prevailing interest rate ih -the country.
When the -Reserve bega ih November 1914, membei buts er begining to withkraw the $800 million they 'had in bandk b alne with New York City banks. The act gve thant 8 years in wirhod o this. (Wfilis, supra, 198499.
The member banks, at this tiewre discounting bills -at 4to4 percent, whora the PFetde at Rseve banks were holdin to ads
1 9

count rate o to tW6% erarit.
rate was, a brokerage house in Dallas, Tex., 'offered to- buyal h redisco.t. at. .h Fera.l..1Th.. Resrv Ba.n.. of D1allas .a 2 re....
The situation was discussed by Benjami 'Strong, Godernqo h Federal Reserve Bank of New York with this counterpart 31 dl
Governor of the Atlanta ba~nk.
Strong made three points -with Mc0ord:
1. Member banks have $7 to $8 milion they will not loan at 4 to 44,
and If we allow them to rediscount at a lower rate won't the baha 14~
raels hn4t,4A9rel Ad1fieti'm~i nouo

But Adldnthe reiscuntraeat fthstime (19141917) would cause a Witdraal f. M mllin rsere Nw York balanes that unter the* Act are
It i Imortat tat e se toit hat the decision a to the Iaterst rate i we or he ankrsin he edeal esrve bake and not one for the oiiin on he edeal eseve oar. (taf report of Sbcoemaittee an Domestie i an renc, 9 Congress, let Bess, Deceiber 1M 6tited:* tedeal eseve trucor And The Develeopment aof Monetary

1hus yo- se a 6i vey er period there developed a fundawentl cnflct etwen ta iterstsof .the country and the self ish intred ofthecomerialbajks.Thoghhe was a banker, Benja a
Strog. ad brllint ind an hesaw at once both the country's

O~gurs hiscoflit as foesadowed, when the Federal Reserve ird adethemisakeof lloing the Directors of .each district ban toelet achef xectiv 6fior and call him.a "~Governor," when the'Attue, lerlyproidd tateach banik should have a chairman

Addig isultto nj uy, e dtat without statutory authority; the oar, eevaed bnkes o ts district.baks to head the banks, andthe liidfem ettr slaresthan the Chairman and fiscal agent

Ta, hiseaxy agumntit a the Federal RBeserve'.Board that

The onfietwsheghtne y. he releme of defining the role of the Ssea TA6 ovenorstene~dto vew he Sste asessentially a cooperatiterrs

the ~ ~ ~ ~ ~ ~~~~@ brae ses niseith ofrne fGvrors, and even in the area Ot 6pn arkt peatin*-te dveopeitt fwebh a the most important poa~utio of he overors uri gthspod-the overall emphasis was less on uesion ofpolcy hanon ureucrticprocedures.
TheBoad, n te oherhan, rlletedthe views of the majority of Congress
*Ud~~~~~~~~~ ofteWlo iisrto ha hd seen the establishment of the System as nMMU7to isureeconmic rowt. To accomplish this end, the legislation a moreelastic currency, to insure governmental andto arantee reasonable rates of interest for th Z: ouh th latter objective frequently has been for9069, t povied he nital oliy >al for the System as the Board acted to
eut~h intnt o ConressandPesed for lower and more uniform Interest

'l.''Whevithe ~ ~ Badfrtsge&Ithat the interest rate be lowered Sinjmin trmgriated ad rearked:
ther dty o t of thre s 14 al boy to review what we suggest to tbem Wht w hav Infac estblihedat the respective banks Is for them to pass ,xpk *d ab~ Isenttle to9b o hat board and tell them what they ought
%p~gppfrd R^Uwrv holmaks (Emhais sunlied.)
strawet, u Wa tosee Reserve's; rediscount rate during Qw o*, fa. "ents: f is eei~ion, at 6 to, W9, percent, and I to 41/ Petwt~r Fbmay 904o Kgust 1916, both. rWes, being substan .60 .. *ve mrke rat&..Tevustent of the bank[ers, iin line: with Oithdox-thoris oncenralbaning, was that member banks should AWMA tv".ofitby rdisstair with Rosere hanks ate lt o nwer

ton mnghtlhave on member bak- balancoes in -New Yr i~ ai
memberr 1971, staff study, supra, 14:)
Thus, we see that the very thast questton the Feck .r d~ faced is resdlved not on its merits,)u the basis f10'o the commercial banks. In this, the System was breaigfthwljis founders.
Just as few months earlier, Oscar Tn8 tabod te himno
Ways and eahns had said to Congressman Es#: I congratulate the wisdom of this committee in F..estabihna oewt control of ,this system that would represent th% borrowers afmnyadeal h people of Ameriet to secure the medlum of ftRIange atresnbeatsoiterest at all tes. I think that is probably -the greatest rfr hthsbe worked out in this bill . (and) I believe that this board wcarflyadsey manage this, not only in the. Interest of the Ameriean pepeadlwitrs rates, but also wll have the wisdom to see that the greate nn neet o the country are properly safqguardqd and proctected. (CnrsialReid 88d Con g., Sd Bess.; vrol. 51, p. 1459.)' And William Gibbs McAdoo, then Secretary of the Tesr a ad
Ample credit resources at reasonable rates are an indispabl atrih development of a country and 0 the growth and prosperity o t uiesadpo ductive ernterpiaes. The primary purpose of the, FederalRervAcwatos alter and strengthen our banking system that the ennirgedcei eord manded by the needs of business and agricultural enterprise] il oeams automatically' into existence, and at rates of thterest low nuht siuae protect, and prosper all kinds of legitimate busilness, andtsrn, bu~li ma 'tely a greater equality. of Intereqt rtes throughout tecur.(Ana Report of the WSereary of the Treasury for 1915," p. 12.)
The Federal Reserve System had thus met its -firt tsadfie.A weak Federal Reserve Board allowed the bankers:i h isrc~~ to take orer, and the country's interest was ignoeq.
So much for the first squabble at the new Resevnary--oe e to come.
There is something pathetic about these early day.BnStoi h
the other* Govepnors had foughtl'or the Aldrir3 il ia ot u there they were running the Federal Reserve Systemadgtigs y
with it. Strong even initiated a discussion among thel vmr"o 1 Board's authority to require one Federal Reserve:bn o-eim t
for another Federal Reserve bank." This was hardl ,pmtfrds cussion, because the Congress had insisted on the BadsbigaJ to have one distirct, bank help another, and if anythn a ete.i the legislation, this was.
The matter came up#* at a second conference *of h aks tog pointed out, that the South and West had periodofsata *
sure, and he felt if at those times those Reserve bit o~~~Ythe Federal Reserve Bank of New: York would, onc son ntti make a fair rate. He argued that it was never the rfsswiai tion that "there should labado e en er
between the Federal Reserve banks." ,lDecember11,saisdy supra, 1.
It is readily apparent that the dischseions at thi6 ery24i'trb ofteGvrosbd ogo o h k =a h@-T.s


*ithl th16 Governors were meeting alone, and with each successive weetingthey were devel6ping more and more opposition to the'Fed, irAi Reserve Board whose very creation they had all opposed. I The matter came to, a head at the fifth conference of the Governors V ith -h d the audacity, by resolution hei ey a to say:
Mo funetton of initiating d:iscount rates of all sorts should be exercised by the Pederil Reserve banks without pressure from the Federal Reserve Board. . .
'thAt did it,
The Federal Reserve Board reprimanded the bank Governors. (Staff 44dy, s-4pFa., 14-15.) .....
,,,,Go.erp r W. P. G. Haxding of the Federal Reserve Board appear,ing before the Governors Conference of January 16, 1916, said:
TW diovernors shdald 'meet only when called together by eir
the Board, all th
oMfe#Wces-.hould be in,.-Washington, 1).C.,.,and would adhere to an outline of wlcki ftpProred by the Board. (staff study, supra. 15).
.Granted that Strong had a point that $300 million, should not b6 precipi itately pulled out of the New York banks, Harding declared that the formation of the Governors Conference, as a permanent organization, was "beyond the scope of the powers" of the Governors under the Federal Reserve Act.
He could have added it was also beyond the Board's authority under the act to suggest there be, a "Governor" at any Federal Reserve Bank. Under the Glass-Owen Act th, title "Governor" and "Vice Governor" was reserved for the heads of the Board.
As its memorandum made clear, the Board told the bank Governors that they wished "to deal with the Reserve banks as individual banks," an the "Board had no intention of permitting the Governors to assume a role in formulating policy." Their role was to be confined to ittecl nical questions of operation.' (Staff study, supra, 15-16.)
The next conflict with the Board came when it asked the Reserve banks to buy acceptance, not as a unit, but individually.
The open market operations at this period were very important because the Resenre banks needed the ea i gs. However, whereas the Board wanted the Reserve banks to purchase individwal1v as the, act contanplated, to a man the Governors were opposed beraiise, as Goverflor Aiken of the Boston bank said, that necessitated their going into the market and bidding against one another.
Withthe majority f the Governors agreeing with Aiken. the ?Kew Yorkbank began buying acceptance for the account of the Boston bank and several others, the New York bank's beintr allowed forits services "a certain percentage of the interest." (Staff study, supra,
The Board, which had advocated individual action, suggested an assessment on all the banks to cover the New York bank's expenses. Strong rejected this because it would discourage State banks from
*6h ing the System and it e-nded'by the Board's allowing, by regulatioft, the Reserve banks to purchase aceeptances where the corporation

"blishes its financial statement and acceptance of membier banks. 5taff study, supra, 18-19.)
Once, appain the Board had been overruled by the Reserve"banks, and the intentions of the draftsmen of the act rep u-diated. Federal Reserve had bec6me a central bank, at least for purchases of ateeptarwks.

It should be added that the way it &U worked out, Penj Str
alone at the Now York bank was WA&^AUW0PeU Market 9porm.,
tions. His bank was in the "driverli smt" (Staff study, supr&,.20), and in no small measure due to him
Interestingly, when several Reserve 0t, above par tho
2-percent Government bonds that held the Clirculafion privile under J.
the National Bank Act which the Pederal Reserve Act com qA ths Federal Reserveblanks to buy ati pati and amimed int e e, Reserve Board asked the Now Y6rk bank to represent a =e banks in the purchase and sale of theee bonds.
Once again the Governors were delighted to see the Bodfd SUPPOK D their plaii for unit purchases by the Reserve tank of Niew YoA.,Vice 11 Governor Treman remarked that the ban]m 41are one unit and I" should help each otbar to make enough to psy Empemm." (Staff studyl supra, 21.) Of course it was this concern far that caused s6me Reserve banks to buy the 2-percent bonds above par in defiance of the clear provisions of the act%

As we h avesenthe Federal Reserve System's handling of the fl 1144.99fWorl War I left much to be desired. Its aci~i drig the postwar period were so inept, tha a case could b~emadlorthefiaet that the Federal lReserve itself caused thel19SOR2

WiU~~~~s 'Sy o M m r AKs--Is GooD From ana CouxuR
WIeddin N ber 1918. At the Governors Conter enbe~~~ of Mt# 899 GvrorSrngdsuggested that the discount rat
-be rised'bu meberbanks, had ahdge amounrit of Iloans outstanding on goernmnt bndenat current rates, anildr ikrise'in the discoutt rat woldresltin their taking a loss on, borrowings from the Re serv6'bnks u ingth bonds as edllit eral. Foi*'tlise ason Sf trong de cide no topras the pint.i (Stenahic Rid cord, hereinafter cited "S.R", Mrch.919 Conference, 158, 162, 166, 2388-935.) T~e biieice agreed that thetatuis qoshould be antaine imtl 4 th rotation of the Treasur' it loan, but to recommnd 4 hghr rteonthe next Treasur issue so tht the iscount rate could bb i~sodwihot disturbing ban tpofits. (S. arch 1910Confer

-tde &reay Pder ll~ eserv e ofal ro m far res s. Thi is the oneqstn o the acsnt th Iiin-a als f the Federa o diti a det

bmk~s; r m abslected b bnkers.
At o tme as this more evident than during this priod.

IW Spteberof 1919, Un~der Secretary I offing well purchased 000100 lon4 aively assuniing the funds would he used by the bank to y ff oas n Government bonds.
ut s .nyfist year ecohomices student knows, under our fraction resrve Uaitgsystem, When $500,000 is deposite in, the Nation' lbwk tt6 bnkswill, natura~y, use0 it to make loans to their customers ITis~g re~isly what happened. T he banks loaned out the money no 6 l tostokbrkers, but to other borrowers, and there was an expand spalf~bm, eedit., (S.R.,:November 1919 Con-ference, 89-90, 234
owever~whe Glwassad Leffingwell discovered tiat'the'hbnk ha notuse ffe $00,000 to pay off their loans on Government bonds

ence, 89-90, 284-235.)
Strong chided Glass for naivete in thinking that bankswoldd what Glass thought they ought to do, criticized Treasury fornofiac ing at short intervals, and stated the Treasir should fthame isplce so as to accommoidlth the banking eystAdi 7.R., Novenbei 119don ference, 73, 261, 277-278, 285.)
Strong warneid Glass and TAfilg roll thi if their Decl r h January 1920 bond issues were to carrY Q -percent interal 1fte hl they "would have a profoundly inftif xo eet ne6 e ntiltand discount rates were raised."
There is, of course, an inconsistency in the Strong positt nInha higher interest on short-term Governmlent paper And highe ison rates are more iffationary than long-term 34ties. His reason, for advocating them was to opmpansa the;mksbe cause ho wrongly, believed thiat it .was an..integral as4o Reserve policy to' protect the profits at.. the member lan Novembr 19Conference, 280, 482.),
WonsEs mia 1920-21 DEPREssioN .-,
,By September* 1919 inflation had escalated and, as.soon as. h em ber bainks weie clear of their last Liberty Ixigg obligatin ,h eral Reserve Bod raised the discount rate. .("Banking and.peay Statistics," Wahhxgton, D.C., U.S. Board of Governors of th epa Reserve Systemn 143,439.)
What happened was both dramatic and traumaotic.,'Jhe -ildo- 0 day acceptances rose from 4.28 to 4.53 per-cent. New stock 1 call loans rose from 9.80 to 14.90 percent. (Banking~awd Moret tistimi, Federal Reserve System,1943, 452.).<
Strange as it may seem, these increases irn marke'ates see arl to have ben noticed witlhin the System. and W.P.(A Harding lvr nor of thel Feder'al Reserve Bank of Boston, (Janu .ary :04 't April 7, 1930) aplied prsure for further discount rt nc~~s during the Novembe 191 Conference. (S.R...November,199Cner ence, 16-17,-234.)
Glass had gone along with the rest of the Board in Novembr11 in approving rat inceqases. bu l.ateprarte aletter to Goe9r79-r mng urgmng thrat System officials use what he called moralsain with the member banks to prevent use of Federal Reseryeftnst support "reckless speculation." (S.R., November 1919 (ofrne 4-12.)
But his, Under Secretary, Leffingwell. had learned the hardwy.H announced after Glass' departure to the Senate that the Tesr' Intention was to revert, for the time being, otemdrt monthly issue of certificates. This acquiescence, plus the ralMceae meant total victory for Strong's position.
In January 1920 the Board had raised the. discount rate:wnt percent. But when the Governors met in April 1920, their Cofrne ended on a pessimistic note, for which there was amn'le reason.

The wolesle price index was continuing to rise, and the New York bAnk ndcatd-another rise -in the iediscont rate was ndeeded.t -(SumimaryApril10 Confetree, 2.)
Of oure te fundamental fault was that the: bankers running the "y Pm hough that when a bank discounted paper at a Reserve bank, th~tdiscou t t just had to be higher th an the mnrket rate. This rn~nt lss o he member bank.
-,Bt:ooenn he face of falling prices atd a weakening economy, the Govenors-kep the initerest rate high hoping thereby to, force the
*ihber b hto liquidatee their loas at Reserve. :Thi hih-itreat policy did not work. Loans were not liquidated, indnotuntl he bottom of the depression in December 1920 did the disonrt rte all below market -rates. (Banking and Monetary Sta,

....Howeercstentect the Fe Durin the enate, debate on the resolution, the Repub1ican maj oritymae epait favoredsan crease mn the reds a t while the 10 moeaiic inrity, consisting pf Democrats 1 Bullooe. Repub& n, ontxad the rate increases already approed had cdused the pF~e icresesand. were ruimng the farmer. Senatr Robrt L. Owen warned that the current deflationary. pol, 6;isfgoin ,lead -to an industrial deprosp5ion," and it can only
dav pices by creating a depression."
thatthqsembieswere not -to raiseitr n 4to bsins~i xpansion but,, rather,' to "bring down prices by a at.ilq viuije of commodities."'
gnp~ln fat that increases in the discount rate weuld tend to T, &d, ion and increase unemployment, the Republica chairfS'ateBanking and Cirrency, Seonator George P. M ea of yo~eticu, 'inten'dedBthat when the -object~ia ta reduce prices "then 1 0wa, sto aise .the discount rate." (Mkinutes, May 1 90
;..Qu y~y[S 18,1,9 the. Federal Reserve Board held a. confeence with th- bakers in the Systemn,.namiely, the 12-member Federal
cil and the three class A directors of each of the Fedra, Rserv6 baks. (Congressional Record, 66th Cong.,. 2d ase., vol, 599739 145'146,17202-27203.)
In ddtinEdmund Platt of New York, then chairman of House l~a'Xig n.6d urrency, subsequently'appoint ed Vice Governor of the
a Bard ad representative of the American Banker
iona attended.
lfor such a peuliar conference, the. then head of the Fe ~~e B oare B4rd, Governor Harding, said that it. seemed "e
lary aprpriate at a time when there is'a banking situation to disman to hae banker helre-. to discuss it." (Minixtes, May 118, 1920
CQ -nee --" 4

Whpin rion e hold havqe sesion of"hsoicje a the: ot sy thdre he n ked6
tinn of the penalt dscsont ra, mos System oapr3Zr Cmlh Uilerst pr heso ocon c of d pealted Boantd .ad niodd Millcyr said was abutomkadarinf cotrol tb mora stauasion)oothe tdmeber nha vb xh A W e anayi of cnditionRsine, disric to- MillerWe0. "Mra sanwas the lekh healledl ent on ateo sbdi frteore tof accen Jankety aopercesad h sont rate..T H apornted t t oe mev an refse t loa -mnfteo:li resinone was reahe in Necembr 192.eB thatudnwul adt bal roo feailrd lioeddthe rbamnt. Toh rec l xainws dvsvda m8ee piiativ whid Mwoutar Stisive 28einetinfo one plc oernotr aho uemie the Siy ftet romem InNmersitlr 1919 GodernSt roynasi, aD'l ft eov ifrue o hf opilon covne 1 a tsedond tein of shtlia thoker 11 o Strong acmoain tapnly
AttiWysu hereasaasaSenatordGlassipointednout the Boarda Gastad thereoealtmre ativeeroe fhorl e the Syst. ut

Adith Meoisomsas flyicnget opemasty tesa t vaft in a p oliatstbankars a sedte disoun ate e wts raehol6 A). Boalstso folowdion Jne 4,itlnt on Nolrwa-healimotn lt as ankr on Ferar 15, 1921 (B-ankipnand
G ounrse thi isep inonrribl proft thate. a t in mldt afarhicefa eiin ecnomy araates n eentiudtd n the disofard ties radoal suras forthie imontere,1ny a
to th ytm v

which..... woul .................. les tocnrlte osaiietomre nm~ty

by providing accommodations at a penaltyi~ ........................
W h ere a s,,..the...o..........................
refecs pol,'iic ci maewih estecoto fcrdta'a iil trs nteeoramr cie oefrteSstm SRNvm
be 1919iiiiiiiiiiii~i Conference,~i~i~i~ 12.)"i iiiiiiii iiiiiiiiiiii

T n z i iii u L~~i i o rmii .................................................................................... ................................................................
W i t h..........e.........m i.............or.... .................................................................................................p .iii

te weakens&t econ omy grows wealer. Certainly this wase so in the
Th F66lRsrve System siffer fro e ofca whohave inds
6f bankers. The country cAnnoC affow bankers to determine, interest sltes. More .espciallfy wh en, as ati'the Reserve, the bankers satertly, Atd- alonie, without consultation with the- President, hi Counoil of Economic Advisers, and the congressional leadership.
Whe runs this country ? Reserve? e
Dr. Addiph Miller at the April 1920 conference put -itis a y: Onr, Beaelve Banking System is th e only considerable baniking sytmin the
*orld in which there is no definitely fiedlimit ot any kind uponthe operations of.the Mystan"; that reserve requiremhents, tle only feetor affdting Systent ideatteenwhich is tov6ted by statutory limitation, "can be suspended by vote .9 the re49tal Baserve. Board"; ,that, "when yeu analyse the thing feedapnenaly,, the discretion of the Federal Reserve Board spltinstely io the readlatb4g rieMdplb of our Federal Reserve Syatems") tat "it reuiefsd virtually peri@ sonfarp sancon in Eglend to do what the Federala 4eeve Board wab gaet ap ao do is this baisilagi"; that "tereis no gveernmental bedy in the world, oartilpitone that concerns itself wfth banking and fiane, h$ begins to ave .y8ti likg4## powers that the Fqderal~ aesv Board as erthe Fedeal9 Reserve H0tar; and that, "in blet, our1 Is a rserve sytemn by diecretion 4natead of by any fixed principle". Nevertheless ths enorbos powers sbould
-not be restricted, Dr. Miler added. On the contrary, "I think the Board should e feie its power to restrict. '(Emphaels sapplied.) 8 .R. April 1920 Con-tllam agai we eara decision to be seade; namely to raise or lower Thd intertat rate. It causes get a fair hearing. The jury is packed with I1,akers who profit from an incr eae in interest rates. A expression is IIW alght and mnterest rates should be lowered, to stimulate production. midtead, rates are raised and held at peak levels ntil September 192L. M~tare's catastrophic policy was tol "restrict credit, sad psxpand production." It was like finding while Roeburned, In. has then 8 months, beginaing 1ovem~ber 1919, the discount rate awbaccessed from 4 to 7 pdrcent at the Federa Reserve Bank oNew York (Banking and Monetary Statisties 489044.)
Seween May and October 1920 wholesale prime fell 20 percent Qotm fR 938percent, oil 50 perenat,.cottonseed oll 80 pprcent. Menuaturing was down 42 percent, unemployment was up to 11.9 percent,
was, stagtal, and agricultteewas a distaste. (Seventh Annu Report of the Federal Reserve Board 1920, '7-9; Eighth Annual a 6w 1n1 10--12; S.R., April 1921 04aferease, 53, 65, 75, 90, 610, 4K 685:; Benj aminu M. Anderson, "TiheRoad To Full Em ployment: skancing Amnerican. Prosperity," Patul Tl Homansand Fritz Machlap ]Edition, New York, The T.wentith Century Fund, 1945, 25;. "Hise torical Statistics, Colonial Times to 1957, Hous Document No. 33, W6hIW 1tsa.,7.
Ad he federal Reserve Aninual Report for 1921 notes, the economy
1news Junes 1990 through the end of 1921.
The Board had many explanations.:-Bad transportation, inefficient: laborworld-Wide, lack of 'capitaL. (Minutes, May 18, 1920l Conference, 9-8) Buat with -pri ces for everything falling, the Board allowed the: th'h k au0 Fet remAa in at/W dh T 1 # W1arta r Itawa was unqu depewi w A -11

veaes atmpo nar ry. 192 whe .giutrlpi.ih.suh Ins Noebehr 950t the oilrd thlwe ah eea esq~ a nomi Dapsot rats "reimpctunt rat o pcntAnkEt mae bygete meinreasigt e facilitie ndoumen suhsi< df~o

spiral. Ires .a eamfle erti, and, nteiFederal...............
itree inato preeto93wiinre, aoscneqecs

6 vn thonomi c Sisaste w6f, the Jointe~i OnSAcl Rerepo, y 8dow.ntoSs.etember 19 54serlste a 8 1,, Cofrn htGovernor Ha-ding replied thaentohowever da pileou th t ecepane lanonar tradue and ndustdeto
wantd utn and bi."th actnrsply gstdadiw~trt of a (e endpedoneiof Feal Advirosoriy o, oa iin Cnr mare Ar1 1 n Cnenc mltes ,bintwe 1eao wnspsto

3, ,

d' that o i the nswer to thvmserd priate respfaon. pesue
Rnserveme offiial were looknig tl fhinC mu nteEo data. Asbeprs this'a i powhat y atihady eemnsoldb obeed wyitheain the facltiemb ban ks ueo rdcio.Tiwrc R7eservebs, cafnd were cdetmndi te;om redupt n Theae cst waslaigh.r Andsur in l actteaSser h utb vohr what itosetaout tosue do. Ith didnotrdcehith inrae'hcotfptonted Stte byMantaoinig teaig eo h percenttee unti Enjmin Strlzon "dsoverhed Joen 6miteo h i erprt 3 o1922n hat m member anks w 48e ) arerlunto adnd outpofede to heer Resirbe o.Wea rn cprhes ofe Genmntrods ind hinsr suhaImtrOe eswates. Tus awi the pring of pl 1o2 with ta therei aalal.

an tabeto make nstew lanse and th instery fteSse' Resrv ofiias er lokig t inncal rahe tanecnole
d ata A s~iiiiii! b a n ers thiii i w h at.......................... th e ..................................

obesdwtih atta ebrbalswr fvl ndb ote

Reserve banks, and were fhat'

... . ................................ .................................................................................. s......................................................................................f ....................................

0solt -C A rrnvi 13OVDuna n, ITS JUDGM'ENT AS TO anE
It ws no ony a desire to benefit histaber banks that mnade the Sys. .... mmfaorhih inte?#st. At, this period it held few Governmnt destri-tj n discounting for its own income. With an increae in
i nrto, its earnings rose. ForinakethNwYolise
En 9 fotd8 that the New York Federal Reserve Bank eportd eaiuns of 2173/ percent for 1920 -a against 19/2pecnti 1949.'(Ne Tde Times, Jan. 3, 1921, p. 2 ot see. 2, anid January 30,
TheTims fgurred the New York bank's profits "at the rate ofs ablear ini on r io-r a week, and "'total Reserve earnings" at "more than d~ube t-a.1 (ew York Times, Jan. 2, 1921, p. 2, see. 2) The 1 bank for the first 6 months of 1920 made $68.5 million of1
*hld theNewYork bank alone made over $24 million. (Ibid.)' Theprofto he eerve banks were making as a result of their high 4iscount atewre a source of great emadrasnent to the System. Well it igt b. s the New York Times commented editorially, sulh Pro& are"'amatter of 'national, rather than local concern" because 'thee p~fis long to -the Nation,"an there is "a first lien on them" f~r "to acomodation of the enstomiters of the Reserve banks through
*iotn~i bnks. (Ibid.)
The ime, hwever, accepted the System's argument that the Treas-ilr peged as too low when the Liberty Lan bonds were floated,
-4n tht he~, he national spending stopped at war's end, the Reserve ystemhad aternative but to raise ihterest rates.
Xturlly th amount of the Reserve's bahks' profits upst the west' ernfrmersad :southern planters. Their outstanding borrowinsig &imbd frm $19.2 ftillion in 1919, to $1,980 billion in 1920. (New York Ties, Ja. 2, 1921, p. 2 et sec. 2.) led oadeands by Senator McLean of Connectict then chairmen of Sen ateBaing, to apply $100 million to reducetly Whott-terra 4dobs 6 th Uited States, by Senator Hitchcock of Nbraska to use: it a a pecil dposit' toereste credit for loans to farmers, and by Sent6.F South Dakota to use it to purchase debentties of the fit" loaban (New York Times, Jan. 5, 1921, p. 23.)
ItypavEIliloma GoLD FLows
Qo~dhad eftthe, country at the war's end when controls were re1mve', ut tared, to flow bkek ihto the U nited States with the interest r~teim'esss~i November .1920. When it flowed out reserves had to

Aesrvikofidol ignored the, relationship between the gold flow, andther hgh nterest policy. They concentrated on how to hide Ithe incrasein eseves in order to avoid rate reductions. .(S. R., April 1921
srseve did, -not escape, the, eageeyeof enyC
ofriay A.,Wallae who was ectary ofATidulture
P99-19 fident' (1941-1645 ,anSerty fCo6mmerc

in his paper"r][he Farimr," called for a reduction in thediscount rate in view of the reserve ratios. (8 1WI
Conference, 5-8,562-581, 10W.)
It was crystal clear that the pressu"res: for rate redttedot wo ld, increase, and Reserve would have to take some &Won.
At both the April and October 1921 Conferences variouz scheme& to hide the reserves were suggestedL_ Strong said the Now York Bo,,uk had the stock exchange Mows lltamed but he was soared to..4e&tlv about the farmers. His remedy was to'buy all the farm la x he could from other Reserve banks, and keep the mserves to &:minimum,
Dr. Mifler objected that this method would help NewYor1;;,-,but set
in other banks. He suggested a bookkeeping change: under wh 7ch e would put gold into the notexeserve.
But the Governor of the San Framisco bank oblected to Miller'ssuggestion as it would be impossible to got the public tolook at anything but the high reserves wherever you put them.
Strong offered a second suggestion. Put the gold in cold storage by leaving it abroad on the excuse it would shortly flow b"
This would save transportation cost& Abroad, it could not countIm reserve&
Strong came up with another suggestion which, temporarily, won.
favor. This was to have the Treasury issue gold certifi tes amst: the gold, to reduce the reserve percentage! of the Reserve 9a; which might relieve the pressure for lower discount rates. Strong favored this method, even though he regarded it as inflationary. And, when it was put into effect at the end of 1921, it did serve as an inadvertent aid to recovery.
John U. Calkin Governor of the Federal Reserve of Saa Francisco (May 16, 1919 to Feb. 295 1936), and Strong, warned that any improper use of the gold would leave the System open to hosfile criticism. Under Secretary of the Treasury Gilbert alw warned against the hoarding of gold by the Reserve ban (S. R., October 192t Conference., 90-91, 95--96,99,374-377.)
No matter how. Reserve attempted to cover it up..,k.sat in the fall of 1921 as the repository of a majority of the world's gold supply, and it had to reduce its discount rate. The question was how.
Strong privately admitted that the Federal ]Reserve should intermne
inecononue events, but he did not want to admit publicly that. it could-V and did, for fear of political pressure on the Remrve banks. Likewise, he favored using open market operations bemuse that means of control could be used "without too great a red flag-" (S.R., November 1925 Conference., 208-209.)
As we have seen, Strong opposed lowerm*g the discount ratli but advocated an increase in open market io ritions to bring the rata ap to C react
down so that the System could pear Ing to marlm conditions rather than making them. Strong's reaso lo wanting lower rates had more to do with the international : situiAiah than, with domestic economic events.
Strong's argument to the Governors was as follows
we cannot afford In this eounb7to Impound all the gd theworld sad lock it up and not permit the warM to Ao bagMg bem md Uftiiow maney hem In oth" varft we are shutth* d"A qu the WqrWo voe"W: god closlug our me tot if we require gold paymmto Aw then 4WIt
use some of that gold as the bazle of some e -we to

New Yrk tht h,e povst af trad 99 fiarud, e the y sigtobe grouht, boutby ur anks Nwold ave colaped in 19hicha they rdida bprrow ~ 192 clan htappish foebakito the belbude Yr s whrche wirt
come"142. (S coe 9iCnfeer, supa,17,M16.)t
&I~~~d R0V f h xanio inFera oRserv rdi inTE1
W appe a e6 Sencurny, the t Treasroand gye
-etdryd foth uatedlwritrstrtsire
q~he ra id 981 persisafer M1llon pusithedie thrughsterats hig ~ ~ Adlh dicon Mite ou akol ae cad enain 0 sthng Jr. ta~~thuh t93n12 ad12 aht flwed qb1cprices shoul delne furhwthr i~d Wws, r alcemme an inebenempspytot wes erenk to sirmomiAlrili 1921 ernc64-9handler, supra 1516-8.

Whe Prsidnt aoenG Hnemloymnt rteok Fouric iin Mrh p92o, A irw Mllo wa apoined---reAveytof thincreas.y aBndatideM M isunersereary Bohl wmped enter inrraes inoer toVist oene seument. 8 0hCn s esT) 0n psviled
f~~~leesrv Bn'togtogttank of~i qp re to dehie rfurher # o tht depit discoum nrae 6 upempandoyet Nqesere2
OW toohighhis (o. R.Adop12tCnern e d 67-;Candle, speran
We had n 11. hern uederloyeere.k For mitio Var pent A44ar1981, for oa the Arll tloment in e atein Aerall Paul T.l bRow the arag ratechrged New Yks one

stvrhlss elnevadilead.islso n htsoe
r"Uest ~ a i atmpe to functio with discount ratest ecnadb oebr12 it rkbwsdn to 4%praesint1.91 Bnkn n oe

zxt,67, nd ratsesert e othr FeialRsereplain wr ha hap1pee and so in Noovern92, or tefrst tireioeya the Aovredan rallmb

I! mr46
o A
so.ta r, 6alsi ......olni rgnae hrv -i-b~~
fa pota depesio whci bt nvtal n ordiei


Tofrhrsprs n itta h ytmisl iiI aebe

repnil fo vnsRsreofiil as eiertl t

Inhsfrtapaac eoe-h ogeso ue1121Ade
Melnaotdti oiin aig

memertoth Fdealusee B ardhould preet griclotitrof

view uinflueed lyt wishes of pahrtids or classe." ("Amnmen t Ao Fdoial Rser e t," hearings before the Houise Committee on "Baningand urrncyon S. 2268, 67th Cong., 2d sess., March 15-16, H.. 21. .R.,2dponference '(1915),,458, Sununary, 5th Conferenc (115)19 S.., anury1916 Conference, 2-10.)
Seitar. elonasa wtesbefore House Bakn and Currency,

The edeal Rsere Bard doe not pass upon paper from agricultural regions
andhi: noatiudeas orhat may be disconted ...The 'Board is just a regnlatve~oar, ad i istheindivtdual Federal Reserve balks which exercise discrelo: s te: eten o acomodeation to the member* banks (Idem.)
WhenConresmanEugeine Black of Texas questioned Mellon sayng e udestod tatthepolicies of the Federail Rserve banks '"are
Aetemine larel bthe Federal Reserve Board," and that this was thentet f te.L ,Secretar Mellon rephrased the law this way:

polcy.(Aenden toFeeral, Reserve Act, 9.).,
Melons estmoy s important because in Mareh and Apil 1922 W epess the open market authority of teFederal
:rvbansandasert the Board's pwers in this area. Their purchaes nflencd lwe rates, thoug the extent of the downward

But Anre~elondidno fol enyC Wallace, ,Secretary of

-A,~~~~~~ TvMttpgtothFealt Reserve Board as a purely admrinistrative body bu raheras n Istitution which determines the general financial and creit oliiesof he outry, and from that standpoint, I am not able to agree -Wf th sueston. tht alager maniberdblp woud te inadvisable. On the condmy ,.X* sems o m t bl te membership of a butrd whtelh in time, if not ntow, i*I~k~r~azW he ex ralef its administration of the great credit machinery of 414,A~ntr, ba~ a ver drect influence upon prices and upon business in general AbM~-be:#urosssetionf our industrial life, including agriculture--I am, not Odw e, wrds"Indstra life" In a restrictive sense. Eaceh a board might well
yepewn tis st-ton f te, etire: business life of the Nation.
44' lw~btrdhoul e e up of men who have a keen understanding and full ,apvedtio-oftheeffctof every policy of this board on agriculture, industry, womftrt, laori an,, thr lare interests, because the administration of this 42*f maehiery artsuk or break, labor as well as agriculture. (Amendment
1W Vdera Resrve~t, wra, 9,-23, and 25.):
Whe Cogressmh'Brand oDf Georgi'a asked whether the Federal adopt policies which would have "the effect of imrewng rderet~ig the price of agricultural products," Henry C.
i~soeassurd hi hat it certainly could. This caused Governor
1141IM9 Ithe othmittee tht:
qs~tie"6 ) t~kaae loc-_lized. EVAch -federal reserve bank is an independen.tya .ff ou in eif yea wi tc setion 4 of the Federal Reserve Act,

(1t ed etiosrvte Badiscepont ot ye i ertr 1921 lagluctisor nd pi a gmerly ffltaie p ut theoeso h Fedralng'sbecti ons hv been Seroyeta geello ix0nt hn "Se Bay onegiutr hsaerc dneto of the ironieshi -of Fede81ralBere Resev ard t all due truthein te fas siabn The Sysdcnte wase, snwer ave een, ay ha inleceoercesh se1m io then direcain ofmencentsi~ton eroughev AA spap2. t Gsorm sexerties tos tat enals, beaed at.tepingc tofsla the ednarlResors.TBae alpas anc ed eeponntdilyt inatee of 191adth ehve'

Thoe fe wines of AeeaResrmg hitrteei -et lsems a asia cs of uhi the fseetitoyoeoHring an

2bmy in tereationa vf entrealiain morei cor o >metn 4oies. t scrthes Octobeut 19 co1 on'nfel ;

prsooal dr tellcula'giies of ts kwnd r ejri'.t wr. the trfluef the Federal Reserv CaofNewYr asga Thed ftanse sugestifMsr.aadMlon, toverreforire

edemto acplish the abilizationofforin exchecy

eIng Ocor oors toeosfr Stould bes doepy b6e i h .fmn owintberndon lnue, and thee thirrnd wash tohmpee tha

rdoei doles. ot folow Ocoerta we2 oghtn~ tepoj I theofrsnc ad)eite seemstn me ta-o the poopeteatel
Ofccourseit foreign central bankh ndrcot olnee aprov fraLeau of irectivs. Th eortcpr jotst loempth frf suhe Fontrol eingran agenr~ o:ttsksi mgrceSionls auetoit in enrNorso the form of legisha~nY

Ithm oud to mainthathink cutqe thre foregn opotnti1a ~ v hasd to omprahte ai iano foreign exchange ool t1e o oit

in oderto avoid the certainty of a congressional veto of Federal 'Reere participation. (S.R., October 1921 Conference, 721-741.) This wa a first and a very significant step toward full participation by heSytem in international financial arrangements. More important

-tinshp etweeuw thevNew York Banlk and the Tredsury. Thi rlationship became so congenial that it became habitual -for (Srog:t bypass the Federal Reserve Bdard atgher, aRd deal 4dirrdl r Bih ecretary Mellon and- his aides in matters involving 4fiertonii flassee.
W to h id of sympathetic ratdlcas tditk6 e
Ihe~ ".eeu eserve Bank -of New York into a central bank wich
-codd dI with international finance s eflectively as its European
R etuly, Strong's action in taking upon hmefteitrrt fon f thact has become a pattern at the Federal Reserve. Theirscret operations of the open market account, and their alleged
*ddp e e from oversight by either the executive or the Congress, ibr m, he Comptroller Generl, encourages the bureaucrats at Reserv toiterpret the act to fit their purposes.
ig this particularinterpretation, Andy elnadSrn
.:... Kerent from "Silver Tim" Sulliv*an of Tammany Hall who AMIto sy "What's the Constitution among friends?" t In Melon and Strong's case it was "What's the Federal Reserve
A~a~xg efficient: and experienced bankers "
naey,, as. we will see, this tendency to so interpret a pro'iohe act persists to the very day.
.8tongs inse dixit was but the first of many to come. Whit- an over-

In the short time the Federal Reserve banks, existed before World 117-ar I, at the New York Bank, under its able Governot, Beiijamu"A Strong, there had developed a sophisticated mechanism for centraliz'ing there the open market operations of the Federal Reserve Syst6m.
Of course the market was quite undeveloped, and limited to bafiket s acceptance, municipal warrants, -and the one billion of 2-pe rcent Government bonds that prior to the Federal Reserve Act had secured the bank note currenevthen in use.
And, during World War. I, Reserve -did not conduct open, market operations.'
In these early days Strong had endeavored to have his New York bank actas the agent for all. the Reserve banks in theijr open market operations, and he was moderately successful,
However, New York acted on its own and, at the, outbieak of World War I, was left with a portfolio of $300 million of aomptances on its bands. (Stenographic Record, hereinafter cited "S.R.", April 1920Conference, 439-443.)
Strong, at the March 1919 Conference tried once tgain, and theM for the first time, he propwd that open market operations,-be used astool of policy independent of the question of the need.,of a Reservebank to.purchase to obtain earnings.
The Ne'w York Bank's proposal was contained in a set of guidelineg which recommended that transactions in bankers' acceptance of all Reserve banks be coordinated as a means of developing a market for these bills. (S.R., March 1919 Conference, 329.)
It contemplated that the New York Bank would bu-y but not sell except to other Reserve banks. Selling was to be left to dealers in discount, and specialists with whom the New York Bank felt it should. not compete.
But to insure that these dealers could carry bills until marketed, the proposal contemplated the use of repurc6se agreements, (S.R., March 1919 Conference, 356-357), much as Reserve7s Open Market Committee does today.
In the event a Reserve bank bougbt or sold acceptance out-side its district, the Strong proposal called for this being reported. To this end, the New York Bank inserted into the gnidelines at the March 1919 Conference a provision that all sales of bills by one Federal Reserve bank to another "promptly be reported to the Federal Reserve Board.11 (S.R., March 19t9 Conference, 329-330,3Z6-358.)
The Board sanctioned New York's proposal, and in its comment pointed to the provision in the act under which the Boarcl had power to compel one Reserve bank to rediscount the paper of another, arguing that it had a vital interest in any arrangement shifting inves6eks

hecause of its effect on reserve ratios. S.R., March 1919 conference,
Atthe March 1919 Cbaference and at the suggestion of Stroin., it was 1agree~dthat when one Reserve bank buys aeceptanedittid e its own district, it should be thruht, FederalReserve bank of the lier distsic int. R., March 1919 Co85renc
Since New:on was "the primhary riarketh the potential effect was. to return to the New York bank the position of control dvr:the ope market teansactions of the Reserve bns which it had enjh e iry the 'period prior to World WarA I.
_At the April 1920 Canferadne, J. Herbert Case, ViceT Govrnror, cbi~n and,. Federal Reserve Agent of the New ^York lbshk ( Ma,3), proposed that all Reiserve open market a ?rations go through their bank as was the aso pre-war. (Silt., April'19/20 Confirence, 439.)
currently only three banks (San iFrancisco, Ohicago, and Cleveland) were having the New York bank buy for them.
Wh, some of the Governorsstated that their banks had ceased to prti pate with New York because', their reserves were low~, Gov. Jobn,.U Calkins, Governor of the San Francised Federal Reserve Boak (191046), usedl this point to argue for allowing New York to bty itor all. 2. Reserve banks, thereby distributing the accptances proportionally among them. (8.R., April 1920 Conference, 439-440, 440-448,)
1i s, Gov. -rma bl nonuse of: New York's strategic location. (S.R., April, l920 (nferease, 440-443.)
n t these, was opposition. You recall that in the fall of '1919, as a result .of its selling $500 million of bonds, Treastiry had difficulty
11tpreaf Ie the member banks its' December issue of $40
Mai~n, a is fifth Liberty Loan in Jandary 1920.
In' owethber of 1949 in particular,: Tresury had to make substant4 Parehq ep to stabilise. the Government: bond nli'rket. Under S.c,re ggwpll complaied that: because of Strong's- low, buying rates, the market for'bankers' acceptances had not been affected by the dico rate increead. Hid omment was that if Strongr were to appx tPtpTeasury bill market the same doctrine thist he seekfto imon as mury, the situation would be well met,
06V Cearles A.,Mersey'13* ernor of th6 FederaI Reserve Bank aro 19,17-22)Jofined Leffingwell in opposition to the New' York
ootedipg hepon 4 not defend in Boston, N6wv York's low buy i ;a Apwi 490f omference, 446.1 U.)'
qpaip thq3e York~hank 8 .open market oporatibn6.E
15, eg ot of :the., -New t York bank (192143a), then
p~jrfwl~i -titeNbk bought aeceptances to kabilf4z', the mar5v 'J es Be Me~ougal,.eGoveMin of 6e: Federal l selfk o of es o (1914-34), added that if th Nb*w Yoi*'Tbu
do p, '-4 eatl iot he anynst.. ril 1920
Ye~~m im wavesriremaifed waconiviind, ad ensel had td moeth atacmittee be appointed toistudy the problein. Themo

tion. wa are and. Mom, )anslr, and Kensebs late thR&00ai anttee. (SR, April l920 Conference, 451--458, 455.) The Cmittee atte pt eknamdadRihe}iao4wIt recommended eachI eWore bank develop its, looal, nderbt sts the Reere banks buly bgs without segae4to theramoun e~aged Ii their own districts and atoad hind seesptauMis..akese dlfYsT Conmnittee alpo noeto t,6othe,12 Renv.heanam$t 5reh
t aoero ,o o the lRona nk vetoed sNw Tsfk'sproaI that each Rsrve bank agree to take hes portion, of Sl
Eo'ot e py heev anks awdobagy- au& all eircumdances; h4 h a u.s effort o met' Morss' objections, the,.Caudnittee: rainund~i bereplacedby "%g'Sal),ag Copa mttee" tb saggestbaying rates 6r opent marketpucae of bapaer bills, MWrs retused to: alow it. (8., October 192 Conerence, 31-389.)
Besides its diaremn with the. Boston tank, just, before te Os,tober 19-20 onfrne the New Yorkxhidnhrgot into a hassle with tbe1 Qhicago bankwhc had wired New :York, to sell $25 million of Ch icag's edtorsed. aceptances. New York, asnoted, 'had a fith & ey against- the. paleof aoseptances,- leaving sales to specialintd dealss, Buit Govero Mcouegal ofthe Chicago, banksa once assertadththe acceptances beogdto it, and it had th right, to do with them wliit it pleased. (S.. coe 1920 Conernce, 39-46.)
Moreover, Mcoglpoints out that when the New York bank buys bills traps, o whichreceives a. conmission for theetidorsement. As a result, banter thtendorse are liable on acpnesthefltave never owndI so that New York's real interest in niot wanting endorsed, bili sold is .to prevent their being "hawked around to the embarrammnt, if not the detriment, of .the endorser.
Mc~ougal, concluded his discussion by saying that I hstoweb. ax the New York bank~tns ed Chicago' right -to sell bills i,& its popsessian regadlesqp the contrary *policy ,of the .New YV6th bakk,, Chicago did not regard the GCumthAA recommendationathcn trary 2in the Eene Committee report as binding onL it (SII,.Odtdber 1920 Conftrence, 106r-111.)
Once more theaConterencsoenght to resolve differences by apabiit-. ing as a. Standing Comittee the- same three membums, but nothingeamne of it.'There was a natural tendency by the twelve Ro sv bknkgs, toe keep -to the regpoalist east, that the Congree intended for the Systept. New York' efforts to dmntwere met with headility. Its efforts to centralize open market operations were considtent thw~arted by other Reserve bankstsehing to. maintain ftonedswal dfyepnafm.
Under these circumstances. it is not, surprising that this attitude of the Reserve banks curtailed -the amount of investment purchased.But, of coure, 1920 was a depression period,' and- bohJh 6 resrves of the -New, York bank,. and, its 16w buying rates,: did' #not encourage Investment.
However, it is quite evdent that at this time Strong' did no rndtstand open market operations. The New York baink shouldInevAt have increased the discouint-rate in November 1919, andanuary 90

IN bk*Bm' in trog, adlearned hi lesson apd 1q Ihis attachmen t ral ils teoy. e as. bythen ready to ha'.his bank contia40 make q pr tdt control toe econorn ai vid
,StrOW ~ ~ ~ yvst i n 9$ n is successat. th ew York bak, GeogeL.Hiiion Gveno ad President (12-4) was to repat mnces n vo holding the
disoua lvel sohih~a tPfoce member banks, to liquidate fair

i'4oung me cairma ot the board
andto iscouatt'sdeep rert, he revwived Strong's

t iTim,1 1MARETOpm =Ns r as N~w YORK FEDERAL Rusanva ANK
Despte ein abe toreah areeent as to open markethoperations,
t *Speift--Cmuxtte report a the. Aril 1921. Conference that Wfw: poite a ecetay t he New York bank, arranged for VW~~~~kjy~~a reoteyaeermtohmfo the district, banks as to
opeatins nd onitinsamont ofbils bugt, rate, comnnentsThustheComitte ws ale o summarize developments between
jtnite Ock:ofuniorityinthe rtes, ad recommended, absent extaorinay crcmstnce, tatrates at all Resarve banks be
N~lComitte potetedthe paction af San Francisco, 3 ineap11kfavisbe seof eprchseagreements as New York has been
c~pig* nd, dywtes Alnu buying rate. (S.R., October 1-921
Of'oure erlyin 921 finest rates began to fall so that the ra ft~ Id -s~, a aresltof easier market rates, .the member
banhwere depndig~pswO.-les on Reserve.
'Itattibtedth fal i rtestoabout $300 million of foreign funds
inv~bd, it te Ne Yr~kdioat -market, and the inflow of .gold.
I Inti Aril 191 e mistreember that Benismin Strong felt d~i merl Rkry, a acenra. bank, should -follow high lending rriw~e&W "elterRk~h t o was an-Englishieconomist (1896171,.Aisyviir; 1~om~r Stee,"' published in 1873,. and written to,
0,si th, Ofif f&Im~inra greater, reserve in' the handQ of th4 Bnk o England i4Ne' d das- Hfis formulating --thes modern

eteeinAi and troer 9alt he e dYor ~
uIdne unerothoer rates by means of19Srnwa prete,6bv
maern intrng lrsate m e ts inrasu thdis on titXi o
hodleding Risoun retoer 21g ofrce, 684r-aimt qlo
toaen h i andct er discuss in"edeYrkal k 1971y99.8 Cong 1st ses{a S
StrongStrn' ulc statements theu Cofe ean te wer ofsM
York mbsnkdin,iae quite O cerl tCneec,64-3,adse hat Sron Yrk' o0 20 ifor e a. eratuin ltoter writ re sn Ot o e 19 1b ,S& Stf tudy onetousdankoein the maretc tommte, buymbe in7:,.2 voh n, t eult ut resue o3te. Sterofg ttermertifs k ,o tConbueueer onte atoso h Yor bnke thnicate qiteflmron thaapton a ietn e

sells at a discount no 6-one wants it. (SR., October12 ote~c6 634-637.)
Of course as the October report of the-0bmmite diag,'bh the gold il6, and inceased foreign purel ases, weedcsv atr in lowering itertst rate Idutring 1921,
The New York bank's efforts unilaterally onitow toef c interest helped, burt its allotment proposal 'had' bee ctdb' brother banks, ai-d "it could not be a decisive factruls~t'a power td'81l tforthe entire Federal Reserye System.
However r e Yrl's success in the last half of 12 a uht't Strong could, and did, call it to the attention of theohrGwios
S1icek a dajrity6 o-them wanted to reduce htiteret fi'tb.
theP ba sis f : New Yo rk's 1921 experience, to persuads ay tet o a dopt a more activist policy.
Beginning in 1922 the -Federal Reserve banks bega ejrnoornment securities. Between January and June theybuh 85wl lion, bringing their total holdings to, $620 million., These purchases caused -alarm, and led to charge hf hR~r was9 trying to create easy money.-(See "Federal R As a result, there was pressure primarily IfonheTeaur W 'Reserve to create a committee to centralize Resrespraamso government securities.

Ibi wat& eeouay witho te csl'itetedenrralune of th Fede l shreere whoudisd himteBlrdoudtk
on i usneededemrea lmaspil excessiv lerS ig
ieta MelontoughederlAsrnsounld con fie 33&

hot trhGovrnmment obligations, taking care t ceuetor purcase soas ot to interfere with Treasury seeuiym prain A ow woulsepect,, both Andrew Mellon, and hs1 pslso the ed~al deisoy Coencil were wedded to the s-aldra il theor, an vired with horror the central bank'shodnGvebmtboukot-Bak~the national currensy. Mellon anedy. Accordingly, he requested thathConi.f Governors ter May 2, 1K2S etnselg discusa the topc E~i Ibr Be anmn Strong, all the, Governors atddfniey nsise hey b Governmenti bond "forinoeprss. Go"_M6 th started his bank boughb, themaus "acptne netiomyle*4**hhl at the presmp time." SRMy12 nee 74.) _Blakt.. n argued i bau a sk's, wrefo
Btdona Asofaete, 88, on a his tankscifproe
and investment which weald eale tt xr o

*Ubwathe Of dgu wud asehm apmewhMo sowr.
fi 14*4CKA andmds= aseilable to tatd te rcovry of hasiness that has taken place."(.,Ma W

Odraid, en Capitait, to Populist I
i To eea maket operations of the Reseve: ban-ksilae12an awlyAW2 id etually been "an advantage and blessigtoheTas
R2=ft Gerge J. Seay Govero and Pre to h
e k of RichmOn11-6 was, qu:c otl eln fLRO13"Y~r 192 I . So 1-14.1 FTh1e .rul wa. hat Treaur goug ithadben harmed.
Xieb thughthe Federal Reserve banks, to a mntogthe .Vemwitin tkim rights, Ben, Strong said the wise higt d a
-not Watnd hei rig,: *hts but to work ot A satisfadoyaxa
-w~t, Taxay s that, henceforth, it would. be fullyapieo A~r*',, opn mkrt operaiang.
ww~wmible gas the Treasury did not object ucmsha OporwAbe: Arket. ITheir dispeasure was withprham( (Pu~wup tbipsteef Treasury issues" fl:: Athdmagiaion of Governor Strong the -. Mayeic Oeore ftb shd. Gdyr of -Boton, 'Now YOHe, Philadelp n: htao
77-75-78 5

afford to 0ij eR-um redit into te mrketill (S.R, aj12 ofrn*
Later, at the October 1922 -Confetence, the Govenro hFdra Reseir Bankbof CI~veland ws-added to the Commee
This committee 'became the "Committee of Govroso<-eta1 ized Execution. of Purchases and Sales of Governmn euiisb Federal} Reaerve Banks." It met for the first timeota 6 92 nis itle predecesessor of the "Open Market Inm etCmntel establishedS infi)2.
Strnglbecame permanent Chaliman of the, noa omt hc
was to handle all purchases and sales for the 12 1ewebnm 3-tites, May 16, 1922, FRB Pile 383a.)
Thereafter, this new Committee set ouit to ae h Gvrmn
-seurities owned by the Reserve banks.
By June 30,1922 some $55 million was sold.
At a Juy12, 1922 Committee meeting it was agrethtcticas matuinhh uus 1, 1929 would be allowed to runo.o As of Septeinber 20, 1922 thh .,pSW million.,eritet1se-e %anks on June 14, 192wsrduce by -$168, millin$3 il=o
l-is hing'Treasury certificat es allowed to trated.,Mihejut,2 1922; Report dif CoMmTittee,'October ,10, 1922; PBiFie,63j r.
O2 wbl rS othen the: Committee -met iaged ha din the abcond hal'f of the'y'ear condifit had so-changdslt haae attention must'6e paid by the Systvedi to. theiltani f teinwni operationssf of the Fedtral Rese'tle fvdnks afon thi oei~k. ItalskedaOfre~ehanid, uth when its d ~ebomlmendhtin~be ~~ie to the Governoers Conferene MoDougil' of the C'ak,0Y jeted. (Minuttes, October, 2, est, 9aliseig and ,Cfui6Reir 'O YObtbbed,1,191290 FRB Fil6 s3a_ S.R., -Oetote 0
With Under Secretary Gilbert present, Stroigwfef n&.6 the tefensivre, tavarkAng'sine. thb fivit&an t h eb=ttaee agreely their purehaeir wetosech as toporhit the Ss~. Gilbert praised what the Comitet tutdoe bu166pyatrei try would continue tispe6 eo n Badevai omite' t
own policy objectives He sair: adritiealt imeib aHe: sWa'w glairned heavy .operattions, and h6i hoped that: th1 ldm:Rsr~ anks could continue to liquidate their Governmea 4crte ih out giving a false market either way. (S.R., Octol~ 92Cofrne 435--436.)
It was not until the) February 5, 1922 meeting fte e*OnVt tee that it reviewed 'the policy directive, of the Ocoe192 ntig It was then agreed that open 'market operations solbeamh tered in such a vky as to, assist'the Federal ReereS" n.ds charging its national responsibility, to prevent crei no fm developing into credit inflation.1i voted tdo oniae-t rsn p erations, but not put more Federal Reserve fuh&sitah'aakt1 open market operations. (Minutes, February 5, 1023FBFl %.
This policy of restraint was followed by the R-bum'oln more Government securities. Of the $690 million the eeibnshl

By~~~~~~~ thito ,123te ae purcase $2f' Gioernm teta sentitte
ties tehern thnds iow to the mar3t thereon
"'A ug eyouni t ect ths lu funs ales sht ith itestrte f. All~~~~~~~v 12te R ebnswntoauirma b12e rsing rto hc pertheSK~ ~~~~~~s~ inaa unhl temdlof12.(bray simpl23yRforth purosemitWith~~~~ ~ th aeo l hs oenel secuoriti h orne expee
ser ~~~ ~Wida Reserve Bank sedcld Thsldoeeev-a
or41' sneecutliqustizs.
i~~~~~~. sev~e Sertr ~load esil Adissary t0 92 he rf
e~S P Ath Reserae Bowars asshoolws
It'is~~~~~~~ rkdl teesr topitottapucaerttfhGovnt hcuriedes
by he edralReerv Bnks-pu Fderlesevafunds ineto tse are there HN.1.~~~~~~~~~~ rkhii tpiywic h edrsesev yte ae pusig to permot thie
$'edM.ReeeBans toexpad ceeits ithout Aat gtingyo the purpsekdofl
pddiiens.'uc: natitd o tepare to theFdrlRt e arkse Prin~tsth mjo u io o reiaplc o a puel inie lqti n ot f 'V~ra Reere. ji~uskepin alems~ tG v ecel ntecsaryteeda

tha, te 7eqr Reere Bar, ath uetn Reora perbkdhouldI
14's~ ~ e they thero en eld raisher than.Fadenal 998,rbe Yklellea tog tRFle88.
e it thes~~e aeregulations-tath F rfoRrvoe makt

P~p#v~i 1ank. sall no in th te ae" ieth te samel fiv e ankpose

W e I lanin 4 ets. houd ate e dete thneoard ta guider
411 vu~aq aniactecrif n volues f o market
of GoIvResevesbankscb goere withntinig
6fti, t th~eA-p~icyof tonv, ofnommrcweld un'~ess tad in hs opniofl~ihi fftsaleesn the eel redit bnk siuon nidate.~~~ ~ ofe openet euiie hyten areldturchas, cul
ITW~bla& Wy Mellog ofse pdiurchPas4e U.Governmo -te a.~~~a issuese~oi up11on h, markoe forkuc
rhase by primarilby cr AomerC
*P=Maret nvet'IentComitert ifcth he shalfie an Gv -o

vunden so- aem enrpr"aepset as orazia~WRP~
p..roe by2 theferlener i'2.) nrstinonferenegof Meoflialtr taofMarch 1958 M3 4
Hrd ig of3b theBoton Blank totid: rdh t
to wontu toens toprons i supert oubt vrnenecriie,, In tehera conesertioar has sepctS 'aoweer t tihbelm, ~
mnto the lettofMteon marne trasuprton kdMfegnn Wensg ti. statementh princhte to drfeI yteCmite n e Presu orenc of tarh 1atted orGvenr:his ,Pia
Hrdn h -the B*sthe Bpaktaid:t tensedrra esre Boardthe ssii power to fix rita deitelmta, k
th asuryepoartm# ends at the United States agaWt ha ,fON0t Trasrvneste witte pwwr to liit abtlythe -41hsbyT~r
th ait State that the~board or directors of the twdAi bma Wsh to buy.
This cueNoris of Phdladel hiif to rae hem omfia
ntal obeto -that if a ofteBdweet hl
ah poer dfmh twelve Brve olam W04WUX balo n system, we weald havse acnrlbn,&At e
srve Badwould bothateak. Dr. Adolph C. M~as reoetiens iat l l ta fte BadsIlanketheseopowers, itasabrtbuy a to bato Dr. Miller em:
1 become more and r ohe opiniotha6 the oe wttq td M~sean are anag to be te most Imoeant pat oftheSseIr*ybe Through the open market clamse of tho Ac t the msI~e O Position to take the intiative; the bank doesn't hav oit O &tUt smebody comes to %t but it is in a postlon to go ha n O(o~ok it purposes, when It desires to do so. In this Miller had the support of UnderSceay lbrtwh id:
..the T~renanury thinks that the Central Commite wihhpqetd o fr about a year has had a most wholesome inftena ttIsieo bv ben most helpful both to the Treasury and to thegera futo.hmhs ben a liquidation of something over three hundred iondl I.bMW ofGovernment securities, and regardless of what wemytakbowth N%0 nation of the banks In buying this extraordinrl arilvlueofyve'm Peurities without reference to the Board, or'to the TesItbn feebn dsagreement that the subsequent steps which have entknhiebebtfe rie and helpful all around.
Implicit in Gilbert's remarks 'Is the asue~mta Teiu a the right to intervene in Reserve policy, It Is instructive to note here that the Trauy7 P8 o episodee stands out in sharp contrast to the oewfcP<t wiely helieved the Treasury would player indeayPlq'e'th

f~wu: Rawve eprieddcal esnerv~e t d limiae, lding tod ihe thiansr ofte Prestedsodent
:T-e pevalin bekfs hhe mreta Newd poricmal ande for te Psient dsirabe and,. vo erestfates.lhus winf i m. anetaxy weew York~t ban thel Taleas oiiotesrepn
The ent of 92aftwer tue 15,r favthed onet boldinin
ew York bankqea nbigaod
*Ad on he Fedal ReIervtoaahodngxoyG It is intrestint 1 Beeksv aha Sankg' Noew Yorak d

its eputr Go ernor andRse -htNwr held ohfCm

nii twrke ve sotieofthl("on vry facoril wit No a F~~~~~> 1994 21-2e1 anosae teNwYrkbned ten millo ofGv
ammiAswriies -ndafetone of e19er shoalhlinarno
J. *boutg$inionliot
In oherworsh e or or bakhs benbigas god on
'1+j~* ects athe'Tesudrt eqy$.. fi
No~~~~~s anayst asum that, the Foeitesre on oft wr ameit

Qn, otie tokGovrflecs the vies, ofeteBord. heo coe
M. &,pofere pea to dsupporlt thi vi s with fithe ons
is mbamedinther ethn a nltea eFrby thesev
tionne fortheSysem
portre tates thtepeiner adince
wddiercisce itsfncion offxinpae i
erc and businesses yin the sCf A llt *be g ictalth prnil" a ht the Syste anindcto lem for ceitu e policy
f~~jf tdirectlyn oveo Geogem W.d Nongidso policy.~~~ alty beesai the expeio of a hjudgntofcil on~~~~ ~r hagy hie ujc.Ms nlytcontroversal, andReo was ttte 9 f oar's saff and cthian Richr BoaAusTn, Geodo
enuciae niden1 t and FderasResevaet.o Tiltadehat 191-36rwhoagedt

An Si Sation ... ese pe arin.... thead.ate a

prevail today as they did in 1923... The Confeene also rees the reluctance of a majority oRerv Alficials toabrnden, the framework of the real bills doctrineOni]
-her hand, that% are indications that earlier attitudes had ben4" id by the rtdgnition of greater -sespbmsibility for economevets Governor Norris' statement that "the prevention of Asdkg a
-ht steborfilkwing disaster, is the goal of a snecessfx cu~t plc, Rppeare totrAet x-majority view, as wel as the vieeresd suptequently in the Rvrt.* But theeobern for economic events was not put into specfi si Thus, with Governor. Norris concurring, the Reportrasphictl eot prieleedls -a a guide f orgpolicy. Meanwhile, the statements of both: Pierre Jaty Ghairman and eea 1-1serve agent for th New York beak(1946), and Benjamiron stress the significance of the relationship between price lvl n credit policy.
In one V 4e lfos sbigntificant statements on record duig h .eriod, Strong said:...Of the various causes of Price canges, none is so potenta hne Other volume of "money", that is of credit,ag4 currency". *(TenthiAfulRpr ofthe Federal Resert'd Board, 1988, 8,32.) This last statement indicates & level of sophistction Pvdvh exressed in the tenth annual,'report. As Wikxhas lsr~; kTZeot is concerned with'eredit,'not'money. But, agin,'. the significance of the CoAlference materli 11I M t prsenation of the full speottink ripthei than only the offca, iw Athe Ssem, and indicates the extent to whid~h elliffs in prone or influence during the dicak& which followed were facto~rq!ishtM its response to 6vents..

I b in -Europe, and the. New York Stobk Exichangelce
Vinh of the r war came 'the 1920-21 depression, *
010"wd-bysintilpr trouble in 1923-24 and 1926-28. (Milton'reda a~ A-u.:4 ac on Sc~hwartz, "A Mtonetary History of th nie
180 960, Princeton, Pi-neo iitiyPes
2.9, EmusR. Wkcker, "Faederal Reserve Monitary Policy) 91-3
4w Yrk, Vaidow house, 1966, 67. ".Histobrical Statistic f h ite.Sttes, Coloial Times: to 1957,''lloiuse Docuimirt N.33Mt
yon '5t ses's, 116)J.
VY~as we, have seen, Strong had the good will ofehe
,e a othe Treasury Andy Mellon anid, so thrya Reserve a o coieqhewas' 111 e'har ge ,of'open market t operations.
avo4e market opei'' tiods that' assisted Tre
sjQ Jsand tir use, otherwise, to couintact inflatio.Bth
Li -~qn mnarkkt operations designed to ptoduce easy moe'n Powi~ct depression Mfellon 'fortunately was content to 11lowi ro. 6 onlut pen market operations, and S tfing acted contra

VNI~w6hav, sen, the Ful erdl Reserve Systeri hel for itsoaccoun $630milionof Government securiti es on June 14,1922. On ordr fo
Alb h Botl by4 Jasnary 3 1, 1 293 theS yto h a d sld$'a ,, htli64,1Rving 1197f illion on hand. o
Jao!May81, 1923 Mell1on insisted thet fthe Boai and'r- the eea osere g to' editflieit- remaining ad- $7milon (Stng
Voit, ay 922 Confek-ence, 520-524.) It did soibut it was notapour deciion.Toe Reserve banks needed the interest on the secuitiest a
Jm~reo *, it wsivitable when the Board forced the bank osl k~elr $Wnillion in' Government securities between June 12 n May 123 tat the economy would be adversely affected, andi ias a~eptnber 1923, the Dallas bank reported a large number fbn Allhk i* ts district and, because of its low earnings and surplsase vel Permission: to buy -$10 million of Government seuiis (Leterfrm B. A. McKinney, Governor, Federal Rese-rveBako D1R8.'ty1khniund Platt Acting Governior of the Federal eev %grd; tomber 29,* 1923. Proceediings of the Board, ctoe 1#23.IA~* from Platt to McIinney, October 4, 192.) 11 -fffrys thh NoXvember 19!3 Conference, the Open MarketIvs6 mil~tc~liittee found that steel orders -were lower, productlnlii h adtotn ilsand in automobile- tires had, slorw~e o aid $g iMioni of stock excehanrLe loans. had beenl lianidatied-

sol reum pe ark,.t p aaourchsaaes touare.uce ak eassurgoeratre1sDP. (RrEt oftehilea of8he8b.1.rtIn vetmDscnuent CmiteothNobim Confeence Pi.
o ~ ~ ~ ~ gv Goero Febuar 21, 1Op.en Wi hedeftr an sidebl etose in Ssem i Mat ilbon in nu asstsvoted to Brist $ilono5Gv ermnt securities n Ap. (Apri 19frepmi Rnop Bu t .I Cieas"dt an di 2. etioan the Open Ma-ktomite kb Crisingofheb Setry to, the4 oinon teeCm, 1niscout fnth Open Market PolexitheVdea Reseve Bart Februmant Comm94.ittee rmioeno 6yt~
tommte ogt$0 iido Governmen seogeebur 1 9M
MHwever, inasFraryo t 924eweYore thne* ix* M to perent, 8. R, Newrebe 18M nom aodiin iosne an tol para~ cent, forei
shofa snsirece dceseision.on= usno, ~s >iort The Committee, ould cofientily a s hat aPeu "g-sbr $min n t ave en ands vted botomyfrs f of the detrz miave ben paseditotsios nemoyen akt"o pdl, Strong' us1 eo t o mare Operans cokenettComtte heB dainde 193b2, adepressilion neve too hoh 94 (iutsO
Bften ede Rre Systemadepebe12 the recesio hadket Covmteie htn50ein ofin Government seuiis antso thg inrknesten thC93-4toubeipeaed. Noebr12,- Fl heoysem, hna begun te sell oBn off its holdings Gerc tet. itecud ofdnl ayta a"euiero p

no.I flUAR V& Hin LLy JLRAM st' ub om inU
-m.~ holdiip
to n bytoAp il
A, o to bnka

keep th q0m I
England's- rtur otegodsad Ate to $30mlint'oi a h
thi n Fora sligh reessiok prbably asd ts ..! 1 -''. res rtefrm 3pecet government Thscrur it i n in ve 4 '. 4ss r of >I& e a 2 and the ainlreaue o:
ent m 19en5,o 51/pecnt te ro
aii7 02 i weill pion Uneplynt hicwaa
V 31 pecen m 4rilandgoig rcnto n 1925,cent to Agstaggerin
twhc held $2e0 million oferaGons
I~i e Cne totmoderateugwhat.wasethouihtt<
I aiox indis~tit at conrccia ankep the 19noy2(bl. b

bo92h i92casdrinal d prdutonetr declis
ntw abot 20 Bneretu h r

Advisorystonci mdd -not belie t epta i rA T and. inst4ea ouing, 0ecnCne

toes~ hold, ad~4 in th atter pagof a e., bA brugt en Syte ponua to uPrm 0
The prime caie on evapperpial p pqrI wa percentt et Bpyt .2 an- June. Advederl Adt'yCouncil wjs~blieetd, it raein ,o6e reduciinga Goernment sesudies held by

n e onupoityniapeo is result
acqeteitsreoenaion that thee m-1
of Government secriies i

ReservedBad fro Augusate 10,~fl 1914 tu onJgj leNw:v thatk heoubtedthe powter pofo hpBoaromo formites rate o epNiewa Yorkh to w4
(Wer, seupa, 11.)5 Jn. Stwou hitrians tofre th eiod (Cha rM.4P moneya pdISoliy n ncl 1997 fe ont une iel'6041in Baun oennd, HsalmritSchhtb, e Slt 01 ban,.n hars, De pL ut Ioveteti~it' paid him2 ait n July 192 esann~ 11rge pm 0 istro the Unmoited ate s iisua, co:~rv wfGereeldo importiant Wie Argust128 or 4 X6 f Sepdtembr nd ee'mmbter 9, but ainte J 5 ilo f. qpet seinews rising Wicer cotens tea con,4 IaV 01

ups -to .establish, an iptiernational gold. standard.,Hes woul
a blivethat- this internit1%at polic fist happenedto
C~w rw4.-goal. of dom'estic -tAbility
ev Ndngy tf steps. that the System made, to combat t the th ieatened
recssinsof 1923-24 and 1926-27, one must conclude that the System hp e, n r.cnetual advance and ,had edeveloped mqti
51histcatd cols,'to implement its giolicies..
ha, Aagod the1mited .objective of accommodating business to
Iqon iit orhod g the business eyce making
3x: dil iiarevaailable durig a, period of recession.and I4
easlv~vil,41eduriga boom.
IR in, dsc red, in. the years 1922-3 the impact of open mnr~e
puchseand sales -on the levpl.of nipber b VV14 ioldMpre effectively control th volume of credit-than wheri
in 9 r-1, it had relied -heavi op toe discount rate.
The kowledge., which the Sytmgaine from the disaster. 01
0.0-21ad its, aftermath .was s .et frth at length in if's Anmual Repot fr 19q3. "The report contains a skilu analysis of' criterii forpoicy bt rees th uose of any single cpiria'-such as reserve
Pkt & xc raesor prc alidex numbe a ga gide. It arguO
.10~~ ~ math 1'I-c Alaent, based on ce
4 eKanton of l avaial evidne.o 6hnes. in production, trde
l s ~e, bqthe bhvoro btweni 123 ani 1928
oi.wa sniar! to tast .of interests ratewhc is not surprising, ic f intersrtes -contain an inflationary componhent and hencesre most 41 iklytobea table when prices are.
TO* Me .vtmclaimed no inafluencq over pries, however and tl~
ejrn nation that ,any Reserve official pptG or to I Pf the N York bank, saw price stability as apyohecy, olective
Even Goernor Strong rejected the us. of a specific level of price
4a ttr~4,. although such a conqppt 11Jgained subsatial support JI utsde heSystem. and was eaboie in theR so-called stabilization
Wls~of.peripd. estify ing. against these measues 'a rgug4 ha theSys~en could only gain in effectiveness if it wpre left free. f
k~slative Pena P semer (Chanle4sra,- 204, 246,)
f 1,T e: bhvioro n t erest.rates, and prices, arnd the fact' System oo ceditefor itaging,4he rppoqu of 1923-4an 19262 swMI -t ncte aumitnent, to qountere glicql policy ertheles, olya minority of Reserve offieials favored soch te ve aep
am.'vetgaf ter. hia d eath in .1928 irdicate, Governoi tog a's
probblheIWonly official who had hothel infuene an th 19owlsfaty to condneCt countercyclie oeg tione..
Theextnt to which a ,counatercyclic -poliey had been successful tu,'es1943-28 isthus perhaps more an indicatin of Strns econmicsand dominant position than it is evidence ,of an advance dwrall, level ot'understanding -within the System, thought 4e_ ycas analysis of the October 1992 Symposium shows, there was ncrasing recognition of Federal Reserve: responsibility. f or Wonraik events, particularly "1the prevention of Idisaster," as put by~oy~rot Norris.
XINO-yto. Strong's-succescwas the -fact that- the New Yrbank had ontrl over open market operations. Also he virtually represente4

tr Pthe f Gilbdtaert Jr. itoDtGvernaoa t or J. H. Obse d the lMew Thorimplmnkautio 3, 1928.'s ltBe *111 8886.1. Srentatj imellon initbyrte or' presue ddmastrogra vsin dIeter-s wrdnting the Symiu. iiaino h'ys otoi n a @i R eset ve am o n t a e os co ti e low .h m mt o O M p r chnld y ne latte as montsie .ntas of thf94 nl99 ieeio ns M earnn's an phierted to riside tor $50ii.A d a re6t Op-fits Invetet Coreque lace eelnt as thue a dnitelaio Hcowuteve hits nflctoggo lamvlenoe. more elf-defethg thea ondtions we ripuedfra nie the deltinrapcsfouent mrt hilerains_hthe mustlns hnaei moey gastsbt m~ete penses.wer Whilreate committee dvocted eaom mney Srespryons te Treces. idn, it hadke islt tolr.i, to low ratesoeenorma m.Harse onithN Secnroet facton intSygte. In the othd' 194 and 1997 it deermangtrel toxmu reiitaotino'h yeotolio ind ordw to"imurto Ast tha 192e hmotwket rloeyw.snsta negtosoi

Onhe figun unltemomnt a thor rve alihg.2 Acs igh, ast ti. Sytem 1921,ng aemitdt ripe to $50 during the 192 resln, unThei postrecssion elyaMedlin 1998iredifet thsbe a Ever eicony, Utitpi wt eo h ckmre.Atal hey~ ~ ~~1 ol were atnotb tomotirth t -kep raeleneatn ton
timslate the Rseo, Bi hghverntrgh Theck rqete rge tht Aodts eret tie foralicreei the iscouank orte suppled iasisi
Buat the polic dide notreennt ath 198toc aret boomse.. Forl theougmbnmceitt flvowindas int qiis a reduned teres as an evehver fow offunt the Sytmsnbtoc m4ake1T$ fo nonan prmure t eueisprfloi rdrt fr p ae.Aa

System. fori it aluet alleitthdprsonhatog ssw t

policis it ight hve ppsued o prevnt th fmnialdbceta

trgae it

t ir*Wd ppear, hwever, tat the.,abltofRsreficaso
bmtro itmrtswigteproofpoprthagietma

rey Phelid beleve tift a'liq.W;~n
to cuttiWhn taes nrd balanfcin 9k iE_ dbvMd

riSd go~elt' Sons,71 priftath printing'98 0. n;Of~Wt blancing the budget, was to abblislia-xmtbnd oeu~h zaes on wealthy taxpayers, and to ei<~uae hmo a hi xe (Ibid, 429.)
Mellon, on November 20, 1928, sent hspa o a eomt h
House Ways and Means Committee. In both Houses of Congress, the Ieortktake elnspa
as an aid to the rich, and burden on the po.Bscly i lnrse on the theory that:
The history of taxation shows -that taxes wihaeIhrnl xesv r not paid. The high rates inevitably put pressrupnteaxyrtowhdw his capital from productive business and invsm ti a-xmp euiis rt fid other lawfu1 methods of avoiding the realztosftxbl noe Ade W. Mellon, "Taxation: The People's BusinesMamlnCoNwYrN4

His plan included a 25 percent reduction a nere noee auction of income surtax (excess profitta)resonomethn2 percent at $100,000; repeal of miscellaeuhae uha msmn ad telegraph taxes, and simplification o a a ycoiglohls (Ibid, 54-55.)
The across-the-board earned incomereutowaacnesino the hue and cry of the Democrats, butteohrpinsi Mlo'
Plan," as it became known, were points h ruh ihhmi 94 Mlellon's plan passed the House, ol ome h eortc Prog-ressive coalition in the Senate. SenrRoetMrn alet, Republican Progressive from Wisconsn(eretaie1819; Senator 1906-1925), joined with CongrsmnNcoa ogot
(Representative 1903-1913, 1915-1931,MjrtLedr12195 ad Speaker 1925-1931) cosponsoring a lent a il Reelection was coming up, and the 2pecnnomltxrea
aed to Mellon's suggested 3 percentadtelitnr4pret fundedd good to the politicians in the Hos.Mln'25pretuta was also rejected with a compromise of312tkngispae M1ellon's bill lost, and the LaFolletteLnwot-blpasdiha r ige majority. (Harvey O'Connor, "MelnsMlisJonDyC. New York, 1933, 1935.)
In the new act was a provision whicu asdteihrtnetxo LO0,000,000 estates from 25 percent to<0pret h eortc

tore ad''gve the,* Cohist atirdf letrbihs n li
-Eoolithi tathi hi aboit aft6r the 416ctislt
i id~ly how he hal tdealWithf tlid'6 Fes !Which
a's~ ~ 6lil b'emo'otatic-Progressiv'es.
bn 'O~gr 1:925, eellon stibmitttd-a; "hg 7 taxfiefortn iwhichI P deductions for id income bi-adlkts, abmething-his first
*ig6 ond n E. Obpor, at pra,, 140.) And,' ori Pebrudy 26
-e tax nmeasure was signed, he smiled, knowingg:,
Tha, te tx oad oerthe, rich .and: prosperous 1had, been Rut $700,000,00 in tiie pas I eas, heequivalei of $2,000,000 -a day which was -released, as he said, aieidustry..*, The inheritance tax was egt from *40 perentto ie crd ir I t 76 qdirtxa ~es Was &athed -fro 2*t5 peet to
tOO erem. e pital'stock tax was, repealed.. The gift tax wlas history The man ith ~e;nillion dollar inqeme' whohad been, paying 6G63,000 into the If~erl Trauydwhen Mellon aggamied hrge (in 1921), was (in 199M) asked
6 Oy atrm uder 260,000. (Ibid, 141.)' Up troug, the; crash of 1929 Me11on was idolized b he. usipess
tven holg Europ was shqiufly paying its war debt essential to a balaced udgt'iix the United States and the tax cuts allowed by thems, .Qemanybewa. -waiver under the tremendous drain on her economy he eparations ea4tec fpgm her.
The uropan Allies were, depending on Germany's payments since, forallintnt and purposes, (Geirnany's prepayments to, them were simpy bingforwarded to the United States to pay off the Allied
-debts weem to over $10 biltion inl1919.
Since ot the international production was financed byr credit, whic~cou ony be, repaid by profits from consumption, which in turn
-depndedon age-earner. purchases; a flaw -at any level would bring Ah et~6 oue of eartis down.
Wan Oth fodpad cn wregion of Europe had reeive &heavy
Aamage.R r en h First World War.
r~iiyV ndustrial production had been. datmaged, and mnaney 'Wku~m.11 vodi~d haVe gone to adpital- reinvesmnt was laIii
-thecouftr~as1*pration payments at lost in the inflation caused b
k, l~ihot thqvitally needed capital, Germny, had to -bor-row, usually frq. he nied States, in !arder to meet her reparation. payin tt trnt~~oftide~util she either repuz1 it her pht from vmgeror e61g&sedlfans the inability to pay because her indiustries Wereundr cpitaliadd. (R. R. Palmet*, "A. History of .the Modern 1,4V* 1 W.Ed., 1f1te& niopt, NeW Thf kl 194 77-7778.)
ButMelonand his businessmen supporters ie used to anticipate this
pn mAs de ribed abve, wits the final form of the6 carrot
*hj J. t~ja blicant dangled 'bd fore 'the Arrierican, people prior to )n avis last the election, and th Republicans picked. tip 4 ;6O K h nkSa~te morthan 30 in th1e Houshin thn watched the La~olleAgwOc rh teamn teaR 1ir. carrot td +ibbons'jon~ te fooro
BV .927 position to Coolidge-style .Repu1blI fnism \vat4 4' ifh
In he rinr~esionial elections of November 1926 the Republicans suf-

h a as no
gressional eetion in 106 WaIho tkal
wa ooiuck the, '%srv1tiv admis T

po, lis P rrep in eet u i.
Party,1 and thie paryleaders felt k~ new mpW Certainly, the business irteres sisppo td Mlobltelat leaders were hesithtit ab6ut placippsuh A & Abkitnm te rs. de4tihirace.
In the endedth Republican party leaders die pn$,yi Connece Hoover ever Mellon, and over () dg3wh&it mr
ad aoreintohthe rote of "a friend of Mpllan0. d31-3) Coolidge' "I do not choose to runf" allownete& t ba don him gracefully.
A laist unite draft at the'Kansas CiyConvninhdbenpand but was quashed by William Vare, toe then eulcn-oiiamo of Philadelphia who annnice that hiscotne, w9l upr
Mfellon considered -opposinig him, but deidedta u. fHoe would be in his best interests, since Hoeadt oeti i
as Secretary ot the Treasury to githe upr i umed
(O'Connr, supra, 804.)
TH-E SENATE CTTAT.T xGEB 8ovpti 21o~vFt rMU0
Apparently the .shift from Harding-Coig poiistoHoA politics by th Republicas im l928 wtas apre]t.HovrsCtl tails brought 8 Senate seats and 80 HousesetinoheRpbca fold, thus expanding Republican control-osth osso Ofrom a mere majority of Idsetin th Senateth nyo as
and an increase in Republican Repr elative rm 3,o27 But even with the mnajoritie it was not ogatr19v bcm President that problems began to arise. On 3ac ,12, h a fe the inauguration, the Senate passed a resoluinc egn:
1. Whether the head of any department of theGoenntmybal d office as such after the expiration of the term of thePeietb hmh'a appointed.
2. Whether in view of the provisions of the lawsofteUidSaesArw W. Melon may legally bold the office of Seretsr'fte"task ee~e being made to Bet-tion 243 of title 5 of the Code ofLasoth hedSts:r America. . ." (U.S. Senate, S. Rept 7, part I,, 71s oItge& "libiy of Hon. Andrew W. Mellon, Secretary of the Twoxr,"U..GvrmetP~a ing Offiee, Washington, D.C., 1.)
Section 243 will be quoted in full when te13 elnhpz ment hearings are discussed. Generally. it ]rcueayoeIdml or indirectly concerned" with trade, shipsadrdpoet oi
becoming Secretary of the Treasury.% The Senate JudIciary Committee- directed hmuiyano My7
1.929 delivered its printed majority and mi~nt eot The majority report submitted by Senator< tiePtpbia k
Oregon, ruled for Mellon on both pouxts.

Theoter emer fth onas app6 Cote tteetx of the
&ratotby therna Se~atq) iemn9,O
Watrma (RCol.), Haitigs RDli tanBution (Rkt, h onnat
rble addeankU20 hee hrtadatwrdt

Beeretarfl WO t'the' nug...saldr

'itis wel-k~wnrac thth Melnwah appite Secretar f the Trea ury~~~~~~~ or Pradn adn n as nfeer an theate sh19al d th t
'wha bol 6to to Mor? parit iiar.te n ati t n erthe mee
-topwateais ntaes s tvd so eaedte bg~~a may raf anld th-c.Ti qetornt erprtain of
Thequetio Peseteareqirs a Iteraet tatoi omer Seore4,thre sigoff
be,,16Aerne'ointerste in arrion te btsies nontraeo

Wft vepec t a otprainthi ans tha ut nt t esetiof threaesur shall~~~~ ~ nopodofcea iet orat fier ankd thia, hesa.)o b n ineas ethm dx orindrec, datidat not an the ir y omnt wrih o th
bu~~eso;~ac~roralo ifthecoporin t i cs enahi te orls coasrce thiit n g oinonis resgable, lrer n coree nbthereaio o he Thisinteprettionissprpely bhe achxet thatnm rough decetarish Tresurr ave9wud toc incappehmnen pqcein:tridi.ppt g incotheivabl thataU.thee, ecrtares itl ited y eV Seaato d eouris, Republal in11~biYM_ 1,_ortatth Snaewrd e Satorarwa inelArk.le Wponees Obvousy'I ha b~e ho-Wtis.) yofcoasqtes at aesatin detarre

1.~~~~ ~ igiia h aoityddn or enhein conclues thathissa declaration 1st sesn., "Eliogibie
In ddtin, itisouropnin, ecr tetr fa whc hmteeresy, Mmsonstdred, tat'r elln deseami oritye defies ant Isse or diio
that o cotrar conlusinial amount of sck byep thog Secetay ofti tutid crmipal prcee~gs r iecnt rgoeng hebusiness of te ose (f Seciop28) s() s te wnrshp f Themiori r,) bniSeetay oftenTaur Nrin, acRporatcon of Xebr~~~~ka (obwsz~tistatue ?(endathes miritay coldebot:als
and B~~ ine thei.) affiraie). (Ibi an deti)e
ex~n'tio o th odo etion, re inclue i dthes inorty es, and pintsouthat abie oingrs havd ieests Numoer wtou acconfirmation~ 3n thrccson noughistofy the 1onc29 e Senat Reph
of Ro. Andew W MelJudiScieary CommteTeaoud, neierity

hist stokes liners imroer andsiosi

4tt at i~f ming)'oe raa set4bn thA now isth tdie w toU Wer hape bhe Skafthe Trasr wh ape aflhyw man, wod also apn tob eme ft va Board) mm 4y tee thi~ j~ byprt..,r itsofca
B m929the orinry Yet speclr wationwa weto nhee Colgrns adGoement as mae1motftrBodw Rumvysc floa abpeult whic ., obiul ainx anag.r~ .u P
alven the dsn Yrkt Time-pckgi up. Od rew.W dTidt'q itrchn 16,c 1929 it ceonlued tha such aivstatmen ofoiio,(ewYr Ts thar't6 17dvie,.)NwYrTis a. 9

Ol FiaMrh 5 99 he New York Times forie Wensa Jfroant1 1 ilonsfotpage under theh the ingio "Mellon AvssByn fBn-o
New Yneatr. anevival Ahmes ad .p2 in) then Sprnge and qullon msaden ay staementuwilcaton:vcto:ofNs which hoe~o predicted, "S. eionl"tunemloymstck darixo odnet mets loked fowr areivloof civt inprc t e Springuy. G( o rien net wosay wer souind, arrangetiong thet nwta reductio pr'0d'od
e novthg however oin the reas witato thapteis to, welran esimsm Durin hpen witoemmer ooth thereda Rel-b sempl oyrmknt bua dlyemehnt t~,his ys lf ch n beear.leou no the ordir.t station hwen of theber sdwi T

Mi avaiabl and we29 hav rocueaso toa exuch tatm h that the rtst

-b ift cofiarn~~tutone seih e me S iI'nadex,-atoeltat thee excepotiops

Melon' rears qoW n, heTimps of January 1. were included I I y2, 193,0 issue. under teca'ption 091 o- , ided St$ foi1-1929.'o v Cs
-Iilak: husda' metined (ewn York Times, JaiA. 2 190-0.)
-P~hap'"mhinsiht-we indths tremendous oversight..*vewpulished inther Dil theleIonxi Melo- tatd hat-aTrasury'surplug of $160, millihold be ppiedtota reucion rthr than to debt reduction. Hisquoted

Deb reucionandta reuctonsheuld,. of cearse, go hand in hand. .*.
*Thishas een he-cse dring ath year -that I have been at the Treasury andI my sa, i hasbee thehisole po'lier of the. Government since the very earll, ay&-Noothe pat o ou fiancial policy ,has. been more steadfastly
-mantanedthn tat rovdig fer hepromsptpayment of the public debt.
B& he ublc dd ot see-patsed by suchel promises and optimiis. Mllon wh hademegedunseathed from couxntlessinure
i-,A hitaxe, hs buinesesandhis fitness to hold ofice, no lne
Critics wo hd ben inore beore were being listened to in 1930.
J. 1 jn, PQ* .,a frme Pesident of the' American Economic ..Asocatin asaied elln, oner President Coolidge, and Prof.
_Iring Fiherof-Yae7 t alucheon of the League :for Industrial Demcray, les hanstrctl cpitalist organization. He said that fhes thee-menwer mot rsposible for "continuing and extending

With. ucany acurcy raypredicted thatrrate and'margin reglaton-wee oo itleto laetatPresident Hooe's public orpetiditui~ "w- ad b illplamed unerSpitalized, and insufieient to leseon
unempoymet whch wuld ast or quite awhile.'I4
wr io in -he "concentrated absentee ownership
andicintrlofciedi "'andthe nore equitable proceeds of industry."
IN~il.theRepulicns n Jnary 1930 criticized Dr. Gray's sug-'
.*wion "fr crretin th faltsleading to, the stock exchange speculatoTnou dig. therticl spggestions of hi gher inheritance taxes, Wr metaxesad general wealth redistribution, few
mei tbai Mi sa! h- vs fot ore realistic about the 1930 econofnic ait Ctt thni !Aelon. Hovrand -Coolidge. (Newo York Times,
I., pebdijim ws ,%6badMonth for Secretary Mellon.
ame Wigl Dmocrat,, Montana, a mani who could ftd-- ~e i~lide frm' -, lstof Wellon'ls admi rers, wats j oined by Sen9-to Noris f Nbraka i a 1 t 39 Senate vote to reduce thle duty on
-aiid-ra~p, from 5 cents to -2 cents SeIedce frm9 cents to- 3%: cents, per
&,, att~rBual' anm OwJ P nd. Democr at, 'Ne w Y ork' glS o ASK ie d
W10n"A Air C M:6f, Alkrica 1 for putting, "the vironle of the

Duringtoat ee onet e Hsew ain g rtade teldggetoo at deset ha anrcl workr t. teete in oreited to b". MellowM blon for
In h ri way h to Tmes personatyith tsotind et
4nthe reashubproudst Cosier for n isance, M theao sylvania camngethoa Sectao lon 10shw ah dhha aa.f-or tary "owter Treasury Moisy a nd i biessn*Pn7 vai, 1928d ict a electioyMlo eeds Geokernor hydfin etose moeaf Vtare tan byt daet hlaephir nwase duber 6'_anA' eln facing. (eve inr Pittbug, No.E 9 n.
'h et ofd stearsfutrelein warug abe ua8.. tof toinPnsylvania camnthtSeaqign praetian whi e ee~a ece U.Sry Sente desyin vioe l a ast a stcnlitmbersesn. y y1980to, teMelln fomcels, ateed y PneloofPuaepa O VReuliannd tedth PopSessive Panry;, luod lfodth iiM (Oacons n sura 959-261g.)
Perasut thehe as blowcamelein asa31.. Secretary VA
Einlanto eeslsna capa, whoracts- sudih atclde wihte Cr.edi-Aat Bnin Vena ad fied.Pesien Melo to9cnta the englacih, laters The innatil n mentblwas ad tke withgitsie ePecty ond Melos muhot

Te urpea n conis werone hon for 4- copled~iit

collation, but Hoover and Mellon concluded that thne v"uupb6 and suggested a 1-ea moratorium (Ibid, 473-75.) After a series of conferences the Europpan montrisa togt LGermany a 1-year gracm period, to allow her to, = = ou shei

An eau weunimoauwasx s

q sqto teaTer a fte fahwf12ievd
Iliat ~ ~ co o the nbed'Hbu Set and kib g a a h limber ofme this873 (ouse. 471.) ~ewW

'On~~anasur o6 the8 Mr igeht hiprshaivefo 'Texa ~. oares, Cot nteforo h ose nd6b tsaidse

Mr.~~ SpaeIrsnoaq~ tiallyf cnutosae asvlee thns myow

resons~Yas n Weabrrof ts o te. I t imec Atod WlmMeln
*e~o~fry bf th uTres of th ea Vrese, Steha for hnnlie n demeafionta (US o nrss public secur any 1d tate, rn 6<192 The Veeifle to hies ownh inle any io b oline tit l 3 ofd the
StatesC ness Were satdrly De sameiasthse rase n Realliction t~o eretry ofTe-V-operson toataaaainstwate o theofc
-ofSemary of t rwity o 3,000; -er shal dctly eor tdet ecn
-ownr I whler prone an sa pubsli, sru ha byhmelt r nte
-in trust forn hid, anyp ad oresterpuic popwertyrbe shall u I the urcase r dspoalt of any00 whebli secritedn sae, for oftheUie
tr~mct~t:af a Si~esIrer oftea ''eArma nothrta wtsal 'beallvndby W neid ~r iners*toed agauinestsn o tae poili of~~~~ thscharg halbedee belt foaith House says tad fofi th United~~~ betasncetain the peatof$,0,adsath of enof e emve Seom
-dfilceA An rorvo te rbeicp le of hodn any ofie me th 'Uie St~~~ ;a adiano three hnre pucro toswihal esureifrmto hal :te A~reaidpeadt mion ,dolr, bhengcvr somlb rteue of thelags
-Prsn iin scifsmtok of1 sadrpoain a.d, inMomein "Theectingas aSetiay he ete oTrstanin aita stoectyo irectlybe conedor Houerse an 1932,m our tae.)ne
-VeMIor e, hargfi es rwt Patmawn bsidntatinm. Mr.~~~an Pamni ihisg bfamil wherHe ithe thaMe lg : N~~~ Heo al asbnsnc charig th ath sfoieasce of thesec
votng toc Inl vihn threln hunde indioretn itres novesgrgtn 144M~~ thn.tretofn Gullfionlring omeoh agstcroain on e~rb9 udhe ndGu ardy and tarbiff s ascsocits colInyIstce 6*i I~bit o te stof terestpwas ins anid obviomeIscs. (on

0406fttiasesolutn 'iofn as rered etoe the Hous orcn trolig~sochomao Thaed ew t YorkTmes dftescrd oh

"oPa 7,me s. eonve *e saov. .,1 srus aaatrsttoczdr And e M Pse r

ra Tf' 1 gictdte h"" un ) 4 itic nE wast

.. on tc d rnt p to
aOaun oanary 192,tatpe enryiv Tww r, eortTxs foara the Snte Fiane JdCay~mmitteeanfne htte co

siows aerkal man. Aoco! New lims
agetitsa itdrmfrGoeo
igune Taft J (11 si dvenor iiA 0d
(19col1920), Secrtary of State H er-ws Hemo~ etwon e' hisrpubliSearer FianSceCmta oncrng ahnrcetar m etef oobi ~ he articlalensuallyo.menNionedrthatmeat thsomn Govaemrme an 2 millio l weelq t in. WiatroO, 11 oncson siet qr
This ~ ~ ~ ~ ~ qe article neloe tdEpit uttatI ilyt, had 9n ownd ruhn 80r Gpreof tew e-S4rtr hi lc aeem an ggreglate controluoerl rs'ot&sv Gulf ai loe, candat nin 926 thet Me&oal-iyWa-eteii theolr nGvrnetA$0milo ln of the cncessert $,500400 fo aWI teBrOl-ocession. (OCono sp as,big 95,ried 422.tile)lom told tkeal few ore days Po hanCo atnitrei te the creio h concession renewls wo the ouse Waysct a tdan omttehaMllnhdreiehs creaef asp1 nesar tuf O l aei heem budgetay hth-n i a' eldoneoned that Prthe f te ptsadigtokn U tGups. Hel evene ared that n12 the t~mell b a.pi heIpeiu tholer ste axatcesto tempora0 ri (Ne 7-i~retitrs-M ecn


O -that ame afmorg, nay 13 Mrg a aHouse Judiciary otte as itvoenmoe ital oneibtwv Gh regg hand be ein eneralCous tou RSbblshd

iMesson reomnen Ina 197he t eraed cos'h ba tal Ntx YiOrs THe -ter are hat n.6 tfnn haeinlycvetei me

Melon4skd im obe. pet h ri before thue ComitteyCo Sheppar waf, lwerd hrois'chorgesains o f~dbelsei,' ai bta
&P ftiff ddeun Atio3 (eV 'MSorkies, JC1

oiofi t6r. the MAR Rthem entesfidicit~r nMr.Patpaiti "herf eld n. 1929 cortedi'in tM daommie re
V t, h1doyd 'harge ,1gfit-el~~n ea
h1 ngth6~t han 'fh mosifyc (or othei ba i es Jnatiutio, 4. r.Pqma'sehbis -ea vto*ow ay 'srdtdk Ain 1192 9rottb, n
r 1ow idbahl 0mun dir abdti h ufOlCoort inque asein'9o cnvr 6qn ls ha ajrt
intie -ait swdWii hed ony zt zirshearies onh a,,

Y tdo~o: b-ee'a t:.Ptik e ra wr '.Re cevry sthreofswry, awhitchry

'tcim a nerthwaryin nk ing ss n,i
paylealunesodors witlii (iIf
pcntor mor nwov thestock Tns-hid,414u
,11~ ~ ~ a ond ie Ad1ow atshw beymon a readenble doubf Oithr~at:e Upp te AixuniCoheoseri nthtiosandar-te war th. easd ifothter ni, .n~~~~ hapoaton, b t onvi~e th s 4 coquqiees tha inorityld
6hdrg~~~san it Pths.n grst of he cmay's took wrasy widbly~ 441 1i 113. w AiGre=wnd byrelntig.vfesid lsefriens ompac at.:~ ~~ asy bndedntmed diteinenot The quesreon iy, Mr. Paechetm next 'intoue eo
1182 -Dzivh hodn~f okmly a cllnetoet w1 ntea lm,' dre~y nhndn ink h ouyri nde of th Amines? nm i4 o contol" f a oftheyAeranl Toacoadfundersto orsihMlo ofnlk

Ion hldsock n e, Mcon sates tat hes mregeda csall irer o amee Sertay buti thtuisbotern" MrTtppi alor hat heondis rther wmtee very cls minort heir ffiip,.rn tha each owedmoerha 15 percent cudgvthtsokof e conrol o cmple f the maeet of lcoa' toc asu Vining

Akm ~~o Akos~m (1942--1967),, who became vrouerya wealthy
irminot coaiDl nd luatnium of C heAlna. Melo teti 6anaas'detacfte himefrtie Tco time ond maor oieve

itis able (191 deinmwal ieIi (. ltough ae in the deposition St o 19a n cleitsg shDig ha aa

Mrp ouk as in a mpnson a r.1&i

noat an owngerwa in i t f tat ex esei

Aican of VheoxI att deats et pateti i fd0SO &

Late i tho I &A thebl ashdaYhn depsitioninr ih seeW6 that itaseta baandeaspohab Davi asathe finta reoumler (Dd 2e0.) t .seuo of lther lneg drueoiint wascon ino m aree the e-ina croemwt alo fs matrintr.4tht M" Par.a IcGUsed hI; submit, r hazan that tha o p oi~ er e a Ws1 is an1. ow eshp in pat3y ha qh ueno rlwthtwwilhvtodern.
shi fcts ifte a Thpatr is o ny ant errtion ontiuW lermgo of tomite tor prov a sef-eietfat the oitio of embharraofsshngconel on an comay is Wsastv is bet coned wihu prejudicehit iseatoethelbest cushotteVf~d1r

Br. GRGG hsugeteod wthtl in thebeginthat 91ntheeknlmxXl mon rerstk es in a theinu Co.gof Arguent; andmfe hy w hi Duo n oncf theal arent wns cont ned: Min. BCoMA. of. VAmera (Ipste addd) (Eprtn t ethtqed ed Mr. LGeggA the soncbdt Mr. Irautatrtaisa twbv 0om ooptes compnies mnte ownership atb ht sokodrI e;-A Ieh s uchstodk ohtwerhi ve elloine he idt fer decidingt the isu mo alltoon et the wehpo tclly aloed Mr.n Ptan t condgtine (1bid. waty-f kgM

Ww~assodtes, j ral od a engled inthornoatn nwath Xoppee Co, ofAmerm Trsetermedy a thertdayg oft hearis as at. ta sa, tjMeln a reana Mon.n the editoywsrvi do~nm~unst "onvit m teoewdeb gos"btaMlncpayents a We the driiomhetx eeit. I
&in:~~~x indbjci asrisetha o ilingl acons ne.
Mk; Ptmanawn pincrd ortii t ea n rinacino the rt c&~~~~~ ieo scagd u nlypuhlicatiis wasin begice at vitr n On htiseonddayofth ea. Thsay, f nar its picure 2,th
NowYor, Tm, s .carie anartclwonthe hris a' rer
11 ommtte CkaiIMA~um wa- lughny mote f thsaino ly a~~~~~~a pnpr-cudhlMenlonit'sofc awnvihatheio ft thy ori bimsdi~,xso wis dews"o fadG eng any wnding thIrs.NwYr submssio of ld ront othes Snte FnAnc e omittealae, for~~~~~ th:ZmcycinforedMaion n Hooer eor before thet defcit t; ccj ut ot ome Coltombiwas cltaimet have comingin shrtly olesn tnedn uon thax loanpt. (Ibid, 44,Ne

. I On tat se yr witmnse nt t h enate iane Comlanin the detailms of "hhre noreongdinoling foed, tims n 71w Uset f ajuiminret uinovmn ais aediinteestuatto ofpulicuildigs, n, yet i-osoe lcof he Coobiaun at resin 01ayan and cntuerito sup ra, Pa43 zef~~~ud ~ sa loenee ntaff wih cotaymsofi information

coounsel, erAppoirpiknegg a'" htasinetiawr ofW& 9

tht-ion available. ....
By argu ing that only Mellon's holding annoths dw t*
famly, or close associates are -to be icnere, ~d1 gi: ittakes 51 percent:ofte atock in a comanysecotol t, AC Abat..hfellen at ionely falIs outside thesau. 1pacmihao mngs supra,6 53-54.)
-While canceding that Mellatn -had U.rfnso s100 G~ carefully point ted out that thedJoint:oste onTxaknwfs to review them to make srenthey, weeprp. id61).,: .
A-nd as for the architectutml magazinisetoinamardu states that it is a private publicatinhtip i spl~hdba mca tion of Federal architects, that it access avriigol rmmt rials of adclas ad not froikcontacs, n h rasrkdrmi only to facilitate theaeditor's min delivey ,6. 'The Eoppers Co. facts were also mdfe ytrgI sesta ebbital assistance Was being eoxpoed -ihhomo egnesu thatKoppers was not directly involved. Ii,6.
But when it came to explaining awayteBrocncsin rg
had a little'trouble bid lon made a.: statmns'i'Grg~utda the Iearing:
1Ir. Melnsaid he met President Olaya atoefthUsascilunin, and of cors conversed rith im, bitsuhcneatows nalad
resecting fnoacial and othe coaditions i t lmba Mr. Mellon had no convriationa with.Prsdn Oly htad o~w h
so-called Bareor cocsineorthe Gulal orprtonnrwihaysge whatever, alled oimle, as toan roasitcenthprtfth
Govrnien th respec t'olombiaotiin rdt ,Mr. Melln has never ihad anitconversatiowihficasfouSteDprmentia cocening the Colomtbta loan, noruahhaan ovatowihbnkr with respect to this loan. (Ibid, 68-09.)
The Chairman then asked:
Did Mr. M Iellon say whether he had discusethtwhanofi ficlsf the company that procured that concession?
Mr. GREGG. May I ask you to repeat your qusin r.Cara?
The CHAIRMANV. I did not catch entirely tesaeetmd-yMX1t Did he state that he did not discuss with ny fteofcaso hal opn the procuring of this concession, or that was soitdi n erewt h renewal of the loan, or whatever it was?
* did Mr. Mellon discuss with some ohrpmnternwn fW
concession and this loan ? Mr. Mellon may haeI s q n connected with the company, and that other esnmyhvldsne twt the President or someone else connected withteClminGvrmnDe your statement there exclude that possibility?
MAr. GRpco. We discussed the entire matter ul etrafnh ee an tioned having discussed It with any memberoftecmayIdontoutht the Barco concession was mentioned by oneothofirsfte apno Mr. Mellon. But any suggestion that. Mr.Melnsodse h.'Fmidnt d Colombia, or any suggestion by Mr. Mellon tha n l ~ ~ h~ovn~d see the President of Colombia, is what be meatt ey ytht4ifftMr. Ouven Do you mean, Mr. Gregg, thetaMr eo"U;;i*D sul ted by the Gulf Oil Corporation offieials wihrgr 'te 46OegU worth about $2 billion ?
Mr. GREGG. No, sir: I did not say that at al htt htIwt ey teu not to say. (Ibid. 68-69.)

When aic~d wltr6 theuhv the poratn tof lect direetlu 7:: the grnting ofiternest whfGeli lbxtie th 'he thd ooiin
Api.y Av theo tdwerto elct a
hitted the hare opose whasevproverlybr the niru tte (Itd t70tek.I)aF. !-Heth -veSt U t41susthesrto.7 s1ust coLi 0sa:htermr TFV~erhi oskdsafie 7 Mln 1ro todintrie; n
Intf$ al Iid
He explained cnsmtrto of. seca o a 4 lag vkofl sok sln as~~~~~en to less than 50 pecreeftezustni bf stock dosno iv sitnchnicalldarnoncoetrolifigointere When prssed hrg esl of esiokn andhe inflebok SO~~~t pretoevn2pedetes mgt the otrary holit orolite stokhoderwee eonied echca espbnded:fr h
V~r. REGG.It llon thmnphew ofe Andew wacinofdcos a n cloflcrs andovr te vryfe Anre durin hise lifcoe aeprivthestchle,
merer. Bt wil th frro Anrs eyes.n In a9 pechatwersi e notan better; ~A dsamte o ates ciest therelaionhiete
7 X. umm:Ecep tai they ook, the broters woeetrecos erythe ihey~~~~ B.'ta inrt ners h s adfe e hvenuei Colrad ende iocnto
the bank asrtin ful parner Therepasnne
n.. ItGG wast alos asr ifue in buiesthybI
somtiey combie itowe o sinlec etrs Bu aftr te iretor ae eeced seathey seo the p ater s ee toewhte i~ly ~v 99Pir~entor1 ecmpo smthin geter than eie.) (bi

6eaetv oil~ les h aseamnn
Lit Ymnab6 me aomn thet kn ttest


refrsto "A. Wand Dick"l as an inseparable SI.,
mConor in his 198 book- "Mation inae
lionsowlak hOW iterh64ba the Mallnsh
A w ..a.d B. were..n leir busing ....A..
6 contins a partial listing of the Mellondenaitph&adidin of hemore intrsa g ones have been reprodn 2ee ~d THE MELLON INDUSTRIAL INTERESTS

a Water Co ..... ...... K 5........ ...... ....80
Iftnga a Power 1 5 000 IM 70 OD

ian oiaeppesv. 'on

Alum inu L er. y (Cna a p ---- t- ia --------ercent.--(Ibi-,Ta

Seve l opniesinc the lon h'rr a ubsnta: were g ln-otre o le ecave dscuspf"onrl"ad
Th iancinarli intern retqatioo thresie. w'nord "inrte on .$ 324 baks soei the efiedn ad hairoadoned toaeoucs
Th cops aontranspar5160that coat mareto.onr~
whichnitvedy Scatses chrt int th oallner 49prete Ii<,ap
Iti mae itde l ha for. cwmeca casrir to be inarintr
pretari ndieretl ai n a piiiiro r w secionmoditi it

Supf rem oae Cuth ldincufavor of ",th oldefendt hoedont g~iiae g instio omninprettio of the ror ds in~s i rectl ord indetitrety.Iid9. Q13Uanalogy'i wic clear Ifendanlroaian own oal k min eca
ale nite h ttey have tat altheral, elln can Hebroc
which hede ih ias'su i egal omer ite interested di

The vi Surm 6on rlen nf anvol of Athoe ednt Mldigs to~a 19isdainrthmSnate hearinst sopttr in whipodch ontamut
co paies 'in which he has"iitilegal or equitable Interest... Ifiitcan...
shw hth a mrMlo a t evlfie

Grg onee h lo hrgsb n fiaisfn

ArhrDvg himoftebado ls4ngMln

dae a 99drn teSnt ernsinwihbt e e

1 )While had been discountanyr. Patmanrs charges and alsBac ocsin thSnate Judiciary uConunittee- was
qustonngFrancis White, Assistant Secretary of State, on that
Whit reused to answer any committee questions in which Mellon's namewas sedespeciaily after he had admitted that the State IDepartent ha 7oly ecome involved when the concessions was transferedtotheGufnil Gor p. in 1928. (Ibid, 151.)
ColmbinPesaident Olays was quoted -as sayin in 1 928 that a
faiur toreiew loans would make further economic ealng difficult.
He ai -ds tat he anrd Mellon had only generally takdaotColomba'sfutre. (New York Timnes, Jan. 16,1982,388.)
In reoset it 'seems hard to believe that a man whose family
ownd asudtantial amount of stock in a compn (GtdfrOil) which -had~a s bstnial interesth(88 percent) in an oil concession (the Barco) woul be Ibl to restrainthimself from disuin specifies when meetingsoialythe Presideint (Olaya) of the contry (Colombia) who
had-th poerto granteordeny that coessan.
Bute ustbe girdn the kinefit~ attho doubt in close quest'n like
thioneora GegPointed eatchis holding offlee was haen~ged no
fev th Av ties inth Huseneand Senate daring his service and
be was nomvd (Ibid, 72.)
Mr. Grgg rsumd -his statement to the committee on Janary 18,
194 -he thdsyofthehompeachm en hearing. Herefwed-to a -prospects o bbUnin alf (orp. whiclrMr.; Patinan ad pathi evidence -byshsho h~ adrheenleaned sames-eeakiied to be
used sltera for a bond issue,.thattsome bf theeshada de from
Mr. Xeezi M b t ten Vde ad heties is simply a parbonat loan for
conideatmnand does not amount to: "doing busines."1(Ibid, 158.) A Greg thn -roppedlfhe isoadfn dad started to g6 on to other
T~x mehnge fbHowedR:
wol you mtndaddefn surself in you fbd~skinetn of he law, to
TWOSU~ua to Mhth aO efer a see to be andexercise of patterpowke of the
lkd~~g orninent seigto protet itself. -And whbile the courts ay r aw 1r:~~E Benka'tween ownership direct and as stockholders, they would, perm.m

Tffanple,4 OO -ecn wesi stock In a corporation. And a stattitetholibi*ts 4 person engaged in the business of trade or commerce from holinga tain offce. Does It seem to you to be a sensible construction of the M~tae t Oa that i man who owns 90 percent of a business can escape the remWPW th" e Is a private owner of a business, that he owns it all; an& be sells 10~~ peetait; an then he and -the person to whom he sells the0. percent proporate: Is there such magic in thle act -of incorporaion as to make
him hena poper person to hold offlee as against the s'tatute?
UriGama.I think thete are two answers, Mr Chairman to that:- The .first t~tJtulvd depend upon whether he was *atve after 'tinedrporation in
0,at is benvondneted
Ve fMAN. Iel attat point, is It to be assumed that a man who holds 99:00rc% a of pratf~dn, while hemuay not b6 active In managing the corno-

rten Trenorybegacidae in respintose tho maage te eta 4n
WiMr. Patman reoudsume tht-ihi tatemtoc onh imeudiat te pInt orwinar atsi, the pelwab n Husn eatie an:b'tps tring t ise theey was the egusieinte o h t e
Intent ra iroa easestheuos of katwhtepin a pr ilroadnpwete
-in&gi can shipin parois Iwn iet the bsns idetaime) tha Serthrisu Mthere ainted lgav nn t ,t00 statte notkedic afinest:ilunder seanytion ht243. The tlo hes owns ill amurtpose muc keing ahouroa frinien igs amnt ipnofal them stocs tw hat ee hat yl the et fcme ther tyas ot fr e urpnee"f hid,19g an .)se ,, ,pbi Thfie Brco concessTona whasroh upce mored by Mar. I h ni drusewta inererta there ecirmtnes most Mr. in ieowite Duiilt 3in ner pan19ty tth Pn f olomwie

reains tneo sconr andt' chas to se'longatstand1igar wso
.MTheocomaittee henedottae iml texaner am Ton~h'& SerTalof 3auY dhidit dee ow. Pamngv stc-hscos an e-lf Afn e suggesti, ngtatak the uicarys Commte ars wCYAPn' t te Finance Coito bte toa .force Sisns Setate epatbg $C o reasr domnelaiv sto BroM.Ptmnu.
Houe Comte reor ohe Hrouse11,0 Commaitte ofih the Alaet 11lg a o. Janary 1ecomitew

Wih hepblc eaigsfiihed thromite e
teamining he owirmontve Althouno oficia~ h tt crrossiiii amuto l h tcsta eebliyalteS~rtrie o

mde, the ifren e sgtio that the executive sesr.azon et cen sion to ursu.the matr futher.' l a@ iii @ .....................................................................
T heiiiiiiiiiiiiiil~iiii c o m m itt e e....................... .......................... t e n A j i h d u t iiiiil th 6iiiiiiiiiiixil Y .iiiiii
ai 913,twihtm V; ama aehs n ea

Afersugetig ht ia. udar Cmiteewih hesii
ate ........................s n'.RSttt D e ar m e t o ur
ovrtedciinsrltv oBac.M.Ptinu"dt~ h
Homa iililiee epotitotheHousiComitee o: te Moeitati
fimnacmet xalnaio b md
At 11amJaur..,tecmmte.en..bevct ssin
.Wt h ulchaig iihe, te oiyitii emer

e x a m i n i n g t h e :::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: ::::::::::::::::::::::::::::::::::::::::::::t h e m.::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::o ffi c i al:::::::::::::::::::::::::::::r:::::::::::::::::::::::::::w as:::::::::

Part2 o theimpachment hearings includes several pieces of corresponenc, dtedsubequent to January 19, 1932. ButtheHoue Jdiciary Committee never reached a decision, for on ebuar 3 192,President Hoover announcedTheappintent ofAndrew W. Mellon, Secretary of the Treasury, to be Ambasadr toGr~t Bitain, and Mr. Mellon's acceptauee of th post. (New York

The easn gien as the economic situation in Europe.
The ew Yrk Tmes in a remarkibleye ece of objective reporting

On a nuber of oins this old (1789 sea. 248) law has been involved by "Mr. Melln's nemes i Cogress to secure his remnoval.' There i-s-ei noty such a .quetio r~iedtheIati being before a Congressional committee in impeachmentprocedigs bougt by Representative Patman, Democrat, of Texas. Thesuttcksnevr speared to worry, Mr. Mellon, however, and one of his favoite okeswas elaive to the reports of his reignation. (Ibil.)
In on of tein eew after his appointment, Mellon Ie s ask ed 'abut:dsjobin ~ahington. He4 replied:
it i quie iteretin 1 Th butlding program was one of the most interestint part~ ~ ~~1 oMywrhee lof this centered *(sic) fn the Treasury. The responsib*4t~~~~ ionteSertyfor the determination of plans and composition of the hiflug an thir lostion. (Emphasis added.) (New Yonk Times, Feb. 5,
8ry 11 fter several days of 'knning-Europaprs
clute~ risngMelo i a,4 the new Possibility of war debt cancellac Times rax dnnA stating that' tho u otse
Stair -Cmmte afte..a 2-hottr session 'had deIde todr th

e. I'u s ma' b saying that.anipah
_1W~t 8 ot-, rqeedhg ad there -wps'no longer an'y~one tb
e Z ar~imse i. 11, 1934, 1.)
eniiorprrs 0gret adthirer of Mellon on the Senate floo' ai.him bakfiiidedcotiphfent~o iVeo.cgtoa. apfaA rabip 't. r. AMellon has had .a au1onor greaterr thaf ha coe on, eart:J.; he~has had three different rt.ledildents serve ~ ~ (U unebhme$crf but 'at "'Poor Andy'a'tter he ha's been in commaxci .4 li J lilcV ~ies of tree presidents, to see him pushed off the throne.
AJIor e~l-p~ ri~ihitories rate on -both sides of the Atlantic that Afeions isson' iu85ib td rescue Europe from. the war debt burden.

Whenhe as sornin as Anitassad'or on MNarch 13, 1932, 11 days
hhe said the words, "I do (accept the post)," and i~deq: "hat Isirt afri:4 age ceremony, it's a' divorce." (New York Time, Fb. 41132724.)
41nehirhe sid t in- jest or whether in anger or reflection, the staemnttruy ared a chang in u history.
-Wfdhe Mi.Panan's charges forced Hoover to rem-ove him, or v~heter loo'v r sed to make a change on his own, may mean little. M~ln: ima ifothe Treasury touted a < the man 'who would MI Uthecontry' finances oneand for all. He left- it when begn their long slide.oc
It difd I Adffer rich man, Roosevelt, several years to pull us out. n ag haddefiitely come t0 an end.

Tige bycale "lonuWs"3fack aveteran anrd ar wson. Wisontandvertary osusfac ter C~oes duigte a0 ultoptely onge as Wrgt Wat-Risk girts aevemets. The Biprode $5 payert ohfo seac sol fiae(frt rs

lenete ronecive Service Sen m a.tddrn WrdWrIe signr bJin aid h Gomsiovenmntprvdb rsdn

Wilso avd thereapplao o ar Ao, a op."vorm adopte ablliongreesp ws ho rernedto thure t"f197 Tarwe iprve $15 dicr wonth fo ecoder copnaino $per with odaltielt fome hosllizon &:rhbiiain andwr urity tosuromensEahGt a eudtuae the. insur-4 ane wa. h tera ente00 reim the r ad rec0 eiv othad idlnearnted a day srimn' hpa. Tou mion eto rn had the contr ae,$ ion oder wileuie to pa cotrn as d rsensghs ltmi soe his000rWrl isa ils cantts a teir ad nc~nts nythen DuPt whoef mae ao profit o a uaert b hc a reure vi the war. Billions of dla were ayedor.: Tar contractos Federalnmoes who ree t6ive ttg9f va ere nie to adjsthewtso pay or $1,44 eac. ges ived $1gbllon freaom tOM Unite States. tqfpl sl espitertheanobvou copnomic ities facingng
In 1921 Hardin repulsd efforsiby veteran thower The veterans meentethwa id gaie:$ soaw h ciurinti early perid.y in 1922 whithytereect aTher mnds Rh helcaveders ofutr cm hao fn hi
f vthern Duprobles. Chongrdes auoftof aqter s ablio ifiat cothactould beFedelempled mmeeie d r to$,e0Pee
epte Cones cbvould ecnoi overrtie Preingteas thra

, ,j I

bill -that he characterized as special interest Ieghsladon which wauld
vetwd a, umm=4, RZovidwc vetex=s. w4k aid,
_u Saa I g I ita valua.,
Qr. rqx m
w, Vo7xX wao%. AWe to
N *A.. Qf 0 All t4eOQU74. Y,
override ge 'Is veto.
Tbo Wwldt War .. 'e .. 1,QMV Aqt ot 1224! provi
'Wee tZe, rate.of, $ ,25,4, day f dn wxm' P&. warseas, and
rWd'L CQ] 5 1917. w3t aerviqp Pu4m noi 17. 191.94 was, oNJY duer 4 excess of 64 dxy becal4e. och, sold
re th 0" a d 'se4v. gn. If, the amo nt dnew" 00 or less
i u
twlov 4a= soldier 14 cuhbareceived froin. tU, TJ-S6 Vetegans' Ri4mail an adjusted-comi e-hsation certificate comRi W4, in, the: manner stated above-$1 or, $1.4. a, day, Twenty-Ave lpe.V,1 4 of: the totaJ, due waaadded. by t 4,1G4Ver#MQ4tV14A(4 ig addWoh-.aa ainount, cqwtl to_ awroxi lately 4,
4, ,1RweJxTtmWje4, ou the actual RmQuAt due: for 20 yeam This bill c MP40 thp pumeiat ot witerAns. a. contract obligation, and not a.
an4 UJA r ii-t compensativ
= MA was ip&d t' &I g the vet
er". O'd ut Ompens4tion eertifi ates back
_: I i-64&red, Conaress dated tha certQ t44. O tw w] ru,, thq_,gq rvices. wqq US, Of 4M I th -Vwq mp 104 71/2, y4rs of interest,, the
elartN iathWV"!havi sta ted;ia.19M
Ut W ng.
1 0 -I-r W ly
Xrithe; rate riptt4 day, wi0v a remlaable. rate- of iakereat
t4o. ex- o4 tQ I ifo Re=eut, of the Uce VSJUO : Qf the
AJUMAM tBas Siturktion is iHustrated
f Aoi-er It YP405 tha rAwpw TIM P4=4,:v emnpt 494ea 192AII but, MT
1018'diir: in"g-the' war when'the applicants claimed ta havis over i; thqjr,'Mex"% taxq& *n11, wj*jx 6 p"cent, iAtaest from, tbat. time, *eh t 10411 1 .
I ta 1 4- a rewwaKe, rateof i*eresth9f4x% e, fac vOwoJ ti
Qate 9&201 ISO,. Th& c tblk RPaw Ustof 124 woo 76-S million*
XViCASq;APeAS4 AJAg*a of 144 is foupdf to bei
1 p"u wit other epuixtries., In some. instwaeeslthe: pms4ion a mounted, to, $7,40. each., ,rms CongrM cm inot pay the,.vetexan.% in 1924 was that
T0PP,,..8s;; emtry. ofthw Trwsuq convineW Cangrepas that:
:.., .1 6" I 44W4a.
a. deficit gr'eate than $300 m* Ilion. Hq iiaid, ia 1924,
lapkp unadeficoar uInDf9 thisliocal year,
zeuud,$34T mjlkon4
Cf6nDr ess therefore believed that payment of the' veterans _Waal cooWible. Inreality, t4o, Govemuwnt ex i lus
0 lion. The- pixrpriety ot t4is M 1
41 a4, $0 UW lar,
error X4 vq,
.+9 oa qould how e wa& aucb. a trwaaudous
"1Y=eU ,tQ-VetQxK1S,,Mel1QJa *ugapsted to. the,-, 45- hen ;k la
e4q;%ns,. wRit,yn4 of the r
f6, .'ex- 111 ,P )Fou _114p.,corroumed by CQMPOU.Ud, iftr ter6st. Mi. i3ies suggestion was embodied in the World Wir Adjusted

Compensation. Act of 1924. Thus. Mellon, as usual, obtained 7h4t he
The man who saw through Meilt h's'Aefianik#,. I ti rceiv6d t&'v.etera;ns problexn d4liff flbllbik'bli WasU041-ffrummau Patmali Of Td:ias.- ratnian '16diIii'ia tion, from'1929 when he cme7 t6,,C ofiirbss k O'iVE6141 ment to veterans in 1936.
-On May 28,19 9, Wright Patitini:ktroduced'%6 fir9t bill M" R. $4933 providing: for immediate pavIn6lit towte, ralis of the f a& valu6 6f theii.
ar&Iig f ion tfii 6681?"Of
di sted-servie: e c:ertifica& .O Wlie or his'bill the Houm of'Representhtives;' Patiliap pomM. out jljii
1929 neifly,100 ptircefi t of the veterans of rl al 'boiTdved
on their certificates. While receivA n- g- 4 inieilii4 d-n thest o cates, the. 6:i.,toldiers" had fo pay : t percent interest "did i nua y 'or sown money loaned to, him.
r. Patman corrwtly advocates' the 1924 Act g7 ej veterans from recei'vmg any money in sufficient quantity to rea *Aaid x nee. to them. A veteranwho holds approximately the average valite of 'sin' adjusted-service certificate, that is,41,0A.11, 'if he borTowsto thelimt, of the law to 1945 would receive $475.72 in loans, while t4 ank: 6 r carrying the loan, would
Government, the one recel*6 $47 19..
settlement would amount to $464fi 1945. This- situation- as Mr Ntman perceived it -was unbearable'. The'vetera'n.: lost nenj4Y
owed him to the, banks. 'Me' ernm6ntw.6ujd the vieteran wit 0' Iiiie lit,
h $475.12'in loans, $478-.N."dMucted d
cash. Thus-, the'total "would be $1000
Wright _Patman in 1929 be i s p,,V 1 0
G Ij 14, 1.,., I
act. 'He caRed for the" 0 th terr:ft p''alitit6 4
raising: e irr Wtefins 1tr6in
6 percent. The Congressman fro:pa T6xas,. t* so I I... 4ewakh
wa chark6d 6 pereetit on hii;ow-if money'tha I. bst ed'to
1 WV I Ig - ..
pdisate the, ex-soldier by'compoiua dmI.9 anniialliv 61 tht, certific.ates:by 6 Percent.,
Another arg'nment"utilized by Wright"P ttman-,*gg'thif'ffi6Se'cro-:, 'JifilliC)a t;6 dig- 1.
tary of Treasury, Alidrew Mellon r6fivf&d. corporations with itit6rest"at q'pefcent. Mr. Patmanuld'" a
the,- &rtiflcafes f rom "Ja4uar.y 1 1918 so the vet6ii4'41biil& lfi& i all that interest. Al Mr.'Patirtali chIled for it '. p yx t
the full-face value of thle:adjusted-service c6ffipensatio' ceitifteS'a. Mr. -Patman recognized the'dlre"financial nee& of the vete m lns'::' bh would require pnvment'in a lump sum of 'mono me
iitha ii fiabli'
Ab %
of interest dated rom the timethe services were refiAered. lffa'fi*'Ofr he veterans were paying 10 percentintet ston their horses fortunate enough to afford a house...
"itee on wa
Mr. Patman's bill, H.R. 3493, was sentlo."the Coniiii ya
and Means.
Wright Patman's eloquenc'e' in espousifig the veterans Muse set off heated debates on the floor'of fheHouse that lasted *n 19ag.'At this' ertrly Aage of debate,'Ynanv in Con d t1i i th wbitans cer
tificates should not be readjusted alon the 11athat. Mr. Twtm an. SA O-. cated, because all other citizens were ing hurt by 0 D6 resiion, iio 9.4 much. if not more, than the veterans a WoAd 06w ;76i,
Wright Psitman and a few others, realized that th6,vtlirana were suffering'dispro I b th ".:
portionately dut to:M91peations cAusad Y e,:wa)r.

Wsides pq ting out t4( various econonlic disadvantages f acing
vo eci to the' est of the'populace, Patman, the Conffess iaaAIrp T irkan4 j.4 exi mad an qjrecti've argument -before the
6b ing th t the Secreta, of -the Depart, Jikh-4arylZllby, sery' a ry
-AA ltiLi who worked on ds
,o Ipu_ e a4juked the'pay of veteran roa
ng ay between c' Rian and
urb the w- ar"according too e rence 1 ivi
_F Iso, the pay-was mad' as of 1918.'
-TatIn s ands'full with opponents in the House
In f' _' an had hi h':'
aud from"-*,flie' W411 Streeters." However, a recurring figure who worke d agal nst Patman's proposed adjustment of the 1924 Act was Andrew, 464 not believe"the veterans
Mellon statedd that he did
should bqP'aid in'fuH at that: -time because it would be "a temporary 4 mulata*6fi'of al 'Affici I character." However, Mr. Patman forceNly aiguedthat this was exactly what the country needed so des-perately during the Depression. e
gO consumer 3 to buy more, they must'begranted mure
purclia'- *werw ith consumers buying more,, they should, theoretiSMUM siness. With more money economy employaljy ke,:: W in the,
xnefit 'would e create is simulation ust be of rt'ficial nature s nqW mt UM4 g power'will not come about'natur'ally in a depres iqj -,d A i rnment must tin rvene.
an Q 6 Gqve *A6
Tb ;1; tman 're, C ; pssnfa Pa a c nOudes that Mellon unknowtI t. or payment of the 4rgypaent ull face value' of the
fl:dj- Stp, SP' e* qerf!,&4e- that is, the argumenitAhat the, -veterans a," mutation o al iA acte
Porary sti, f an artiflO. r r.
Is a J i7a4 imit a or reasons would lead to a natural
lovi n if this. t torn orary, Mr.;Patman
tin.4- rosperl _y i oints
EL f *i ho rOSIDerI at
so JO longto the, Patman plah was that it $'a V3441*S IiA'6 f V ltio for, consumption. Thiswas at
re f di 0 #U 0 6 money and Iif wo'Id lia P, been d*fIV4P61j$ibiej 4 Vr Mellon to prMict acc-uratel" h the
g 6 ato wotild, divide -hig savings' and coniumptian.
& Iii o haeor. f I fi id not worry about the p tern'of IA I Pat
g"b WiI-. it(
a supporter bf'*r,'Patm&nIs,- battle v rA 0 ro roft oni
]1 I 6 e 'Afed th Y. of Mell, s opposition. to the veterwn IIBflIIoftai+,e3feTl9 of the Alumi'num Trust and, the TTS'
Tpe Mr. Blanton c ara-cterized him before the House op--,
rznk A, I dl' bi hurt busie V because p ayiftentlwouldll
and a-n
noss!' 'sedU th bbWh r6t.
It ]IMIA00 ob kived, Ivelloift did not Aink of thos0arguments
*hle'' tl ,,6 Ailtoit&Ifrdt and w ttr contractors
rO ceivdd hidi'6 thah $3 billiori. Blanton stated tWat Mellon didn't- util#e
rgume4 when th
h s a e. linsury refunded millions of dollars in t
to bth6l ,I ifililOjng thq 1 TjrftirW TruA. He pointed out z that Mellon V W fltk fti butjt his IiiiididiOn that paynient to veter4ns would hurt blift. b;sAI ash* *ig 141 th e- foreettst of the, budget of 1929.,, Thus, Blanton ftt'4 *etertini s. wduld stiti ulat6 business rather than hurt it.,
Mr 34 17 n's lobb k#A tt#Vatniahptopoed Imide it difficult
foi 9 ri get k$eg ftg< for his MIL'In
Janvdtf 10& xr fittiesli flud v Paition- askThg, thal thel Wtty and


X044s,. C *WQbe instructed tc re hj blItc;6 pomww vitw4l Ts. Tho Co= _wd, b are
t X5, CIA
r. N.Ppian ge
k 4 thq C*rk
qll Wig Petitim,
92 414 1. ,
Pafiri '
as-. 0
the ma er by the 1Vsipx ns; mihittee.
In qa;rly J;krku Texqrk q*
4ry the CiDn sTan 14 ffiq W 41W,
109, of *the recess
coi i iit q H.
s4nattires. Tlip'eWrman o a n*X64ns
Ax. w1ey d a Tee in rA n: ot's bift
that, NeHon wanted PR,%ed ir anufiry 1P
On January: 17, TOM Afr. Patn4an'erp zea, Oiat 41'6 inlem io t axesmas neceqsarV to pay thexeterqnms. ;EP wat, Obt ha4 b6sji "dub64 $10,billign 'in N ? I
yea r billion 1h4er th li CoAff,741 Wd It sfia!gbe reduced. His' i a was'to'divert payment ihn, war d M tq theother war debt-the adjusted service certifteates.
Faced with Mr. Patmanis persuasive ax r ;,r" e
vmqz# fo fin: th,
veterans what was justly due,"Mellon 0 dies,,, raje to defeat =sider:ition of lerislatiQn callibi f6r Of thA e A'. I ,
lust d-s'ervice ce s of, World War 1, v= npmp mq"elt
Mr. Hawle of Oregon a chairman of Ways 614 X ciantrol
over consider4floon of the Pgtman"bIll, Wing rQqV.=z Alws C(Supporteir ffikwky idea the avo, trelp"Aoug d"jig $,.V,* ta
,_ Il by... q*vmg Wash p ho PM
consider th PAM,4 ftO I
11 Nie. bet
mysteries 14, aw rr 4 2A Wf
Ja 'A 1931 waAlie l9q4tioxi
aver, $ t ov Q.
me110,AQ lew I JAng PpW4
and: th fo .4.
eir a W Vera
.Pwatwzers- VoW.WiAg b.
place, Chairman Hawley cQpd. 9, : QXP440
&4d Meau.% The *eO of, hqJ 4:!!Q1iP1;1 s
_11e, V
eapift4 tP 01KMAW tbAP (1014, io 1 .9 4000 f K
coweiacLr" a 7% JQD4. QVWr -Of Te3F 14
siApr tbowarqWJ4
1WI(I 1>Y ( x-WrVW*MQn. IT9. 4verl pw@A V#WW P from making this motion. The iFulling of. the, "IlKwall.W84 11171 MO. Uawlvy, wag.. *Ieo qaxU_ v :--I
g i J V 4] U
yy MoUjm4 wU ox
AU1104ita V044 WAAL qv gn' Tlwp, P*AW)q'At
Veterans pro)Ams wemp ., frustraW by' &Ilon, 'ii A V
lk MeRow dpewA UP1%. bill of hisGWP11 a T., ill.
=4444 maw
Called for the issuing of $8 billion mpm. 4 1
Mr. N4 Imvpaled: On t4oAcq ofthwLl 'ha I 4W, 44W*n
veterajas and. otbem had be= clamoring 1(w a, hoaxing m p*ymeut f adiusted-servim. oarbifipa0s. Xmio of, them had. had:V, hosAng IP4.; thw, bill.'
However, wi the committee in I session oWy 1
the-Treasurymoived & hearWg on-W. XoIlm' TbA? %,V
Patman pq *nW:out that Mellon wanted to, is tp b4limla b mds, at bdi s dim"tion woo 0"t the interut- r0a WP* 4" at t 'hat, "%, and this was the time to pay off the U.S. debts. IF16v ev r, the 64 was..
beiAg- retimd** r*odly- aa MA PM;pap
Nearly, eye"oue.*POd witU tba aq; .
1TU4PrWV*t*rY S. xro p0bow 0# Arr *t WOW,
years from the war dA. to the adjusted -semee cates.