Speech

n f jr'Vfl ^ ^ •; PP A > AVV.M v' W / O i w l J. What it is and what it isn't , « AimvuMfi ny *r.ederi.c A, Dolaw) 1 Fornicr M«:»nl>rr 1 crlrvnl Ri'-rrvc Hoard April 6, !! m. ! V BKFOKE Tim University Club St. Louis, Mo, r I >.. ; ..> • • ; ' - . j ."•> t The Federal Reserve System IVhat it is arid what it isn't INTRODUCTION. Federal Reserve System was the result of an effort 0:1 the part of bankers and business men of the country working, through a period of twenty years, to have Con- gress adopt a system of centralized control and supervision which should remove the causes of the frequently recurring currency panics, yet at the same time retain all that was good in our national bank and state bank systems. The serious financial depression and panic of 1893-96, the sound money campaign of 1S96, the currency panic of 1907 all focused attention on the problem. The Monetary Commission The author oi this paper was a appointed by Congress had gathered together member of the Federal Reserve an immense amount of important data in re- spect to banking methods of other countries l>oard from August 10, 1914 to and finally in the last week of 1913 the Federal June 21, 191 8, on which latter Reserve Act. was passed, though not finally put in motion until August 10, 1914,* after the date he resigned to enter the E11- European War had begun. ^ineer Corps of the U. S. Army. J. THE PROBLEM. 1 e assumes entire responsibility ~X) appreciate the difficulties which the for all statements made therein. framers of this legislation had to face one ' must review the situation as it existed for many years. Wc had in this country gone a long way from the idea of large central banks with many small branch banks. That solution of the problem with its manifest advantages Difficulties had been adopted in practically of the every country of Western Europe 1 iv— / ,> 1 •> 1 ••• K ' 1 J ,., Problem an(1 in the British Colonics . Instead tr Europe and in the British Colonics. Instead of it. we had in this country in round figures .30,000 banks, one-quarter of them members of the National Banking System, the other three- quarters established under the laws of 48 differ- ent States and the District of Columbia, there- fore belonging to 49 different systems. The idea of a branch bank system, however good it might be, could not be considered as a permis- sible solution. It would have meant excessive centralization of credit control, which our people after three generations of separate and indc- 'Noic—Tlic Federal Reserve Board was sworn in August 10, 1914, The Federal Reserve Batiks were opened /or fcu»ine»» November 16, 1914. ;A ;*> <D CJ 0 I pen> jan'us, would never have accepted. The war measure during the Civil War to create problem to be worked out then was to permit a market for the bonds cf our then hard the -00 or more hanks to maintain their in- pressed country. In this respect it proved so dependent existence and management, yet so to successful that even 2°/o Bonds with this cur- co-ordinate their operations that in time of rency privilege sold in the open market twenty stress they might cooperate, or lean upon and years ago as high as 110. But the idea of Secure aid from a central source of power and making the issuance of currency dependent assistance. The problem was complicated by on the volume of Government Bonds out- the fact that the Federal Government, which standing, had long been condemned by econ- was called upon to legislate, could not if it omists and students of currency, /loud would, and would not if it could, attempt to banking and finance. It had no Secured control the 43 different varieties of State Banks. Currency flexibility. It would not adjust Without referring to personalities or at- Condemned itself to the ebb and flow of com- merce and industry, one result tenuating to assess the credit for individual being that during some months of each year achievement, I may say that I be- '••'feet lieve the Act as finally passed by currency was over plentiful while at others uli'ilon it; was scarce. Economists were agreed that vhe 63rd Congress was as near a elasticity was essential and elasticity required perfe... solution of a difficult problem as it was not only the ability to expand but the power hu./.anlv possible to work out. It was neces- to contract when the need for expansion had . . iiy a compromise of views, but it was truly a radical and intelligent mean between ex- t-.v To indicate how difficult it was t"> Second—Next there were the 4S varieties foretell just what would happen under the Act of State Banks and Trust Companies and, if I may remind my hearers that well known we add the District of Columbia, 49 varieties. financiers wkhin a week of its final passage These representing three-fourths of the total condemned the law as an instrument of dan- number and one-half the banking resources . crous contraction, while others were in. some cases very strong and powerful Inflation were equally sure that it would and in a few cases exceedingly weak. Some lead to immediate and extrava- States for example permitted banks to be char- Co,...'-action gant expansion. Most: of these tered with only $5,000 capital and then per- cri:. es came to be ardent believers in and sup- mitted these in turn to be owned in chains, so porters of the system. that one might lean against another like a Among the principal characteristics of our veritable house of cards, without any of the banking system which had to be reckoned with merits of a strong central bank with a multi- and co-ordinated, may be mentioned the fol- plicity of branches, and open to the criticism lowing : that if lent itself to fraud, deception, and ex- treme difficulty of supervision by State au- First—One-fourth of the banks, representing thority. say one-half the banking resources, were Na- tional Banks, founded under a system adopted Third—The large number of banks, 30,000 during the Civil War. These 7,500 banks, vary- in all, meant 30,000 bank officers to be dealt ing from banks of 25 thousand capital to banks with and such a diversity of opinion in regard G; 25 million, were all independently man- to the problem as made harmonious conclu- aged. They were required to keep their re- sions exceedingly difficult if not impossible. serves in national banks in cities designated as reserve or central reserve cities —thus, country bank reserves deposited in reserve cities could IT. HOW TIIE PROBLEM WAS SOLVED. to a large extent be rcdepositcd in central reserve cities, creating a fictitious condition of WITHOUT going into the details of the security which melted away quickly in time of very comprehensive legislation finally need. Finally, these banks were authorized to adopted, I shall tell very briefly how issue a bond secured currency based on United Congress met the difficulties of the situation: States Bonds. This unscientific feature of the One—It decided to create not to exceed 12 old National Bank Act had been devised as a central banks to be known as Federal Reserve Reserve Bank can use this note as the basis Banks, which should act ;is central hanks for W a currency issue provided it shall deposit ail the national hanks <>1* their with the Federal Government's representative T-jucIvc regions <>i <1 islricts run! extend a (th.- Federal Reserve Agent) 40 per cent of Regional siiuil.'ir privilege on ;i volnnlary Banks Gold. In this way a provision is made for the Created basis In all the eligible State automatic expansion or contraction m the Brinks. These Central Regional total of reserve currency exactly as the com- Banks were to he owned by their member mercial business of the country expands and banks, each member holding stock in propor- contracts. It has in the last seven and a hah tion. to its own capital and surplus, upon which years met the extraordinary necessities of stock a dividend limited to 6 per cent was to War inflation and it has adjusted itself tothe be paid and all excess over this dividend, after equally dangerous and difficult conditions creating a surplus equal to double the amount brought by deflation, which is simply one .the capital paid in and adding thereto a super- form of readjustment. surplus of 10 per cent annually, paid to the Four—An important feature of the Act was Government as a iranchise tax. that it permitted one Federal Reserve Bank Two—Every member bank was required to to aid another by lending to it on the collateral deposit, its reserves with the reserve bank, but .if rediscounted paper. This provision has the reserve bank was not permitted to deal been exceedingly valuable in the recent period directly with the public, and strictly limited of deflation. in its transactions to rediscounting for its Fifth—The Federal Reserve Banks have members except certain specified investments enabled the Government gradually to abol- in bankers acceptances, government bonds, ish the cumbersome and expensive^ Sub- etc. Treasury System, and has given it the Three—Each of the Reserve Ranks were efficient Federal Reserve Banks with their permitted to issue currency notes but: these branches (now 23 in number) as effective fiscal Federal Reserve Notes, as they were called, agents for the collection of Government checks were to be based not on securities, and revenues, as disbursing agents, and for , bonds, mortgages, or stock cx- the redemption of dirty and damaged cur- Lurrcticy c , h :nig *> c collateral, • but u 1 p on short rency. During the World War the services tune commercial paper, with ex- performed by "the Federal Reserve Banks in ception of a limited amount of six months organizing the Bond Selling Campaigns, in agricultural paper. This paper held by any ' keeping all the records, in handling the secur- Reserve Bank and rediscounted by it for any ities and arranging the exchanges, etc., forms of its member banks, is the paper of producers, an interesting and creditable chapter in that manufacturers and jobbers representing com- untold, but not forgotten history of honest modities sold or to be sold, or in process of but unostentatious work. manufacture or transportation and having in Sixth—The management of these central general not more than 90 days to run. The Reserve Banks was a difficult question to be modus operandi, is simple; the settled. The extremists on one hand thought Basis of business man, be he farmer, manu- they should be Government banks, those on the Currcncy f actur er, or jobber having sold other argued that as the capital was all to be sup- his produce or bill of goods on say 60 or plied by the member banks, they ought to he run 90 days time can take this note to this solely by the bankers. The solution bank and collect on it the face value less Reserve rked out was an intelligent as WO the interest*. This note endorsed by him "Tl^ncn, compromise.. Each Reserve Bank can be retained by the lending bank in its was given nine Directors; three portc folio or if the bank needs further cur- appointed by the Government; three bankers rency or,credit, it may be rediscounted with elected by the member banks, and three busi- the Federal Reserve Bank of its district. The ness men, theoretically at least representing borrowers rather than lenders, also ^elected •Note—Section 13, Paragraph 2, Federal Reserve Act—"Pro- vided, That notes, drafts, and bills drawn or issued for by the member banks. One of the Govern- agricultural purposes or based on live stock and having a maturity not exceeding six months, exclusive of days of ment. Directors was to be Chairman of the grace, may be discounted in an amount to be limited to n Board, a salaried officer acting also as the percentage of the assets of the Federal reserve bank, to be ascertained and fixed by the Federal Reserve Board." 7 Government's representative ami therefore a Clearing House System for all the banks of designated as Federal Reserve Agent. A the country. In connection with the per- second Government Director was to be Dep- formance of this duty the Federal Reserve uty Chairman, and the third without special Board created a Gold Clearing title or salary. fmuU Fund or P°o1 which rabies trans- Government Directors are not permitted to fers by wire to be made from one own bank stock and must be disinterested Federal Reserve Bank to another and through men, not that this should imply the reverse the agency of these Reserve Banks from one in respect to the other directors, who are member bank to another by the simple pro- however permitted and expected to regard the cess of a book entry of debit and credit. Be- questions of policy from the viewpoint of the fore. this system was established it was fre- interests they represent. Doubtless the fram- quently necessary to transfer large sums of ers of the Act would contend that self interest specie from one part of the country to another Was necessary and to the extent that it was and it was not uncommon for special trains enlightened, was most desirable. of bullion or specie to be moved from one The nine Directors thus chosen select the commercial center to another. Now these manager of the Bank called the "Governor," Gold Reserves may be held in the Govern- and he as the chief executive officer has charge ment's Treasury, in a Mint, or in a Reserve of the operating staff. The Governor, it will Bank. The title to this Gold may change he noticed, is not a Director, but usually sits from clay to day as a result of the processes with the Directors at their regular meetings, of trade, but the Gold is not moved back and presenting certain formal reports, and ex- forth. This Gold Clearing Fund is a beauti- plaining or answering such questions as may fully simple scheme which is at the foundation arise. of the Check Clearing System created by the In addition to the supervision of these banks Reserve System which now clears without through Government Directors, albeit in a expense to its members the checks of all mem- „ ^ minority, there is also a central- ber banks and all banks that agree to remit st'pension ''ZC(1 supervision by a Government to it. This feature cf the System has resulted in a benefit to the banks as a whole, but an Board sitting at Washington. even greater benefit to trade and commerce. This Board, known as the Federal Reserve By making for direct transaction's and speed- Board, consists of live appointed and two cx- ing up collections it has made the "kiting of officio members, the Secretary of the Treasury checks" or drawing against funds while other anil Comptroller of the Currency. Of the ap- checks are outstanding or afloat more difficult. pointed members, two must be bankers and three may be from the ranks of business 111. CRITICISM OF THE RESERVE (which of course includes farming and the professions). They must give their entire SYSTEM. undivided interest to their work, part with O OME of the criticism of the Reserve Sys- any bank stocks they may have owned and ^ tem has been foolish and ill considered. take the usual oath of faithful performance some of it has been abusive, and most of of their duties. This Central Board, sitting it: has- been with a complete lack of knowledge usually without its ex-officio members, because of what the Act was intended to perform. We their time is naturally otherwise taken up, are interested only in what the Reserve System has certain defined powers both direct and is and an understanding as to indirect in the control of the Reserve Banks. System has w, t k [& not jt has [imitations, Dictatorial powers have rarely if ever been I.imitations , r used because better results have been secured and for gooo reason. by less rough shod methods. Even when The system was hurt in its early days, 1914 differences of opinion have existed on ques- to 1918, by excessive praise. This was largely tions of policy, the Washington Board and the result of politics and stump speech oratory, the local Boards have never I believe, failed but sometimes it was well meant friendliness to reach harmonious decisions. which in the end did more harm than good. Seventh—An important duty placed upon Tt was but human that the political party the System as a whole was that of acting as responsible for the passage of the Act should 8 9 ' have ck.i . eel extreme tilings for it. They the Reserve Board by its dictation of policy, called \ .'.e greatest panacea of all time. It forced liquidation of loans and so precipitated Would i\ .. ver prevent panics tln-v said, and, the hard times. My contention is that the inferentially, hard times. it. would provide Board not only did not do .z* but: could not it money for all purposes. So far as I know no so minded have brought about liquidation or member of the Federal Reserve Hoard ever so bad times nor can it now do the reverse. expressed himself. My own feeling was and The economic causes of good or bad times always has been, from the first, that the Re- are so fundamental, so deep seated that at most serve System was in the nature of a "Slmcl: this Reserve System could only cushion the Absorber." Another member of the Board, I blow and so far case the fall that we did not recall, compared the System to a "Fire Depart- all break our necks. The obvious and natural ment," which might not prevent fires, but causes of the world-wide over-expansion of Would certainly check them.* money and credits between 1914 and 1920 was However, it is easy to see how people, mis- the World War and the effects flowing from led by extravagant and absurd claims, should it. The drop which might have been very have vented their wrath on the System and sudden, bi.\t was really rather gradual, has all its officers when bad times did come and extended over a period of two years from the When the reaction inevitable after the orgy of Spring of 1920 until now. It did not begin in spending brought in its trail hard times, fall- Ibis country, it began with the Silk. Industry ing prices, unemployment and all its conse- in Japan and affected other industries the quences. Part or the criticism was leveled at world over, one after the other. The reason the Federal Reserve Board out of sheer want is plain enough: Beginning late in 1914, of knowledge of its functions, because so many Kurope began to call upon us for foodstuffs, Boards recently created in Washington with then for manufactured products, then for muni- somewhat similar names were confused with tions. The demand was furious, the supply it. For example, the Federal Trade Board, the limited, the inevitable result was a tremendous War Trr.de Board, and the Federal Farm Loan increase in prices. Even later, when our Gov- Board. The Reserve Board was made the ernment tried to fix prices, these prices were "goat" tor all, arid even members of Congress fixed high with the object of stimulating pro- who had voted for the Act have duction. When our country entered the World y ^f -j- joined in the chorus of abuse War every demand was still fur- against the System or its methods War ther enhanced and prices con- of administration, deaf and blind alike to the Advances tinued to mount. The Reserve Commodity fact: u,:d to the restrictions which the Act itself friers Board, fully conscious of the dan- imp.. cd. gers and results of inflation, tried S, : .;v • Glass of Virginia, himself formerly to check such a tendency, but what could the the Chairman of the Committee of Congress Board do in the face of war necessity and the Which introduced the Act, has answered these Government's Bond Issues? criticisms so completely and effectively that I in the Civil War the Federal Government, i l shall not attempt to do it, but i will direct my addition to selling bonds, issued as currency attention only to two main features of that Government promises to pay, called green- criticism. One of the chief criticisms was that backs, in order to purchase its supplies and munitions, but in this war it only issued bonds. 'Another figure might perhaps illustrate to the layman the functions of the Reserve Ilaiiks. Imagine Ihcm as the water reservoirs of a community subject occasionally to terrifying •The evidence fully presented before Committees of Con- drouths. The duty of the managers anil trusters would he to gress shows that as early as the fall of 1919, the Reserve keep at all times a safe reserve supply of water against the Hoard warned all concerncd of the approaching storm. It impending water famine. Waste of water would have to he advised gradual retrenchment and the orderly marketing of discouraged even in times of abundant supply and penalized surplus stocks even at concessions in price. So far from in times of scarcity. In order to make people careful, the restricting credits by Reserve Itanks to member banks, the managers and trustees would impose a ehar^e for (lie water, statistics show that they were continued and increased but it would be arranged that all excess profits above a mod- throughout 1920 and into 1921, clearly proving that while an erate return on the cost would go back to the general gov- advance in the discount rates would in normal times have ernment. It is obvious that although profits were not tho tended to check expansion in trade, the conditions at this primary objcct, the profits (accruing largely to the govern- time were so abnormal that any reasonable advance in rates ment) would inevitably be greatest in times of water famine ot discount or rediscount was entirely negligible in its effect. when the use would he greatest and the reservoirs most And later when liquidation actually began, lowering rates of hca\ ily drawn upon. Thus while the earnings might be in discount, was powerless to stimulate trade or put new life no cr.se the chief object, the fact would remain that the into a situation which was being swept along by a current e*ri.-..v:; would be greatest when the famine was most acute. too strong to bC' resisted. 10 11 It the bone's coukl have been bought by in- cost of living (to-wit, May, 1920)—the eco- vestors here or abroad out of past savings nomic laws were coming into action. Indeed, the rising curve of over-stimulated production there would have been no inflation,* it would and the falling curve of diminished buying, simply have been a loan of the people's sav- crossed each other and almost before you could ings "to the Government, but bonds in ibis nay il, there was a surplus on the shelves and instance were issued way beyond (he limit of prices began to drop. The more listing savings. (It has been estimated that ^e accumulated savings were at most 5 to Public they dropped the less people Curtails bought, thinking they were going 6 billions of dollars m fairly liquid form, H tiVlit (1 •» * whereas the Government issued 24 billions of • still lower. This had nothing to Bonds.) This excess of bond sales beyond do with the policy of the Reserve Board; in- existing savings had to be financed by the deed, during this period the Reserve Banks Reserve System in the form of credit and cur- loaned their member banks more liberally than rency and I would estimate that at best it will ever before, for the money was needed to pro- take six years from 1920. or say until 1926, tect the heavy withdrawals of scared depos- before we will have saved enough to pay this itors and in order to enable borrowers at the debt of inflation and get back again oti an even banks to market their stocks of goods in some- keel, and if the bonus bill is passed it will take thing like orderly fashion, so as to reduce say IS months longer. their inventories. The liquidation has indeed It is not necessary to explain to an intel- been terrific, the drop in some commodities ligent audience that high prices tended greatly has been down to 25% of the highest prices, to stimulate production. We saw it every- which in most cases came with the false boom where, on the farm, in the mines, and in the succeeding the war period. During 1920 and factories. Nor is it necessary to point out 1921, after liquidation had set in, the Reserve that the effect of high prices was eventually Banks went to the extreme in helping their to check consumption. I say eventually ad- member banks, several of the Reserve Banks visedly, because the first effect of rising prices having drawn on their reserves below the legal Was to stimulate consumption. We had inany limit and having to borrow from other Reserve instances where people who could ill afford it Banks of the System. bought excessive supplies at high prices, thus Now that the danger period is safely passed, boosting prices against themselves and their it can be pointed out that the Reserve System friends. Some people would buy a barrel of as a whole, so far depleted its Gold reserves sugar at 20 or even 25 cents a pound who that it was down close to the legal limit and Would never think of buying more than a could have gone very little further without 10-pound package at a normal price, and so It serious difficulties. The greatest strain which Went with other provisions and supplies. Peo- has ever been put on financial institutions has ple lost their heads, but at last the turn came, been passed and the Reserve System has ex- not as soon after the Armistice as most wise perienced all the grief of inflation and con- men expected, but just about the time a traction that would normally have come in at Senate Committee was asking the Reserve least half a century.* Board what could be done to check the high The second line of criticism, has been ex- travagance in the management of the twelve *The question is asked, wl.«t is meant by the oft use.I phrases Reserve Banks. Measured by the pre-war "inflation" and "deflati-m r" Fundamentally inflation is the creation of an oblivion without a corresponding increase ot standards of spending, there was undoubtedly val-c Thus if a corporation issue bonds or stock without a corresponding increase in its plant and invrutor.es, it can be said that its capital has been inflated. By the same token, a •It is interesting to note that experience in all the Reserve Dis- Nation may issue Bonds (which are one form of promises tricts has shown that regardless of money stringency, about to nay")or currency notes (which arc another form of prom- otie-third of the Member Banks do not borrow from their ises to pay") and if it do so without an equivalent increase Reserve Bank. These regard the Reserve Bank not ns a in the nation's basic wealth, it has inflated its capita account. town pump, but as a reservoir to be drawn upon sparingly, if Inflation is sometimes used in a narrower sense as limited to ever, and considered only as an emergency supply. A. second cu-rcncy inflation; but in my estimation that is too natrow a group of banks borrow moderately but never excessively. A view Business transactions arc carried on so largely on third group are constant: and frequently excessive borrowers. credit instruments,—bank credits, drafts, checks, etc., that Their chronic condition is to be over-extended. It lias been the redundant issuance of Bonds,—which arc used as the said that the general stringency would have been less if the basis for credit,—is quite as etTcctivc in causing inflation as first group banks had been more liberal. The best answer is the redundant issuance of bank notes or currency. It ROCS that the third group banks could not have had the liberal withe:c saying that deflation is the shrinkaRC that takes place aid they received if it had not been that group one banks afkcr the swelling-up process has reached its limit. denied themselves. 12 13 ihe honor and believe too that when we are Some extravagance—the Reserve System had drafted, it is our duty to serve, regardless of to develop under forced dralt; the sacrifice. Whether the Federal Reserve .. duties and minimus which nor- Hoard could fairly ask men (for they could Nccc.;.;:.':cs ma jjy NVOU |,| b.ive taken 20 years not require it) to serve in this quasi-public to develop were required immediately. Quar- capacity in banks which are privately owned ters rented at the beginning soon proved though having some public functions and inadequate and more room was detnanded. duties, is a matter upon which there may At one time some of (he Reserve Banks properly be discussion, and 1 do not care to had their quarters in seven to _ ten dif- express an opinion. However, it may be ob- ferent localities, some of these neither safe served in passing, that high salaries do not nor fireproof. Not only were the rents high, necessarily mean expensive operations, nor do but the quarters were inappropriate. dilfieult low salaries common in Government work to operate and inconvenient to :dl concerned. always mean economical management. As a result of these conditions ;md pressure froin die local communities, ten of tlie twelve IV. SUMMARY. Reserve Banks were authorized In proceed to r"|j'~,() summarize our review of the Federal buy property and erect suitable buildings, and Reserve System we see:— the remaining two, the Reserve Hanks of St. , First—That the problems confronting the Louis arid Minneapolis, wr.ro far along with framcrs of this banking- and currency Act were their projects wh.cn construction work was complex and diverse. The legislators were stopped pending Congressional investigation. not free to plan an ideal system from the ground up, they were compelled to adopt a It was in a sense extravagant to create 2i plan which would be in harmony with what branches. Part of the pressure to create these had gone before. It must be so nicely con- branches came from the business communities, ceived and adjusted that it would commend Pari was political, but in every case their crea- . itself to the officers of the National Banking tion which involved considerable expense for System and to a large share of the 48 varieties installation and for operation thereafter, was of the State Banks. How well they succeeded not authorized by the Keserve Board till the is attested by the fact that the National Banks need was clearly demonstrated. The Board have come in and prospered and, almost all the could have saved many millions by deferring larger and more eligible State Action, but service to the communities was quite as important a factor as economy, and rjhcfibthiy Banks are now members, rcprc- one by one 23 branches were authorized. M embers hip anting altogether 62% of the At many of these branch bank points projects country's banking resources. (1 he for building banking quarters are pending. National Banks represent 41%, the State mem- Usually because safe and entirely _ suitable ber banks 21%, and the non-member State quarters are not obtainable. If the functions banks, largely ineligible, 38% of the country's of these great regional banks with their banking resources.) branches were not so important and the safe Second—We sec that twelve! Regional bank- custody of funds was not paramount, we could ing centers were created, each with power to temporize with the question, but establish branches. In all twelve Central Banks Suitable under the circumstances I think and 23 branches have been created and put in Quarters j d that thcrc ony ouc auawcr nu operation. is to provide suitable quarters. Third—These Reserve Banks have become the depositaries of the country's banking re- Still another form of extravagance alleged serves, now grown to the enormous total of is that the salaries of certain of the higher t over three billion dollars in gold. officers arc excessive. Admittedly there is a Fourth—These banks issue currency upon good deal to be said in favor of Government , tl.e collateral of short time commercial paper, service being regarded as a public duty and known as "self liquidating paper," because it therefore not to be paid as highly as commer- represents transactions which will pay off the cial service. Those of us who have "worn the paper when it is completed. This feature King's 'ivery" (by which I. mean, of course, makes the currency elastic and responsive not the "liver/ of the sovereign people) recognize IS 14 I 1 i to the volume of speculative transactions, or real estate deals, but to the crop necessities and commercial business; to the day to day transactions in the production and marketing of goods. The average lime of paper in the portc-folio of a Reserve Bank at any time is well under 40 days at all times. Fifth—Although each of the twelve Reserve Banks is a separate and independent entity, they are permitted and encouraged to co- operate in certain functions; for example, they may lend to each other, they are required to act' jointly for the Government as Fiscal Agents, or as a Clearing Mouse System in clearing all checks of member and other as- senting banks. Sixth—These Regional Reserve Banks owned by the member banks are governed by Boards' of nine Directors, three of which represent the Government. Seventh—We see that criticism has been leveled against the System, partly by reason of malevolence and partly ignorance, but chief- ly by reason of an over confidence entertained by the public as to what this Reserve System could accomplish. Recognizing its proper and reasonable limitations, the System has worked with wonderful smoothness. The effects of the War on all countries, whether belligerents or not, was tremendous ; none escaped the con- sequences of vvorld inflation or the succeeding liquidation or deflation. In this No Bunking experience no banking system in System (lU y country was more effective Efficient in securing good results than our ' own, all things considered. Eighth—Last of all, the criticisms of mal- administration and extravagance have been considered and reasons given for the opinion that these charges are unfounded. In short, the Federal Reserve, System has been severely tested, but it has not been found wanting. My advice to you gentlemen is to study it, and having done so to defend it against the abuse of the demagogue, and the tinkering of the ignorant. It is a vast and deli- cate piece of machinery, not a Ford car which anyone may drive, nor is it fool proof. It has cost much brains and energy and should have the support and defense of able and intelligent men, regardless of party. 16

Frederic A. Delano (1922, April 7). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19220408_delano

@misc{wtfs_speech_19220408_delano,
  author = {Frederic A. Delano},
  title = {Speech},
  year = {1922},
  month = {Apr},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_19220408_delano},
  note = {Retrieved via When the Fed Speaks corpus}
}