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The Commoner
OCTOBER, 1913
13
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treasury and the comptroller of tho currency,
to bo exercised in the conduct and control of
tho national banking system. It does not seem
necessary here .and now to enumerate these
powers; they relate to examination, regulation,
publication, and control. Strictly speaking, tho
federal reserve board performs no banking
function; the banking business of the system
is within the exclusive jurisdiction of the
regional reserve banks, owned and operated by
an aggregation of individual member banks. But
two of the powers conferred by this bill upon
the federal reserve board have been brought
in serious question or subjected to pungent
criticism. One of these powers is tho right of
the board to "require, in time of emergency,
federal reserve banks to rediscount the dis
counted prime paper of other federal reserve
banks." And it is a singular fact that the rag
ing controversy which this provision has aroused
was initiated by bankers who contributed thous
ands of dollars to fasten upon this country the
wretched Aldrlch scheme, which would have
impounded the surplus funds of the entire bank
ing community of America in the vaults of a
single central bank, to be by it transferred at
any time to any point for any purpose that
might appeal to the sweet will or whim of the
governing board of that institution. Here we
provide, under the severest restrictions, a mobi
lization of banking strength "in time of emer
gency," by requiring a strong regional reserve
bank to go to the temporary relief of another
regional reserve bank in a plain business trans
action, without riBk, but actually with greater
profit to the succoring bank than it might com
mand under ordinary circumstances.
MOBILIZING RESERVES
This power literally correlates the regional
reserve bank system; it is a part of the process
of mobilizing reserves. And yet gentlemen of
thf -nking fraternity who have for five years
n fently rolled this phrase on their tongues
ina:1 chis provision of the committee's bill an
object of bitter attack. They were perfectly
willing, under the Aldrich schrmo, to confide
tills power to bankers, operating for gain, but
are unwilling to lodge it with tho government
of the 'United States to be used for patriotic
purposes under a system devised for the good
of the country, including the solvency of tho
banks themselves. As a matter of fact, Mr.
Chairman, strictly safeguarded as we have it
here, this power is neither dangerous nor extra
ordinary. It is essential to the system pro
posed and somewhat analogous to the power
exercised for years by the secretary of the treas
ury alone, when, in time of emergency, he has
withdrawn government deposits at will from
banks in one part of the country and transferred
them to banks in another part of the country in
an effort to cure a desperate situation, the dif
ference being that, whereas the transfers have
heretofore been made to the great money
centers for the purpose of arresting stock
gambling panics, the transfers under this bill,
if ever required at all, will be made to promote
legitimate commercial transactions. Such trans
fers, you will note, are only requi -ed by this oil!
to be made in ti le of exigency. We believe that
the power will not be invoked once in half a
century, for the reason that if this bill should
bo enacted into law it will so withdraw the re
servo funds of the country from stock specula
tive uses and apply them to commercial, indus
trial, and agricultural transactions that we shall
rarely ever again have bank panics in the United
States.
SUSPENDING RESERVES
The other power conferred by this, bill upon
the federal reserve board which has, been
moderately criticised is the right given Bald
board to suspend the reserve requirements
against deposit liabilities. Yet, Mr. Chairman,
a power akin to this has been exercised by the
comptroller of the currency with respect to na
tional banks for nearly 50 years. Under sec
tion 5191 of the national-bank act, the comp
troller is implicitly authorized to tolerate for a
period of 30 days a. violation of the reserve re
quirements of the act without applying any
penalty. By this officer the power has some
times been abused and violations have been
tolerated for several years Instead of for a
single month. The penalty prescribed by the
national-bank act for the offense indicated is so
radical that it has not been applied in the whole
history of the national banking system. But
here we have committed the power to a board
of seven men charged with the duty of pre
scribing" and enforcing n reasonable penalty for
violation of the law. Like the power of en
forced rediscounts, this function will rarely, if
ever, bo exercised by the fedoral reserve board.
It Is, however, important that tho federal re
serve board should have this powor. It was sug
gested by tho fact that throe times within GO
yoars the British parliament round it necessary
to sanction by law the action of tho Bank of
England in suspending specie payments in ordor
to arrest panics In Great Britain.
"POLITICAL CONTROL"
But, Mr. Chairman, bitter as has beon tho
criticism leveled at the powers of tho fedoral
reserve board provided by this bill, they havo
not been comparablo to the denunciation by big
banking interests of what is termed tho "politi
cal structure" of UiIb board. It is contondod
that tho banks should have at least a minority
representation upon the federal reserve board;
and I frankly admit that the claim upon its face
seems both reasonable and expedient. Indeed,
the first tentative draft of this bill contained
such a provision; but, after thorough considera
tion and full discussion, a different conclusion
was reached. This federal reserve board Is dis
tinctly a government Institution, and eminont
bankers who were hero In Washington last
winter and spring contending for representation
were met with the challenge to cito one Instanco
where private interests were represented on any
government board in this or any other civilized
country. They could not answer.
As already pointed out, the associated banks
will own and oporato the regional reserve banks
provided by this bill, which are made after a
period of years the exclusive mediums of gov
ernment Issues and subject to no severer exami
nation nor greater control than national banks
of the existing system in their relations to the
government. If it may be said that they havo
important responsibilities, it may likewise be
said that they are given great privileges, hold
ing the reserve funds of tho country and tho
deposits of the government, amounting in tho -aggregate
to nearly $600,000,000. The federal
reserve board, technically speaking, has no
banking function. It Is strictly a board of con
trol, properly constituted of high government
officials, doing justice to tho banks, but fairly
and courageously representing tho interests of
tho people. The danger which the banking com
munity professeB to see is not the real danger
which I apprehend. The bankers seem to fear
that men of their craft will be excluded; but tho
real peril of the provision Is the possibility of
too many bankers being included. Observe
what I mean: The secretary of the treasury
will be a member of this board, and nine times
out of ten that functionary is a practical banker.
The comptroller of the currency will bo a
member of this board, and nearly always that
official is a practical banker. In addition to this,
tho bill requires that one of the four presiden
tial appointees shall bo a porson of banking ex
perience; so that we shall undoubtedly have
ample banking representation on the board, and
the talk of political control, in the last analysis,
is the expression of a groundless conjecture.
A FUTILE OUTCRY
No great reformation in any existing Institu
tion was ever accomplished except In the face
of severe contention. The clatter which we
have heard in certain quarters about the "un
constitutionality" of this proposed system and
the "confiscatory" nature of the power conferred
upon the federal reserve board is merely part
of a cunningly devised propaganda to force con
cessions in another direction and to coerce con
gress into yielding on certain other points which
vitally affect certain big banks with extensive
stock exchange connections. We have taken
every reasonable precaution against asserting
any power here that may bo regarded as un
constitutional. Wo are not proposing to dis
turb any vested Interest. There is nothing of
a confiscatory nature in any of the powers to be
exercised by tho federal reserve board. This
talk takes us back to the predictions of disaster
when the interstate commerce commission was
established. Then there was an outcry that
corigress was about to "disturb the business in
terests" of tho country; then we encountered
the frantic contention that the government was
about to "seize private property."
Senator Hoar, of Massachusetts, said:
Here Is a proposition which would bo destruc
tive to great business Interests vi the country,
ppseclally to the export business of tho principal
Pftv of the state which I represent. I hope tho
public Interest affected will have a full opportunity
to be heard.
Senator Nelson W. Aldrlch, of Rhode Island,
said:
Tn order to cure evils which are apparent to the
farmers of Illinois or Michigan, you propose to
demoralize tho whole commerce of tho country; you
propose to establish an arbitrary, unjust, unreason
able. Impracticable rule.
Senator Orvillo H. Piatt, of Connecticut, pre-
dlctod that tho passago of the intorstato corn-
morco bill
would result In an Immediate rate war by all tha
railroads of tho United Status, the evil conse
quences of which would be greater than any evil
now existing under pooling contracts. It would
ruthlcsHly demoralize business and be far-rcaohlng
In Its Injurious results.
Senator Leland Stanford, of California, de
clared: If this bill rtha.II become a law Its consequences
will bo most disastrous to the various buslnuss In
terests of the country.
Senator Josoph E. Brown, of Gcorgln, said:
The fact that a few bad men have controlled
great lines of railroads Is no reason why congreso
should seriously cripple the great railroad interest
of the country and destroy the property Invested In
by hundredH of thousands of people. This bill will
prevent the rapid and cheap transportation of com
modities, retard the growth of our cities, and do
Immeasurable damages to our productive resources.
Gon. Charles II. Grosvonor, of Ohio, predicted
thnt:
It will unsettle rates, disorganize the Industries
of the country, and thus force u reconstruction of
systems of production. Meantime labor will suffer,
farm products will lack a remunerative market,
and uncertainty will discourage Industry, It Is a
dangerous stride toward centralization of power In
the hands of the few to the hindrance, vuxatlon,
and permanent Injury of tho many.
William C. Oates, of Alabama, said:
. In Holland it Is a capital felony to kill a stork
because the stork destroys the eels which bore
through the dikes and inundate the country. To
my mind this bill is a knot of eels which may bore
through tho dikes of safety and Hood this country
with trouble. I view It with grave apprehension.
Charles II. Allen, of Massachusetts, declared:
To pass this bill would bo to put us at very great
disadvantage, and while am not prepared to go so
far as some and h;o In Imagination the yawning
walls marking in desolate ruin the spot whero onco
stood thriving and populous factories, yet I must
say that the result of any shrinking of
values Is quite likely to show Itself first upon tho
poor people. I must protest against the
passage of this measure, destined as It is to work
nn Irlury against New ISngland and New England
interests.
Lewis Hanback, of Kansas, said:
My Judgment leads me to bollovo that
the legislation proposed by the bill In question will
bu fatal to the bent Interests of my state, as well
as to the whole country. I think it I safe to say
that these great lines of Industry, tho pro
duct of capital and tire employer of labor, ought not
to be Interfered with, as they will bo by tho pro
visions of this bill.
I. Newton Evans, of Pennsylvania, said:
It is also of the utmost Importance that wo legis
late so that the millions and millions of dollars in
vested and otherwise employed in tho internal com
merce of this vast country shall not be so deranged
as to bring about a crislh in our financial affairs,
which not only bankrupt many railroads, but, Ilka
tho pebble on the smooth waters, Its Influence
would ho felt far and wide. Agriculture, commerce,
manufactures, and, most of all, labor would suffer
greatly by such a result.
Tho National Republican (republican), of
Washington, commented:
It la fair to suppose that congress did not Intend
to wreck railways, to ruin communities, to destroy
private property, to Impoverish whole sections of
tho country, to break down manufacturing In
terests, to give foreign traders tho advantage over
homo ones, to discriminate over one port In favor
of another, to advance the interests of the Canadian
railways, or to re-enact tho civil rights bill, yet It
did all these things when It passed tho bill entitled
"A bill to regulate commerce."
The Chicago Journal (republican) reflected
newspaper opinion largely when it said:
The president should bo urged to call congrcsn
together at once that It may rescue the commercial
Interests of the country from Impending disaster,
L.et the power that enacted tho offending statuto
be given an opportunity to right the great wrong
It has done and the sooner the bettor.
THE CRITICS CRITICISED
And now, Mr. Chairman, in connection with,
this bill, vo havo tho same outcry from in
terested quarters and through Inspired news
paper comment. Tho critics, whether of ono
political party or another, accentuate objection
to government control and affect to stand aghast
at the tremendous power confided to a political
board. This criticism emanates at times from
men who should be ashamed to protect it; from,
gentlemen who stood upon- this floor and upoa
tho floor of another chamber five years ago and
vehemently supported the Vrecland-AIdrich. act.
Those who now affect consternation at the
powers with which we proposo to vest thig
federal reserve board should look to their own
records in currency legislation. When they
complain that wo give this government board of
seven public officials tho arbitrary right of noto
Issue, for very consistency's sake they should
recollect that under the Vreeland-Aldrlch act
they voted to confide this power in even more
arbitrary degree to tho secretary of the trea-
rt
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