/e >•'% Cornell University Library HG 2565.G54 The truth about the federal reserve syst 3 1924 013 900 752 BD6I 'i: Kvr 'i«d 'A 'N 'asnOBiXs •BOia piot^Bg japujQ jamdiuBd pjeoqsssjcj TRUTH ABOUT THE FEDERAL RESERVE SYSTEM These figures prove ieyond all controversy that, iiistead of deflating credits and currency, the Federal reserve hanks, during the period of falling prices, enormously expanded' lyank credits and increased the volume of circulating notes. This is espe- cially true with respect to credits in th& agricultural sections of the United States. # V f * ifi HI 4i Why not tell the farmer the truth and advise him, if he would escape the consequences of another such disaster, he should organize ; organize, Mr. President, not to be the plaything or the instrument of designing politicians, but organize for an in- telligent investigation and pursuit of economics ; organize for a cooperative marketing of his product ; organize, if it may seem desirable, for the cooperative purchase of his requirements ; organize for an intelligent understanding of the source and volume of demand for farm products. * ****** If some Senatgrs will go home and talk sense to bankers who remain outside the pale of protection, instead of talking non- [sense to, farmers and arousing prejudice against the Federal [reserve banking system, which has afforded them protection, something worth while will be accomplished. SPEECH OP HON. CARTER GLASS OW VIRGrlNIA. IN THE SENATE OF THE UNITED STATES Monday and Tuesday January 16 and 17, 1922 86469—22174 WASHINGTON 1922 /e Q^. / f/^' S SPEECH OF HON. OARTEE GLASS Monday, January 16, 19S2 The Senate haa under c*nsideration the WU (S. 2263) to amend the Federal reserve act, approved December 23, 1913. Mr. GLASS. Mr. President, the distinguished Senator from Nebraslsa [Mr. Nokkis] a while ago said some things with which I am heartily in accord, and I well could express the wish that the discussion of the Federal reiserve banking system might generally be engaged in with the same apparent spirit of- fair- ness as was manifested by the Senator from Nebraska. But, Mr. President, I venture to think that the time has come when some one should assume the task of combating in the Senate the many persistent and constantly recurring misrep- resentations which for more than a year have streamed from this Chamber with respect to the Federal reserve banking sys- tem and its administration. Aside from a painfxil disinclination to speak in any circumstances, I had hoped that this service to a great Federal Institution, and, indeed, to the country, would be undertaken by some Senator whose long tenure would pre- clude any thought of a premature anxiety to project himself into the important controversies of this body, and whose estab- lished reputation here would arrest the attention of the Senate and command the confidence of the country. I am not willing to believe that failure of any Senator of this type to speak out in defense of the Federal reserve system may be ascribed to indifference to the success of the system or to any lack of pride in its notable achievements. Many very grave problems have claimed the attention of the Senate and to these Senators have been devoting painstaking labor. Moreover, it may be that Senators generally have thought, as I confessedly have believed, that the hostile assaults on the Federal reserve system and its administration have manifestly been so devoid of the truth and so obviously saturated with Ignorant prejudice and injustice as to require no answer. KBSEKVB SYSTEM SAVED THE NATION. But, Mr. President, the misconceptions and misrepresenta- tions to which politicians at Washington have given vehement expression have been eagerly seized upon by restless profes- sional agitators and disseminated from one end to the other of the country. Thus a large body of citizens has been induced to believe that the Federal reserve banking system is a financial juggernaut, crushing the life out of commerce and industry, creating widespread depression, and putting an end to enterpris- ing business activities. Instead of clearly apprehending, that which the facts so amply attest, that this reserve banking sys- 86469—22174 3 tern saved their country from inconceivable distress, from irre- medial disaster, tliese people have been taught to believe that its continued existence would be a peril to the Nation. They, in their present mood, literally would smite the hand that feeds them andideniolish the instrument of their salvation. I would not have, it imagined, Mr. President, that I purpose to decry .fair criticism ; on the contrary, it is with me a constant prayer to be kept on guard against the streak of iconoclasm which has too evident a place in my own nature. Neither am I disposed to assert the perfection of any economic instrumentality or the infallibility of any human agency. It would be amazing if the Federal reserve system had no imperfections, and foolish to assert' that its administration has been devoid of error. What I do say with all the emphasis of which I am capable is that neither malignant nor ignorant misrepresentation will cure the systeni's defects or render more efficient its administration. WHAT IS THE FEDEKAL KESERVE SYSTEM? That we may the more surely discover what are the deficien- cies of the system, with a view to their abatement, and compre- hend to better advantage the mistakes that have occurred in the execution of the law, it might be profitable to inquire what exactly is the Federal reserve banking system and how it has been adipinistered. Having done this, we may determine how true or iklse are the charges made here, how fair or vicious the criticism. If the system .is a curse or its execution a tragedy, I want to be convinced."" If the system is a benediction to this Nation and an inspiration to the world, if its administration has been sane and salutary, then I shall feel and expre,ss concern for the integrity of this body if it shall appear that Senators have disparaged the character and derided the personal honor of public officials with no better sanction for such behavior than their own peculiar antipathies or their own pitiful ignorance of the financial transactions upon which they have assumed to comment. For one I am not willing that the astonishing state- ments mfide here shall any longer go to the country unchallenged and uncontradicted. For half a century before the advent of the Wilson adminis- tration the United States was compelled to endure the handi- cap of the most unscientific banking and currency system of any that prevailed on the earth. For a part of the time we seem to have been ignorant of our plight ; for another part indifferent to the situation, and for the remainder of the time afraid to apply the remedy lest we should wound the sensibilities or inter- fere with the profits of a privileged class. We were during no protracted stage without ample warning, for the malady mani- fested itself frequently and violently in disturbances which swept the country like a hurricane from end to end. Five times within 30 years, prior to 1913, a financial catastrophe had over- taken us right in the midst of apparent business prosperity and contentment. Each time the disaster was due largely, if not altogether, to a defective banking and currency system ; and it is literally certain that our always tedious restoration was rendered vastly more difficult and painful by the sad lack of well-devised facilities. SIAMESE TWINS OP DISOBDBB. The old system had two fundamental defects. One was an inelastic currency ; the other a fictitious bank reserve. They 86409—22174 ■were Siamese twins of disorder; and I am inclined to ascribo the invariable failure of statesmen to reform the financial sys- tem of the country to their unwillingness to subdue both of these evils at the same time. While they 'repeatedly would/tackle the problem of an inelastic currency,' which everybodj; wanted solved, they seemed never in a mood to defy the powerful in- terests behind the national bank reserve system, through the peculiar operation of which nearly the whole sum total of idle bank funds in the United States was congested at a single center for use in the stimulation of speculative enterprises. A RIGID CDERBNCT. The national currency was inelastic because basefl on the bonded indebtedness of the United States, rather than upon the sound, liquid business assets of the country. For 50 years we proceeded upon the assumption that the country always needed a volume of cuwency equal to its bonded indebtedness, and never at any time required less, whereas we frequently did not need near as much as was outstanding and just as often could have absorbed vastly i.iore than was available. Hence, when it happened that the circulating medium was redundant, when its volume was too great to be used in local commercial transactions, instead of taking it through the expensive process of retirement it was bundled oft to the great reservfe centers at a nominal interest rate, to be thrown, at call, into the vortex of stock speculation. In a different way and to an immeasurably greater extent the business of the country was made to suffer by this rigid currency system in times of stirring development and enter- prising activity. It could not begin to meet the commercial and industrial requirements of the country. For example, the total capitalization of the national banks of a given community in time of stress, under the old system, measured the full capacity of those banks to respond to the currency requirements of the locality. If the combined capital stock of the national banks of a city was $5,000,000, that exactly circumscribed the ability of those banks to supply currency of their own issue to meet the demands of business, albeit these might necessitate the use of $10,000,000 or more. And. in time of panic, such as that which convulsed the country in 1907, had these banks held $5,000,000 of gilt-edge short-time commercial paper in their vaults they could not, under the old system, have exchanged a dollar of it for currency wherewith to make up the defi- ciency and promptly, respond to the requirements of business ; for practically all the banks were in the same desperate plight, every one, with rare exceptions, looking out for itself, with no other source of supply. A NOTABLE ACHIEVEMENT. What was done by the Sixty-third Congress was to revolu- tionize this wretched currency system, the unhapply victims of which are without number and the losses beyond human ap- proximation. We substituted for a rigid bond-secured circulat- ing medium, unresponsive at any time to the commercial re- quirements of this great Nation, a perfectly elastic currency, based on the sound, liquid commercial a;ssets of the country, responsive at all times and to the fullest extent to every rea- sonable demand of legitimate enterprise. It comes forth when required and is canceled when notf needed. The amount is 9—22174 ample when business is actLve and only enough wlien business is lax. So that in a case similar to the one cited a while ago, where the banks of a given community, with $5,000,000 of liquid commercial assets, could not, under the old system, in time of stress get a dollar of currency on their holdings, because there was no source of supply, tlie same banks, under the Federal i-eserve system, could exchange their $5,000,000 of liquid assets at a Federal reserve bank for $5,000,000 of the best currency on earth, less a fair rate of discount. That one reform repre- sents the difference between disaster and success. A VICIOUS iib.';erve system. Another fundamental defect of the old system was its ficti- tious bank reserve, created by that provision of the national- bank act which authorized a deposit or book credit of individual country banks with banks in reserve and central reserve cities to be counted as reserve, just as if held in the vaults of the in- terior banks. On these reserve balances, subjected to a process of multiplication, the big banks of the money centers would pay nominal interest, which operated as a magnet to attract the reserve funds of the entire country ; so that on March 14, 1914, eight mpnths before the Federal reserve system was put in actual operation, the New York banks alone held $836,000,000 of the funds of outside banks, while they were loaning outside banks only $192,000,000. Already the congressional monetary Inquiry had disclosed the startling fact that on November 24, 1912, the legal custodians of these reserve funds had put $240,000,000 of them in the maelstrom of Wall Street stock oper- ations. Do you realize quite what that means? It means that these millions and many millions more were withdrawn from the reach of agricultural, mercantile, and industrial uses throughout the United States at a fair rate of interest and loaned to stock gamblers at an abnormally low rate of interest in com- parison. We talij about the law of supply and demand and pass laws to punish cpmbinations in restraint of trade ; but before the enact- ment of the Federal reserve act the banking community, under the sanction of the atrocious system of an inelastic currency and a fictitious reserve, was enabled to defy the- law of supply and demand both in the lax season and in the tense. For in the season of lax trade and abundant currency local bankers feared to relax the standard rate of interest. Instead of keeping the money at home and giving the local agricultural, commercial, and industrial interests the advantage to be derived from low rates of discount, the surplus funds wer% sent to the money centers for the accommodation of speculators. A PANrC BREEDER. The old system was a ranlc panic breeder. In periods of greatest business activity the country was made to suffer desperately for lack of adequate credit facilities. When the prospect was brightest ; when men of ambition and energy would press forward in pursuit of prosperity and the hum of Industry would literally be heard throughout the land, two links in the chain would suddenly snap, tearing to shreds the whole business fabric and carrying dismay to every com- munity on the continent. In plain terms, when the country banks of the United States, trying to respond to the commercial and industrial demands upon them in their respective localities, 86469—22174 being unable to issue additional currency, would seek to draw in their reserve balances from the congested centers, and when the big banks of these centers would, in turn, be com- pelled to call their loans on stock, thus 'contracting 'the credit facilities of " the street," interest rates would quickly jump, mounting higher and higher, until panic would ensue, banks throughoijt the country would stop payments across the counter and consternation would reign where confidence and content- ment so soon before had prevailed. I have iSaid the losses are beyond computation ; and that is so. They affected not alone the financial institutions immediately involved, but the mer- chants whose credits were suspended ; the industries whose shops were closed ; the railroads whose cars were made idle ; the farmers whose crops rotted in the fields ; the laborer who was deprived of his wage. No business enterprise, if any indi- vidual, ever entirely escaped. ANOTHER GREAT ACHIEVEMENT. It was another great achievement of the Sixty-third Congress to remedy this monstrous condition. No other legislative effort, as I recall the history of events, was ever directed against this bank-reserve evil. It required courage. It constituted a chal- lenge to the dominating financial interests of America i and they accepted the Invitation to the conflict. It was a memorable fight, in which sound economic principles triumphed so completely that many of the great bankers who seemed once implacable now concede that a tremendous advance has been made in the direction of scientific banking, and there is a general concur- rence of belief that the Federal-reserve system saved this country from financial convulsion when the World War raged and after it ended. We corrected this vicious bank-reserve system by ' establish- ing regional reserve banks and making them, instead of private banks in the money centers, the custodians of the reserve funds of the United States ; by making these regional banks, instead of private correspondent banks, the great rediscount agencies of the country; by requiring these regional banks to minister to commerce and industry rather than to the schemes of specu- lative adventure. Under the old system the country banks were subservient to the money centers, for only there could they resort for rediscount favors. Under the new system it is no longer a question of favor ; it is purely a question of business. AN INSPIRING CONTRAST. ' In 1907 New York could not let a country bank have $50,000 of bank currency to meet the ordinary requirements of commerce or the pay rolls of industry. In the fateful year leiS New York let two European nations at war have $500,000,000. The new system enabled the Government to lend $10,000,000,000 abroad and to float $24,000,000,000 at home for war purposes. Under the old system about $60,000,000 measured the volume of rediscounts ; under this reserve system one of the smaller re- gional banks exceeds that amount in a single State. HURAL CREDITS. Not in 50 years had any jarty written a -provision into the national hank act for as much as one dollar of rural cr:dits. On the contrary, hy the text of the law, by the rulings of the Treasury, . and by decisions of the courts, every semblance of 86460—22174 8 farm credits teas sedulously excluded. The Federal reserve system furnishes millions of dollars of farm-credit facilities. Not a dollar of the funds of a national bank could be loaned under the old system on improved farm lands. Under the Fed- eral reserve act, according to a computation :bv the late Charles A. Conant, $359,000,000 are made available for loans on 'farm mortgages alone having five years to run. In the matter of current rediscounts every rational advantage is given to farm credits over mercantile paper, and I shall shotv that billions of dollars have been loaned to the farmers of the United States. In the matter of acceptances on the exportation of the great staple products of the farm Infinite aid is extended to the American farmers. In addition to this the Federal reserve sys- tem has had a powerful influence in lowering the rate of inter- est, and in this circumstance alone the farmers of the country have been saved millions of dollars. Yet it is at a system which has done this unprecedented service to American agri- culture that professional " friends " of the farmer are hacking away. It is to a system which has put hope in rural life that caressing demagogues, for selfish purposes, falsely ascribe the Inevitable reaction from the saturnalia of unparalleled expendi- tures. What are these regional banks? There is no mystery about them. It is not difficult to under- stand their organization or their processes. Each of them has a defined territory. They are operated by boards of directors, just as any individual bank is. They ai-e conducted with the same banking Instinct, with the same technique, with the same mechanical and human appliances. They are owned not by the Government of the United States, as one would suppose, but by their stockholding member banks. The G-overnment of the United States never contributed a dollar to their capital; the taxpayers are not assessed a penny for their maintenance ; they pay the Governmeut annually an enormous sum in franchise fees^$60,000,000 per annum — against the meager sum of $3,000,000 per year paid by all the national banks in the United States put together. They are banks of banks. They do not loan, can not loan, a dollar to any individual in the United States nor to. any concern or corporation in the United States, but only to stockholding banks. A member bank in Utah, for example, has accommodated its customers to the full extent of its resources. It can loan no more without violation of the National or State banking acts. It needs additional funds with which to make otheV loans. How does it obtain them? By taking the note of a borrower, with its collateral security, giving it the indorsement of that individual bank. It sends the note thus indorsed to the reserve banlj at Kansas City, the reserve bank rediscounts the note at an inappreciable charge over the rate of interest which the member bank charged its customers. That supplies the member bank with additional funds to loan to other bor- rowers. It is very simple. There should not be so much ignorance about it here. THE SUPERVISORY POWER. At the head of these 12 regional reserve banks we put a supervising board. It is not a central bank. It can not loan sa penny to anybody, or to any concern, or to any corporation. \ 86469— 221T4 9 It does not engage in the niinutise of banking over the counter. It has not a dollar, and never had a dollar, to loan to anj'body. It is a supervisory board. It has nothing to do with, and not necessarily any l;novi'ledge of, the detailed discount operations of the various regional reserve banks. It can not command the weakest or the strongest regional reserve bank in the district to discount to the extent of one dollar if that bank does not care to do so. It can not prohibit a single regional reserve bank from discoxmting millions of dollars if it h.as the eligible paper and wants to do it. air. POMERENE. Will not the Senator go a little further and say it lias not done it in the past? Mi-, glass. It has not done it. Mr. KING. Mr. President, if I may be pardoned, will the Senator explain the origin of this heresy which some Senators and a good many of the people have, that the Federal' reserve districts can draw upon New York whenever they please ; that it is the duty of the New York bank to loan to the people of Utah, to the people of California, to the people of Alabama the money which belongs to the Federal reserve bank there, and that it is the duty of the Federal reserve banks in the various districts to foan whenever any pereon comes and desires money, even though the bank does not have sufficient capital -to justify the continuation of the enormous loans which it in the past has made? Mr. GLASS. The Senator has. so stated his inquiry as that it carries its own answer. No banking system that would do tliose things could survive in any country on earth. Mr. SMITH. Mr. President, if the Senator from Virginia will allow me, perhaps I misunderstood the inquiry which the Senator from Utah made when he said that the reserve bank of one district could not be drawn upon for the benefit of another reserve bank. Was that what the Senator said? Mr. KING. I did not put it that way. Of course, I appre- ciate that in a certain contingency, as has been explained by the Senator from Virginia, there may be a crisis which may warrant' interregional discounts ; but the heresy has grown up that the people of Utah, or the people of Alabama, or the people of any other district can demand of New York, or of some other district, that it respond to the wishes and needs of any State or any district. Mr. GLASS. I will ask that Senators desist for the present from this argument. I do not object to being interrupted; but I do want to finish this speech. Mr. SMITH. I just want to read in that connection one little paragraph of about 5 lines from the law. Mr. GLASS. I shall come to that, if the Senator will allow me. I shall explain it fully. I have said that in certain ex- treme contingencies the law does permit the Federal Reserve Board, by a vote of five of the seven members, to go to the financial assistance of some weak Federal reserve bank to avoid a crisis, not in ordinary course to loan it the funds of some other region with which to do business. The textual restriction of the statute on the Federal Reserve. Board indi- cates what was contemplated. If, perchance, the inability of a weak Federal reserve bank to respond to the urgent requirements of its member banks would threaten financial disaster in a 80409—22174 2 10 great section of the country, then, in the judgment of the Federal Reserve Board, five members of which were required to act affirmatively, one Federal reserve bank might go to the assistance of another Federal reserve bank. That is all there is to that. The distinguished Senator from Ohio [Mr. Pom- ekene], who was a conferee with me on the bill, knows I am stating the case exactly. Mr. President, if my exposition of the Federal reserve act has been accurate, it will be observed that the Federal Reserve Board sitting at Washington is not a central bank ; it is merely a supervisory body, with certain clearly defined, limited powers. It can not establish a credit for any individual member bank -at a single one of the Federal reserve banks. It can not issue a dollar of currency to any one of these regional banks, except upon the specific application of the regional bank. It can not ' withdraw or cancel one dollar of Federal reserve bank notes, with a view to contracting the currency or for any other pur- pose, not a dollar. I have sat here for a year and heard Senators denouncing the Federal Reserve Board for withdrawing circulating notes. It has no particle of authority under the law to withdraw one single dollar of currency from circulation. It may decline to issue currency upon request of a regional reserve bank, but there Is not one Instance of record since the establishment of the system in which it has done that. It may levy a tax on Federal reserve notes, so as to make theit issuance uninviting to the regional banks, but there is no instance of record in which it has levied a penny of tax on note Issues. Mr. WATSON of Georgia. Mr. President The PRESIDING OFFICER (Mr. Jones of Washington in the chair). Does the Senator yield to the Senator from Georgia? Mr. GLASS. I do. Mr. WATSON of Georgia. Mr. President, I saw in the Wash- ington papers yesterday a statement issued by the Federal Re- serve Board which seemed to say that during the last 12 months they had retired of their note circulation a thousand million dollars. Mr. GLASS. I will say to the Senator that the Federal Re- serve Board has not retired a dollar. The various regional reserve banks have retired their Federal reserve notes, for which they made application when business was humming and industry was at its height. Now that there is widespread busi- ness depression, these regional reserve banks, not the Federal Reserve Board, have sent in certain notes for cancellation and destruction. Mr. OVERMAN. Mr. President, I would like to ask the Senator, before he leaves that question, who fixes the discount rate? Mr. GLASS. The Federal reserve banks fix the rate, subject to review and determination by the Federal Reserve Board. I am coming to that. Mr. JONES of New Mexico. Mr. President The PRESIDING OFFICER. Does the Senator from Vir- ginia yield to the Senator from New Mexico? Mr. GLASS. I do. I want to give all the information I can, but Senators by interrupting are going to prolong my speech. 8G469— 22171 11 Mr. JONES of New Mexico. I do not understancl that the Federal Reserve^ Board, as such, has the power to restrict the issuance of notes or enlarge the amount of an issue ; but inas- much as one-third of the board of directors of each of the regional banks Is appointed by the Federal Reserve Board in Washington, does not the Senator believe that any recommenda- tion of policy directed' to these regional banks would be quite effective, and is it not claimed that such policies have been announced by the Federal Reserve Board, and that that has re- sulted in the deflation of the currency in the country and in the restriction of the amount of the currency ; and does not that in effect operate in the same way that it would if the board had the direct poW^er to make the restriction? Mr. GLASS. I say to the Senator from New Mexico that every director of a Federal reserve bank must be a resident of his Federal reserve district. The appointment of three of these directors by the Federal Reserve Board, as the Senator from Ohio will recall, was resisted by the banking community of the United States. They were put there to represent the interests of the Government, because the Government, under the opera- tions of the banks, would be one of the largest depositors in the banks. I have no doubt the banking community to-day would gladly welcome an alteration to exclude these three ap- pointed members from the regional boards. Answering the other part of the Senator's inquiry, I will say that the Federail Reserve Board has never, since it was inaugu- rated, offered a suggestion to a Federal reserve bank that it should or should not make rediscounts or apply for currency. Mr. FLETCHER. If I may interrupt the Senator just on that point, is it not true that the power to jBx the rate of re- discount is the power to control circulation? Mr. GLASS. I said to another Senator that I would reach that presently. If Senators will just let me get on, I hope I shall not leave any phase of the problem untouched. Mr. FLETCHER. I did not know that the same question had been presented. It seen(s to me they do, not need the power to control circulation as long as they have the power to control the rate of rediscount. air. GLASS. Of course, the power to fix the rate of redis- count is a fundamental baiiking power of the system. Mr. JONES of New Mesico. Mr. President, I am sorry to interrupt the Senator, but I saw the statement made by ijeo- ple who were supposed to know and be advised about it, that the Federal Reserve Boaril in Washington had made a direct request of the regional banks in certain sections of the country, as well as member banks, that no more loans of a certain, char- acter should be made ; for instance, upon live stock. Personally, I was never able to find out from any authipritative source that such a tiling had been done, and I shouldilike to know whether or not the Senator has any information upon that subject. Mr. GLASS. I know it is not true, I will say to the Senator from New Mexico. The Federal Reserve Board at one tiane did what Senator after Senator upon this floor did. In one of its public outgivings it suggested that there ought to be a cessa- tion of extravagance in this country ; that the credits of the country should be devoted to taking care of the necessities of the people rather than the luxuries of the people. Will anybody S6469— 22174 12 question the Solomonic wisdom of a declaration of that sort? The board has never at any time indicated to a bank that it should not engage in lawful and proper rediscount activities, and has never denied the application of a regional bank for one dollar of Federal currency. Mr. POMERENE. Mr. President, the Senator has already re- ferred to the fact that only one-third of the directors of the regional banks are appointed by the Federal Reserve Board. The other two-thirds are divided into two classes, one repre- senting the smaller banks and the other representing the larger banks. The thought struck me tliat ordinarily two-thirds can control one-third. Mr. GLASS. There has never been any sugg^tion that the one-third were In any degree out of sympathy with the agricul- tural, eommei'cial, or industrial requirements of their particulat region. It is not natural to suppose they ever are. They are business men of character and reputation, identified with the particular region. Why should they wish It harm? These powers, with tiie right to review and determine re- discount rates, are conferred by the law on the Federal Reserve Board for the security of the banking system of the United States and to insure that any expansion of the currency shall be upon safe and sane lines. UECKLESS CHAHGB OF DEFLATION. Yet, Mr. President, with these restricted powers unexer- cised to this day, the Federal Reserve Board, times without number, has recklessly been charged with instituting and exe- cuting " drastic and cruel policies of deflation." One perfervid Senator characterized it a " murderous " policy of discrimina- tion against agricultural produce. What, precisely, is meant by this charge? It can signify but one thing, which is, in plain terms, that the Federal Reserve Board at Washington, without sanction of law, ordered Federal reserve banks, especially those located in tlie agricultural regions, to curtail or stop redis- counts or that the board refused to issue currency upon applica- tion of the banks or that the board did both these things. The actual truth is, Mr. President, the Federal Reserve Board did neither of these things, and I challenge the production here or elsewTkere of any particle of eriflen",e of any such action hy the Federal Reserve Board. It issued no such order ; it had no right to issue any such order. And, as I have pointed out, while the board is vested by law with explicit authority to refuse to issue currency or to tax that outstanding in order to influence its redemption, the board has not exercised its lawful power in either respect. Every dollar of bank credit denied was _witli- held by a local bank or regional bank. The Federal Reserve Board had nothing to do with it. Every dollar of currency retired was retired by a local bank or regional bank. The board had nothing to do with it. By A^ilom, then, Mr. President, was this wicked policy of defla- tion of the credits and currency of the system instituted and what were the agencies employed in its execution? Each regional bank of the system is master in its own domain, subject only to the Federal statutes; it is operated by men, all citizens of its territory. Two-thirds of its directors are selected by the member banks in its territory. These men are presumed to understand the conditions and to know the requii'ements of 86469—22174 13 every interest in the territory, agricultural, oommercir.". or in- dustrial. If there was deflation, "wicked" or righteous, mon- strous or sane, the directors of these respective Federal reserve banks, in larger degree than any other agency under the law, should be held responsible for it. But I pointedly deny that there was deflation of either regional reserve tank credits or any dhninution of Federal reserve currency for the period of the appalling drop in prices of agrionltural products. INCONTROVERTIBLE FACTS AND FIGURES. I hope Senators will take particular note 'of that declaration and convict me here,' if they can, of any inaccuracy tliat apper- tains to it. Rhetoric, whether the mo:ivo of it be harmless or vile, is one thing. A cold, indisputable fact is soraething„dif- fevent. In all this fanfare of prejudice and vituperation there has not been given one authenticated fact or figure to justify the assertion that the Federal reserve banking system was appreciably delinquent or in any degree oppressive. I shall present proof to the Senate that, in the period of precipitated prices of farm products, there was a constant expansion , of regional bank credits and an increase in the volume of Federal reserve notes issued. At this point I shall insert, in the.KEcoRD figures furnished me by the Bureau of Statistics, Department of Agriculture, giving the average seasonal price, by the' month, of cotton, wheat, corn, and oats from July. 1919, to January, 1921, inclusive : Cotton. Wheat. Corn. Oats. 1919. July ST. 311 .325 .303 .313 .365 .357 .359 .374 .368 .311 .255 .194 .14 .115 t2.22 2.17 2.08 2.10 2.13 2.15 2.32 2. ,54 2.32 2.19 2 14 1.88 1.44 1.49 SI. 76 1.91 1.85 1.54 1.33 1.35 1.40 1.86 1.64 1.58 1.21 .87 .68 .67 $0 71 August .... 75 September 72 .68 69 .72 1920. January .78 July 1.04 August .82 September .70 October .61 .64 47 1921. January .48 Mr. President, an examination of these figures discloses the fact' that cotton, quoted at 31.1 cents in July, 1919, is quoted at 37.4 cents in July, 1920, when a .sharp decline set in, until for January, 1921, cotton was quoted at 11.5 cents, a decline of 69.3 per cent from July, 1920, to January, 3921. It is seen that oats rose from 71 cents for .Tuly, 1919, to $1.04 for July, 1920, and dropped to 46 cents for January, 1921, a de- cline of 55.8 per cent from July, 1920, to January. 1921. It will be noted that wheat rose gradually from $2.22 for July, 1919, to $2.54 for July, 1920, and fell to $1.49 for .January, 102], a decline of 41.4 per cent from July, 1920, to January, 1921. 86469—22174 14 It will be observed that corn fluctuated from S1.76 for July, 1919, to $1.80 for July, 1920, and fell to 67 cents for January, 1921, a decline of 63.9 per cent from July, 1920, to January, 1921. This shocking decline in the produce of American farmers, as well as a less acute decline in the products of our mills, is a familiar story to every intelligent business man of the country. If it can be established that for this period from January 1, 1920, to January .1, 1921, the Federal reserve banks, severally or in the aggregate, contracted their credits and diminished the volume of their note issues, those who charge them with " a drastic and cruel policy of deflation " may justify the accusation with respect to these regional banks. But even in this event they can get no sanction for their assaults upon the Federal Reserve Board, which does not initiate bank credits nor issue currency except upon application of the regional banks. Now, let us see what the facts are. "At this point I shall place in the Record an authenticated statement of paper held under dis- count for member banks of the Federal reserve system as of January 1, 1920, and January 1, 1921 ; likewise a statement of the volume of Federal I'eserve notes in circulation on January 1, 1920, and on January 1, 1921. Paper held under rediscount for memter hanks in each Federal reserve district, also Federal reserve notes in circulation on Jan. 1, 19S0 and ton. Federal reserve bank. Paper lield under dis- count lor member Jan. 1,1920. Jan. 1,1921. Federal reserve notes in circulation- Jan. 1,1920. Jan 1,1921, Boston New York Philadelphia . Cleveland Richmond — Atlanta Chicago St. Louis Minneapolis.. Kansas City.. Dallas San Francisco Total... J18S, 039 790, 803 237, 300 164, 517 114,772 88,i062 267,'639 77,679 73, 857 110, Sso 28,371 73,896 S15.5, 671, 155, 122, 125, 166, 475, 114, 95, 139, 97, 167, t244,093 807,616 237,051 264,738 145,765 155,511 500,139 145, 20S SI, 187 104, 039 74,930 242, 462 $283,780 887,481 278,322 343,951 155, 163 173,408 64.5,395 135,785 79, 493 mi, 573 79,453 272,463 2,215,305 2,637,383 3,008,873 3,336,281 CREDITS INCRKASB AS PEICES DEOP. An analysis of these statistics shoivs that the total amount of rediscountecl paper held by the 12 regional reserve banks on January 1, 1920, loas $2,215,305,000. Instead of deflating their aredits, as has been charged, these banks as of January 1, 1921, had increased their accommodations to member banks in the aggregate to $2,687,393,000, an expansion of $Ji72,088,000 in the 12-month period. If any Senator can controvert this fact, I pause to have him do it. On January 1, 1920. the 73 regional reserve banks had notes in circulation to the amount of $3,008,878,000. Instead of reduc- ing circuluiion, these same banks on January i, 1921, had out- standing circulation aggregating $3,336,281,000, a total expan- S64C0— 22174 15 sion of currency of $3:iS,.'i03,000 for the 12-month period of fall- ino prices. Will any Senator say tliat that is not tnio? TMis it ivill be noted that so far from the truth is the accu- sation that the Federal Reserve Board "tumbled" the prices of farm products by a cruel policij of deflation, it is shoim tliat cluiing the whole petiod of falling prices the Fedcr0, an expansion of nearly $10,000,000, the total expansion In currency and credits being about $20,000,000 in the period of falling prices. The Atlanta Federal Reserve Bank, which is in the cotton belt, as the junior Senator from Georgia [Mr. Hakris] may note, held $88,052,000 of discount paper on January 1, 1920. Was there any deflation at the Atlanta bank? Not a bit-, on January 1, 1921, its rediscounts had about doubled, amounting to $166,- 640,000. Its note issues increased from $155,511,000 on January 1, 1920, to $173,406,000 on January 1, 1921, a total increase in credits granted of $96,483,000 within the period of falling prices. The Chicago Federal Reserve Bank, accommodating the grain and live-stock section of the country, on January 1, 1920, had a volume of $267,639,000 in rediscounts, and during the period of falling prices these credits had increased to $475,.563,000 on Jan- uary 1, 1921. It/, note issues for the same period increased from $500,139,000 to $545,395,000 ; total expansion, $253,178. The St. Louis Federal Reserve Bank, accommodating the grain and live-stock territory, on January 1, 1929, held rediscounts aggregating $77,679,000. These ' credits increased during the period of falling prices to $114,933,000. Its note issues were reduced by the sum of $10,000,000 ; aggregate expansion of the bank's credit about $37,000,000. The Kansas City Federal Reserve Bank, in the grain and stock section, had $110,380,000 rediscounts on January 1, 1920. These credits had expanded to $139,402,000 on January 1, 1921, and its Federal reserve note issue had increased in tlie same period $7,500,000; total expansion, $36,522,000. The Federal reserve bank at Dallas held $28,371,000 in dis- counted paper on January 1, 1920, which amount had been more than trebled on January 1, 1921, totaling $97,392,000. For the same period its note i.ssue increased about $5,000,000, aggregat- ing $79,453,000 ; total expansion, $74,021,000. The San Francisco Federal Reserve Bank, accommodating the fruit, dairy, and other farm industries of the Pacific States, held 86460—22174 17 $73,896,000 of-eligible paper on January 1, 1920. This amount had . more than doubled on January 1, 1921, when It reached $167,598,000. This bank's note issue increased from $242,462,000 to $272,463,000, an increase of more than $93,000,000 in credits and $30,000,000 in the volume of its notes. Mr. President, while this expansion of credits was taking place in the agricultural districts of the United States, the notable fact is disclosed by the official figures that there wfere scarcely any Increases by the banks located in the great indus- trial centers of the country. Senators may easily examine the table and ascertain for themselves the accuracy of this state- ment. Mr. POMERENE. Mr. President The PRESIDING OFFICER. Does the Senator from Vir- ginia yield to the Senator from Ohio? Mr. 5(LASS. I yield. Mr. POMERENE. Is it not true also that during this decline of prices there was an advance by the Federal reserve banks in the Industrial districts to the banks in the other sections of about $267,000,000? Mr. GLASS. The Federal reserve bank of Cleveland, in the Senator's own State, advanced, as I recall — and I will insert in the Record the exact figures — $150,000,000, and perhaps in ex- cess of that, to the Federal reserve banks in the agricultural regions of the country. It did not have to be compelled to do BO by the Federal Reserve Board, but took the action on its own initiative, or perhaps at the suggestion of the Fedel-al Reserve Board. AMAZINQ LIBERALITY OF RESEETB BANKS. I shall anticipate another thought which doubtless arises in the minds of Senators who may desire to know whether strictly agricultural credits, as distinguished from mercantile and in- dustrial credits, were diminished during the period of falling prices. The figures show that loans on agricultural and live- stock paper increased enormiously within the period of price precipitation. At this point I will insert in the Record a table giving the loans on agricultural and live-stock paper, as segre- gated, each month for the entire year of 1920, showing that these loans by the banks in the agricultural sections increased more than fivefold, while prices for agricultural products were fall- ing In a distressing degree : Loans of Federal reserve tanks on agricultural and Uve-stoeJe vaner for 19W. January ?56, 905, 000 February 67, 195, 000 March 74, 665, 000 April 106, 382, 000 May :_ 140, 691, 000 June 168, 038, 000 July 1 203, 520, 000 August 21G, 278, 000 September 224, 424, 000 October 240, 649, OOo November 241, 5G1, 000 . December 246, 940, 000 The figures in some detail show that at the Richmond Federal Reserve Bank loans on this kind of paper increased from $449,000 on January 1, 1920, to $9,251,000 on January 1, 1921. 86469—22174 3 18 TTie loans of the Atlanta Federal Resei-re Bank on pa-per of tills cliai-a:-cter increased from $841,000 on January 1, 1920, t& $16,831,000 on January 1, 1921. Why, Mr. President, I am amazed at the broad liliyerality of this regional reserve bankiHg system in that distressing time. Had I any criticism to make of its admrnistration it would be that it too far transgressed! the requirements of safe bankiHg. The Federal reserre bank at Dallas off January 31, 1920, ha* only $4,450,000 on agricultural and live-staek paper, which was increased to $31,251,000 by Janua;ry 1, 1921. The Kansas City Federal Reserve Bank increased itS: loans, oa this kind of paper from $20,022,000 on January 31, 1920, to $46< 840,000 on January 1, 1^1, dfuFiirg: the peried of faHlnff prices. The Federal reserve bank at S-t. Lours on January 31, 1920, held but $294,000 of agricultural and live-stock paper, which amount by January 1, 1921, had been increased to $4,896,000 during the period of falling^ pi-iees. The Federal reserve bank at Minrreapolia heM on SsamRiryi 81, 1920, only $6,855,000 of agricultural an