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In its judgement, fulfillment of the order would involve violation of the copyright law. Author: Glass, Carter Title: Truth about the Federal reserve system piQQg" [Washington, D.C.] Date: [1 922] ^6-'k^^\-\^-(p .A MASTER NEGATIVE « COLUMBIA UNIVERSITY LIBRARIES PRESERVATION DIVISION BIBLIOGRAPHIC MICROFORM TARGET ORIGINAL MATERIAL AS FILMED - EXISTING BIBLIOGRAPHIC RECORD RESTRICTIONS ON USE: IPW-l"'f ••«■■'■ Glass, Carter, 1858- Truth about the Federal reserve system ... Speech of Hon. Carter Glass of Virginia, in the Senate of the United States, Monday and Tuesday, January 16 and 17, 1922. [Washington, Govt, print, off., 1922] 47 p. 23^". 1. Federal reserve banks. i. Title. ^ A 22-429 Library. U.S. Federal f^ Reserve Board HG2565.1922.G4 ^ • l2i TECHNICAL MICROFORM DATA FILM SIZE: : 35 ptm REDUCTION RATIO; {"h IMAGE PLACEMENT: lA (uk) IB MB DATE FILMED: '-^'^^"^^' INITIALS: wW TRACKING # : iM.g>t4 dills' FILMED BY PRESERVATION RESOURCES, BETHLEHEM, PA. 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System ^ ^ Colttinliia JBnibtv&tv ratl)eCitpof^etD|9ork LIBRARY School of Business TRUTH ABOUT fkC'JFEDERAL r T^i RESERVE SYSTEM" ■ These figures prove beyond all controversy that, instead of deflating credits and currency, the Federal reserve hanks, during the t)eriod of falling prices, enormously expanded hank credits and increased the volume of circulating notes. This is espe- cially true with respect to credits in the agricultural sections of the United States. * * nf * * * * 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 marl^eting 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. « :|c « * * * * If some Senators 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 / OF HON. CARTER GLASS OF -VTR&INIA, IN THE SENATE OF THE UNITED STATES Monday and Tuesday January 16 and 17, 1922 /i 86469—22174 WASHINGTON 1922 DAMAGED PAGE(S) ^-> ^„jO ^13 1.12) SPEECH OF HON. CAETEE GLASS. Monday, January 16, 1922. The Senate had under consideration the bill (S. 2263) to amend the Federal reserve act, approved December 13, lairf. Mr. GLASS. Mr. President, the distinguished Senator from Nebraslia [Mr. Nonius] a while ago said some things with whicn I am heartily in accord, and I well could express the wish that the discussion of the Federal reserve banking system might ^'enerally 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 tiom this Chamber with respect to the Federal reserve banking sys- tem and its administration. Aside from a painful 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 tvpe 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. RESERVE SYSTEM SAVED THE NATION. But Mr President, the misconceptions and misrepresenta- tions to wiiich 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 iuggernaut, crushing the life out of commerce and industry, crfating 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 ^ tern saved their country from inconceivable distress, from irre- medial disaster, these 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 and demolish the instrument of their salvation. I would not liave it imagined, Mr. President, that I purpose to decry fair criticism ; on tlie contrary, it is with m« a constant prayer to be kept on guard against the streali of iconoclasm which lias 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 P'ederal 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 system's defects or render more efficient its administration. WHAT IS THE FEDERAL RESERVE SYSTEM? That wo 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 haa been administered. Having done this, we may determine how true or false 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 express 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 thev have assumed to comment. For one I am not willing that the astonishing state- ments made 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, j.nd 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 p. hurricane from end to end Five times witliin 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 OF DISORDER. The old system had two fundamental defects. One was an inelastic currency; the other a fictitious bank reserve They S6469— 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 tliey repeatedly would tackle the problem of an inelastic currency, which everybody wanted solved, they seemed never in a mood to defy the pow^erful 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 CURRENCY, The national currency was inelastic because based on the bonded indebtedness of tlie United States, rather than upon the sound, liquid business assets of the country. For 50 years we proceeded upon the assumption that the counti-y always needed a volume of currency 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 laore 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. off to the great reserve 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 practicallv 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 assets 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 not needed. The amount is 86469—22174 6 ample when busiiiessis active and only enough wlien business is wwo f? ^'^ ,'" ^^ ^^^^ ^'"''^^''^ ^^ ^^^ o"« «te(l a while ago. ^nere the banks of a given community, with $5,000,000 of liquid commercial assets, could not under the old system, in time of stiess get a dollar of currency on their holdings, because there \vas no source of supply, the same banks, under the Federal reser^^ 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 kEkErve system. Another fundamental defect of the old system was its ficti- tious bank reserve, created by that provision of the national- Dank 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 ot 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 months before the Federal reserve system was put in actual operation, the New York banks alone held $830,000,000 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, comnA^i^Li^^''**^ custodians of these reserve funds had put $-40,000,000 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 talk about the law of supply and demand and pass laws to punish combinations 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 ahd 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 were sent to the money centers for the accommodation of speculators. A PANIC BREEDER. The old system was a rank panic breeder. In periods of greatest bu.siness activity the country was made to suffer desperately for lack of adequate credit facilities. W^hen the prospect was brightest; when men of ambition and energy would press forward in pursuit of prosperity and the hum of industry Avould literally be heard throughout the land, two links m 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 « t ^^a, being unable to issue additional currency, would seek to draw n the "reserve balances from the congested centers, and when the big banks of these centers would, in turn be com- peled to call their loans on stock, thus contracting the credit facdities of "the street," interest rates would quickly jump mountln- hioher and higher, until panic would ensue, banks "ghout the country would stop payments across the counter and consternation would reign where confidence and content- m^'nt srsoon befm-e had prevailed. I have said the losses are Le"coZiSn; and that is so. They affected not alone the financial institutions immediately involved but the mer- chants whose credits were suspended; the industries whose s OPS 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 directe(l agamst this SLk reserve evil. It required courage. It constituted a chal- Teni^ to the dominating financial interests of America, and they accepted the invitatioS to the conflict. It was a memorab e fight in which s(mnd economic principles triumphed so completely that many of the great bankers who seemed once implacable now concede that a tremendous advance has been made m the dfrlcUon of scientific banking, and there is a general concur- rence of belief that the Federal-reserve system saved this Sry from financial convulsion when the World War raged "^ wf correc?edfhis vicious bank-reserve system by establish- ing regional reserve banks and making them instead of private L°,nks1n fhe money centers, the custodians of ^J YnnlTlnsJead of the United States ; by making these regional banks, instead of private correspondent banks, the great rediscount agencies of fhe country ; by requiring these regional banks to minister ?o coiLierce and industry rather than to the sebemes of specu^ lative adventure. Under the old system tbe country banks were subservient to the money centers, for only there could tney resort for recLcount favors. Under the new systein it is no [onger 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 banf Jur'J.ency to meet the ordinary ^;f-'^^-^%-^^^^^^^ or the pay rolls of industry. In the fateful year 191. New York let two European nations at war have '^^^^'^^^'^^.y-^^l^g new svstem enabled the Government to lend $10,000,000,000 abroad S to float $24,000,000,000 at home for w;ar Purposes & the old systeni about $60,000.(KX) "^^asii^^^d the — ^ rediscounts ; under this reserve system one of the smaller re- gional banks exceeds that anrount in a single State. RURAL CREDITS. Not in 50 years had any jarty ivritten a provisioninto the national banl act for as much as one dollar of rural cr:dUs iTthf contrary, 5, the text of the ^'^^^'^ ^^,f.^,!/:Slance o? Treasury, and hy decisions of the courts, evei y semblance of 86469—22174 8 farm credits was sedulously excluded. The Federal reserve system furnishes miHions of dollars of farm-credit facilities j\ot a dollar of the funds of a national hank could be loaned tinder the old system on improved farm lands. Under the Fed- eral reserve act, according to a computation by the late Charles A. Conant, $359MO.O0O are made available for loans on farm mortgages alone having five years to run. In the matter of current rediscounts every rational advantage is r/iven to farm credits over mercantile paper, and I shall show 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 hj'S 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 I a defined territory. They are operated by boards of directors Just as any individual bank is. They are 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 Government of the United States never contributed a dollar to their capital; the taxpayers are not assessed a penny for their maintenance ; they pay the Government 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 Unitcnl 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 DO more without violation of the National or State banking acts. It neetls additional funds with which to make other 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 bank 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 a penny to anybody, or to any concern, or to any corporation. 86469—22174 9 It does not engage in the minutire of banking over the counter. It has not a dollar, and never had a dollar, to loan to anybody. It is a supervisory board. It has nothing to do with, and not necessarilv any knowledge 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 ros^i've bank from discounting millions of dollars if it l.as the eligible paper and wants to do it. * ,..n,«,» Mr. POMEHENE. Will not the Senator go a little fuithei and say it has not done it in the past? Mr. 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 B'ederal reserve bank there, and that it is the duty of the Federal reserve banks in the various districts to loan whenever any person 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 those 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. AVas 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 anv 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 86469—22174 2 \ 10 great section of the country, tli«i, in the judgment of the Federal Keserve Board, five members of which were required to act affirmativelj', one Federal reserve bank might go to the assistance of another Federal reserve banli. That is all there is to that. The distinguished Senator from Ohio [Mr. Pom- erene], who was a conferee with me on the bill, knows I am stating the cat>e exactly. IVIr. 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 snpervisory bodj, 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 tlie 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 autliority 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 their 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 W^ashington in the chair). Does the Senator yield to the Senator from Georgia ? Mr. GLASS. I do. Mr. W\\TSON of Georgia. Mr. President, I saw in the Wash- ington papers yesterday a statement issued by the Federal Re- serve Board whicli 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 Fetleral 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 cei'tain 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 Yir- 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. 80469— 22174 11 Mr. JONES of New Mexico. I do not understand 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 Wasliington, does not the Senator believe that any reconunenda- 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 eflCect operate in the same way that it would if the board had the direct power 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 conununity 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 Federal 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 fix 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 tlie problem untouched. Mr. FLETCHER: I did not know that the same question had been presented. It seems to me they do not need the power to control circulation as long as they have the power to control the rate of rediscount. Mr. GLASS. Of course, the power to fix the rate of redis- comit is a fundamental ba (iking power of the system. Mr. JONES of New Mes'ico. Mr. President, I am sorry to interrupt the Senator, but I saw the statement made by peo- ple who were supposed to know and be advised about it, that the Federal Reserve Board 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 authoritative source that such a thing had been done, and I should like 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 time did what Senafor after Senator upon this floor did. In one of Tts 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 864G9— 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 ilollar of Federal currency. Mr. POMEKENE. 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 that ordinarily two-thirds can control one-third. Mr GLASS. There has never been any suggestion that the one-third were in any degree out of sympathy with the agricul- tural, commercial, or industrial requirements of their particular • region. It is not natural to suppose they ever are. They are business men of character and reputation. Identitied with the particular region. Why should they wish it harm? These powers, with the 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. BECKLE.SS CHAnr.B OF DBFI.ATION. Tet, 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 perfeiwid 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 Resen^e Board at Washington, without ianctlon of law, ordered Feileral reserve banks, especially those located in the 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 ehallcnge the production here or elsewhere of any ftarticle of ei'iden-e of any such action by 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 with- 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 whom, then, Mr. President, was this wicked policv of defla- tion of the cretUts 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 •f 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 requirements of 86469—22174 13 every interest in the territory, agricultural, commercir.: 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 teas deflation of either regional reserve hank credits or any diminution of Federal reserve currency for the period of the appalling drop in prices of agricultural products. INCONTUOVERTIBLE FACTS AND riGURES. I hope Senators will take particular note of that declaration and convict me here, if tl\ey can, of any inaccuracy that apper- tains to it. Rhetoric, whether the mo ivc of it be harmless or vile, is one thing. A cold, indisputable fact is something dif- ferent. In all this fanfare of prejudice and vituperation there has not been given one authenticated fact or flgure 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 Record 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 : 1919. July August September October November December 1920. January July...* August September October November December 1921. Jauuary , Cotton. $C. 311 .325 .303 .313 .365 .357 .359 .374 .368 .311 .255 .194 .14 .115 Wheat. $2.22 2.17 2.06 2.10 2.13 2.15 2.32 2.54 2.32 2.19 2 14 1.88 1.44 1.49 Corn. fl.76 1.91 1.85 1.54 1.33 1.35 1.40 1.86 1.64 L56 1.21 .87 .68 Oats. .67 JO. 71 .75 .72 .68 69 .72 .78 1.04 .82 .70 .61 .54 47 .46 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, 1921. It is seen that oats rose from 71 cents for July, 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, 1921, a decline of 41.4 per cent from July, 1920, to January. 1921. 86460—22174 u It win be observed that com fluetnated from $1.T6 for July, 1919, to $1.86 for July, 1920, and fell to 67 cents for January, 1921, a decline of 63.9 per cent from July, 1920, to Januarys 1921. This shocking decline in tlie produce of American farmers, a« well as a less acute decline in, th« products of our milk, is a familiar story to every intelligent business man of the country. If it can be established that for this period from Januai*y 1, 1920. to January 1, 1921, tlie 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 tlieir assaults upon the Federal Reserve Board, which does not initiate bank credits nor issue currency except upon application of the regional banlvS. Now, let us see what the facts are. At this point I shall place in the Recokd an authenticat^ed statement of paper held under dis- count for member banks of the Federal reser\"e system as of January 1, 1920, and January 1, 1921 ; likewise a statement of the volume of Federal reserve notes in circulation on January 1, 1920, and on January 1, 1921. Peper held under rediscount for memher haithsi in etteh Fetieml reserve district, aUo Federal reserve notea in circulation on Jan. i, 1920 a»sident The PRESIDING OFFICER. Does the Senator from Vir- ginia yield to the Senator from Alabama? Mr. GLASS. I yii^d. Mr. HEFLIN. I do not want the Senator to got the impres- sion tliJit I a.gree to a good many of those thin.c;s. Mr. GLASS. Oh, I do not set the impression that the Sen- ator from Alabama asi"ees with a single one of those things. Mr. IIEFLIN. Recause I expect to reply to the Senator, and I want him to know that I disagree with him on several of these propositions. Mr. GLASS. I would have assumed that without any state- ment from the Senator. INIr. HEFLIN. The Senator compliments my friendship for the people of the country. ]\Ir. GLASS. Oh, :Mr. President, no friendship can intervene where a great and vital interest of the country is concerned. I believi' it was the Duke of (Uiise who once was bitterly repri- manded by the Archbishop of Paris for exhibiting some degree of acerbity toward a friend. The prelate asked how he could reconcile his jittitude with his professions as a churchman, and the Duke of Guise responded, " I confess, your grace, that Christ taught us to forgive our enemies; but I think you will search Scripture in vain to find that he anywhere admonished us to forgive our friends." That is my reply to the Senator from Alabama when he appeals to. friendship to avert criticism of his misi-epresentation of the Federal Reserve Board here in Wash- ington. Mr. HEFLIN. Mr. President The PRESIDING ()FFI(U^]R. Does the Senator from Vir- ginia yield to the Senator from Alabama? Uv. GLASS. I yield., Mr. HEFLIN. The Senjitor from Virginia misunderstood me. I said that he was complimenting my friendship for the people af the country and my desire to have a fair deal for them, and not my friendship for the Senator, which is great ; we are per- gonal friends ; but I am not appealing to that. I will take care of the Senator's arguments along that line. Mr. GLASS. Oh, I do not doubt that. It is significant, I\Ir. President — and I call the attention of my distinguished fiiend from North Carolina [Mr. Overman] to the fact — that these increased facilities were applied for and granted at the increased rate of rediscount put into effect by the regional reserve banks and. approved by the Federal Reserve Board. This tremendous expansion of Federal reserve credits, aggregating nearly $1,000,000,000 within the 12-month period of falling prices, was not managed except- by an alarming encroach- 864G9— 22174 IC ment upon the gold reserves of the regional banks, one of them, fts I reca'U, barely eseaping the humiliating if not disastrous experience of having its gold reserve wiped out of existence ; it had to resort to the expedient of largely rediscounting with another Federal reserve bank at the North. LOANS TO FARMERS. Let me anticipate here a thought which may have place in the minds of some Senators. Doubtless they will want to know in what sections of the country these extensions of credit pre- vailed, in order to determine whether one class of citizens was discriminated against or another class granted peculiar privi- leges by the Federal reserve banks. We shall see : The regional bank at Richmond accommodates the grain fruit, tobacco, and cotton portions of the fifth district. Were Its credits deflated or its note issues reduced during the period of falling prices? Not at all; both credits and circulation were extended. On January 1, 1920, the Richmond Federal Reserve Bank held discounted paper to the amount of $114,772,000. On January 1, 1921, its rediscounts had been increased to Sl'^S- 473,000, or more than $10,000,000. On Januarv 1, 19*^0 the Richmond bank's note issue amounted to $145,765,000; on Janu- ary 1, 1921, the bank's note issue had been increased to $155 - 169 000, an expansion of nearly $10,000,000, the total expansion m 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. Harris] may note, held $88,052,(XK) of discount paper on January 1, 1920 Was there any deflation at the Atlanta bank? Not a bit ; on January I'li^^' ^^^ rediscounts had about doubled, amounting to $166,- b40,000. Its note issues increased from $155,511,000 on January 1, 1920, to $173,406.0(X) 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 $000,139,000 to $545,395,000; total expansion, $253,178. The St. Louis Federal Reserve Bank, accommodating the grain and live-stock territory, on January 1, 1020, held rediscounts aggregating $77,079,000. 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 gi'ain and stock section, had $110,380,000 rediscounts on Januarv 1, 1920. These credits had expandefl to $139,402,000 on Januarv 1, 1921, and Its Federal reserve note issue had increased in the same period $7,500,000; total expansion, $36,522,000. The Federal res-erve bank at Dallns 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 issue increa.sed about $5,000,000, aggregat- ing $79,453,000 ; total expan^Hon, $74,021,000. The San Francisco Federal Reserve Bank, accommodating the fruit, dairy, and other farm industries of the Pacific States, held 8G4C0— 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 were 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 PRP:]SIDING OFFICER. Does the Senator from Vir- ginia yield to the Senator from Ohio? Mr. GLASS. 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 so by the Federal Reserve Board, but took the action on its own initiative, or perhaps at the suggestion of the Federal Reserve Board. AMAZING LIBERALITY OP RESERTH 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 enormously 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 banks on agricultural and livc-stocJc paper for " 1920. January ^ ?oG. 905, 000 f'ebruary 67, 195, 000 March _. 74, 665, 000 Anril - 106, 382, 000 May ~ 140,691,000 June""- 16S, 038. 000 July 202, 520, 000 August - 210, 278, 000 Sentember 224, 424, 000 October !_:::: 240, g49, 000 November 241, 501, 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. 86460-22174 3 18 The loans of the Atlanta Fefleral Reserve? Bank on paper of this character increased from $841,000 on January l, 1920, to $1G,S31.0CK) on January 1, 1921. Why, Mr. President, I am amazed at the broad liberality ot this regional reserve banking system in that distressing time. ■. Had I any criticism to make of its administration it would be I that It too far transgressed the requireinents of safe banking. ; The Federal reserve bank at Dallas on January 31, 1920, had only $4,450,000 on agricultural and live-stock paper, which was increased to $31,251,000 by January 1, 1921. The Kansas City Federal lieserve Bank increased its loans on this kind of paper from $20,022,000 on January 31, 1920, to $46,- 840,000 on January 1, 1921, during the period of falling prices. The Fe,0(K) in that period. What, then, becomes of this charge of *' cruel and wicked and murderous " deflation of farm credits by the Federal reserve banks under orders from the Federal Reserve Board? Mr. President, any self-respecting board of directors of any one of these Federal reserve banks would doubtless resent an order from the Federal Reserve Board to abandon its redis- counting operations. Tiie board has no lawful authority to issue any such order. These rediscounts frequently take place without the immediate knowledge or consent of the Federal Reserve Board. It is only when currency is desired, when ap- plication is made for the Issuance of Federal reserve notes, or when a regional bank depletes its gold reserve, that the inti- mate knowledge and supervisory power of the Federal Reserve Board is brought into effect. What, then, becomes of the charge of "murderous deflation" when it is examined? It takes its place in the limbo of dis- carded fiction. For my part, I fervently thank God that I have no responsibility for its inception or its propagation or tlie dis- semination of its vile odors. No one will ever be able to com- pute the amount of damage done by this misrepresefatation and the harmful use made of it by erupting politicians. The truth in one sentence is that falling prices caused the deflation of credits and currency, such as tee have tvitnessed since January of last year, and not deflation of credits the fall in prices, 8G4C9— 22174 21 WHY PRICES TUMBLED. Mr. President, the crash in commodity prices in the summer and fall of 1920 is not a hidden mystery. It did not require a Joint Commission of Inquiry to be ascertained, although I am profoundly thankful that such a commission instituted a thorough investigation of the subject. The storm was nievitable ; discerning men saw it brewing and were prepared when it burst It was not peculiar to this country; its sweep was through the whole world. First, it tore asunder economic con- ditions in Japan. The disaster there almost instantly reflected itself by the break in the silk market in March of 1920. The next manifestation of distress was in May, when the wool industrv utterly collapsed and we had presented the phenomeiia of wooi cheaper than cotton. Then came the break in hides and leather; then in sugar, wheat, cotton, corn, oats—all con- spiring to create alarm and to occasion distress throughout the country. ^ , ,^„ Did deflation of credits by the Federal reserve banks, on older of the Federal Reserve Board, cause the crisis in Japan? Did a restriction of credit ciiuse the violent prostration of the wool industry? l>hl the drop in sugar, whidi threatened a mora- torium in Cuba and which came not far from wrecking one of the great banking institutions of this country because of a satiety of credit, have its origin in any policy of the Federal reserve banking system? If not, how may it rationally be contended that a restriction of credit, whicli never took place^, by an .order which was never issued, is responsible for the crash in prices of other commodities? Mr. President, we are accustomed to get periodically more or less definite estimates of crop production, and then think we have envisaged the entire pi'oblem of prices for a given time. As a matter of fact, we have only half of the picture. It may be told with a reasonable degree of certainty what will be the supply, but nobodv can ever tell what will be the demand for the products of farm or factory. Senators know perfectly well that all continental Europe, as well as the Near and Far East, has been embroiled in war and plagued by economic disasters since the armistice was proclaimed ; so that our foreign markets were dislocated. Moreover, the peak of extortionate prices in this country had all but pierced the cloutls in the early summer of 1920, exceed- ing actually the highest point of the war period. I pause to remark that we are a peculiar people in America. For months and months Senators and newspapers throughout the country were denouncing profiteering in the prices of com- modities and of all conceivable articles of commerce. They were eager to put the profiteers in jail. They wanted to impeach the Attorney General of the United States for not quickly putting them in jail. Then, when the drop came, these impatient souls denounced the Federal Reserve Board. THE SENATE ORDERED DEFLATION. Mr. McLEAN. I remind the Senator that in May, 1920, we passed a resolution for an investigatioii of the cause of high prices, and at that time condemned the Federal Reserve Board for not raising its rediscount rate. Mr. GLASS. Yes; and I shall show that you practically undertook, without any authority of law, to compel the Fed- 86469—22174 22 eral Reserve Board to raise its rediseonnt rate. The Senate voted for a reHolution unnnitnon'dff, offered hy the diatinguished Senator from Montana [Mr. Myeu.s], demanding to knoic v)hat the Federal Reserve Board had done, or tvhat it purposed to do, to deflate the eredits and enrreney of tJtc country. Senators are maklner me anticipate my speecli. [At this point Mr. Glass yielded the floor for the day.] Tuesday, January 17, 1922. Mr. GLASS. Mr. President, when the Senate recessed on yesterday 1 had covered those phases of the problem under dis- cussion Vhicli rehited particularly to the question of alleged deflation of credits and currency in this countiy and was undei'- taking to describe the causes and course of the fall iu prices. CONSLMKItS ON STRIKE. Tlie peak of extortionate prices in the United States, as I said before, had all but pierced the clouds in the early summer of 1920, exceedin.i? actually the highest point of the war period, and the i*eople of the United States had become tired of being profiteered and the people of Europe could no longer pay the prices. At home and abroad the people in their righteous indignation went on strike, as it were, against the protiteers. That vitally affected the situation, because when tlie people once began to do without luxuries, by the very processes of psychology they began to economize in the more necessary things of life. The demand for all products was thus enor- mously diminished. Then railroad rates were skyrocketed, not alone putting a tax on the things which the farmer must trans- port to market, but likewise on everything which the farmer was compelled to bring back to the farm. Building was reduced to the minimum, road construction was stopped, furnaces from one end of the country to the other were banked, unemployment to a frightful extent ensued ; and all tliis, Mr. President, for no lack of credit facilities, but for lack of markets in which to sell the products of farm and mill and factory. There is the pic- ture! Why not tell the farmer and everybody else the truth about the thing? Why invent the wretched fiction about defla- tion of bank credits, and by this false predicate seek to impair the usefulness and ultimately to destroy a banking system that preserved this country from cliaos and that, if let alone, will restore the flnancial equilibrium of tlie world, if it be uot already beyond restoration? WHi" FAKMKUS SUFFERED FIRST. The consequences of this crash in commodity prices were more pitiful to the American farjner, because the pelting storm found him defenseless and without shelter. The factory men and. mercantile ijiterests, both jobbers and retailers, have better insurance against sudden collapse. They are more compactly organized; they may longer resist falling prices than the farmer. I do not charge that tiiey are more acquisitive; but at least they do not And themselves obliged to accept their losses as promptly as the farmer. ThLs Ls why the farmer was hit first, and hit hardest and sulfered most. 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. Presi- dent, not to be the plaything or the instrument of designing poli- ticians, but organize for an intelligent investigation and pursuit 86iGy— 22174 I 23 of economics ; organize for a cooperative marketing of his prod- uct ; organize, if it may seem desirable, for the cooperative pur- chase of his requirements; organize for an intelligent under- standing of the source and volume of demand for farm products. I commend to the consideration of every intelligent American farmer the report of the Joint Commission of Inquiry upon the Agricultural Crisis and Its Causes; and to indicate that I have not to-day in anywise misstated the situation, I will here quote a paragraph to be found on page 17 from the report in question on — THE BREAK IN TRICES. The crisis was not confined to this country. The avalanche of de- clining prices and its attending hardships, sacrifices, and losses involved the whole world. It began in distant Japan with the break in the silk market and the Chinese boycott of Japanese goods. It traveled the circle of the Far East, Australia, India. Java, Lngland, ^*,r|V^ce, Italy, the whole of Europe, South America, Canada, and the Lnlted btates. It embraced all countries and all industries, though not to the same extent or in the same way. Mr President, the difiiculties of the farmers of the United States can not be cured by listening to the sickening rhetoric of politicians or piX)fessional agitators, llecurrent distress can not be averted by indefensible assaults upon the integrity of the Federal reserve system or defamatory accusations against the clean courageous, trained men who are engaged in its adminis- tration The farmers of the country can be helped in two prac- tical ways, one of which involves the strengthening rather than impairment of the Federal reserve system itself. NGN MEMBER BANKERS POWERLESS. I draw the attention of Senators from the agricultural sec- tions of the country to the fact that a large part of the banking power of their States is wholly independent of the Federal reserve banking system and refuses to avail itself of the tre- mendous advantages of the system. In the South 42 per cent of the banking power of that entire section is lodged with nonmem- ber banks, institutions which had no access in the recent crisis to the currency vaults or credit facilities of the Federal reserve banks They were powerless to help the situation because they could 'not avail themselves of the rediscount privileges of this great banking institution. „, , , , -,". , , * Very likely, Mr. President, most of the State banks did what they could in the circumstances ; possibly they responded to the limit of their facilities to the demand of tlie agricultural inter- ests for bank credit ; but they were not members of the Federal reserve banking system and had no access to its advantages. In the Middle Western States 39 per cent of the banking DoWer of all that region is lodged with banks which do not belong to the Federal reserve system ; they likewise were power- less to help in this crisis which so afflicted not only the agricul- tural interests but every interest in this country. In the far W^estern States, the great grain-growing section, 50 per cent of the banking power of that region is lodged m banks that are not members of the Federal reserve system ; they are powerless, beyond their own restricted resources, to aid in any national crisis. And in the Pacific States 36 per cent of the banking power is lodged in banks outside the Federal reserve system. These nonmember banks have total resources amount- ing to $19,144,393,000, whicli were availed of in that crisis to 86469—22174 24 25 ©nly a limited extent because these bank* were not members of the Federal reserve system. A STABTLING FACT, If some Senators will {?o home and talk sense to bankers who remain ontside the pale of protection, instead of talking nonsense to farmers and arousing prejudice against the Federal reserro banking system, which has afforded them protection, something worth while will be accomplished. Why, Mr. President, on August 22, 1007, when that great financial crash which started in New York traversed this country, the total rediscounts and bills payable of all national banks in the United States was but $59,177,000. I ask Senators particularly to note this fact: All the rediscounts and bills payable of all the national banks of the United States on the 22d day of August, 1907, under the old bank system, were but $59,177,000, whereas in the month of October, 1020, in the midst of falling prices, the Federal Re- serve Bank of Kansas City alone advanced the member banks of the sinfjle afjrieultnral State of Nebraska over $38,000,000, which was more than half the entire amount of rediscounts and bills payable of all the national banks of the United States when tlie great crash came In 1907. The Federal reserve bank at Richmond during the recent crisis loaned the member banks of the single State of South Carolina $21,105,000, nearly as much as one-half of the total rediscounts and bills payable of all the national banks in the United States under the old banking system in the panic of 1907. And so I might go from State to State pointing out the vast advantages of the system, the incomparable aid rendered by It, and yet Senators, ignoring these great achievements, persist in misrepresenting the operations of this institution to the farm- ers of the country. BANKS ALARMINCLY EXTENDED. The distinguished senior Senator from South Carolina [Mr. Smith], who is by no means a stranger to this system or tile system to the Senator, who had something to do with its fabri- cation, and who, I am glad to be told, has renounced his sug- gestion to legislate out of olllce the Governor of the Federal Re- serve Board Mr. S.AIITH. Mr. President, will the Senator allow me to make a statement right there? Mr. GLASS. I yield. IVrr. SMITH. It was a coincidence that at that time section 2 of the proposed bill that I introduced under its terms would have had the elfect of legislating the governor of the system out of office. Mr. GLASS. I accept that statement. I was merely re- ferring to the effect of the proposed legislation. Mr. SMITH. I understand ; but, inasmuch as the impres- sion has gone abroad that that was the object of the legisla- tion I want to state — and I know the Senator from Virginia is glad to correct that impression — that it was entirely errone- ous. Mr. GLASS. Absolutely so. Mr. SMITH. When that bill was drafted none of us, includ- ing myself who drafted it, had any knowledge whatever as to whom it would effect. We merely provided that the first va- cancy should be availed of because we vvantid to expedite the 8G469— 22174 I presence on the board of a man identified with the agricultural inteiests. Mr. GLASS. I accept that statement fully, Mr. President; but I fear my friend may entertain a misconception as to what was done or left undone in South Carolina by the Federal re- serve bank of that district in the unprecedented crisis of 1920, I do not know and do not undertake to say anything about the credit facilities afforded by nonmember banks of South Caro- lina ; but the figures show there was scarcely a member bank in that great cotton State which was not amazingly expanded be- yond its basic line of credit with the Federal reserve bank at Richmond during the entire period of falling prices. I have the list on my desk here now, I have the figures from other States. There were not many borrowing banks in the Stale of the emi- nent Senator from Alabama, the basic credit of which was not tremendously exceeded. There were some banks fh Alabama — national banks, member banks — entitled to a basic line of credit of $8,000,000 in that period which did not borrow one dollar from the Federal reserve bank in order to assist the farmers of that State and section? Wliy does not the Senator go home and assail these local banks, not one of which borrowed as much as one dollar from the Federal reserve banks, although they were entitled to a basic line of credit of $8,000,000 ; and had they fol- lowed the example of banks in Alabama and other States and transcended their basic line ten times they might have bor- ro\^ed many times $8,000,000 from the Federal reserve bank in order to help their farmers, whereas they did not borrow a dime. Why did they not borrow? The rediscount rate at that time was but G per cent. They had a margin of 2 per cent. Why did they not borrow if it would help the farmer? Why come here and denounce the Federal reserve banking system when the trouble, if there was really a deficiency of credit, was inherent at home? Mr. President, to give the laymen in the Senate — one of wliora I am — a concrete illustration of how the Federal reserve banks went to the rescue of business in the cotton territory of the United States, let me present some facts and figures : Here is a South Carolina national bank entitled under tho rule of basic credit to borrow $29,000 from the Federal reserve bank at Richmond. On June 30, 1920, when cotton Avas about at its peak, it was borrowing $74,000, until by progressive stages is was borrowing on June 30, 1921, $212,000 from the Federal reserve bank. Think of it! It was entitled to borrow as its fair quota, $29,000, and it borrowed $212,000. Here is another bank AAiiich was entitlod to borrow $37,000 from the Federal reserve bank at Richmond. On June 30, 1920, it was borrowing $91,000 when cotton was highest. On a falling market it man- aged to increase its loans at the Federal reserve bank to $200,000. Here is another little bank with a basic line of credit at the Federal reserve bank of $23,000 in that period of stress ; it bor- rowed from tlie reserve system $111,000 ; and another little bank, entitled to borrow $46,000, was loaned $235,000 by the Federal reserve bank at Richmond. These furnish a fair example of the operations of the smaller banks of this State. Here is a larger bank, entitled to borrow $578,000 from its Federal reserve bank ; it borrowed $1,407,000. Here is another entitled to borrow $468,000 as its quota of 8G469— 22174 26 cre(lit5? nt the Federal reserve bank; to meet emergency it was loaned $2,622,000. All of the member banks combined of South Carolina were entitled to borrow $7,699,000; they borrowed $21,105,000 during tlie period of falling prices. Mr. POMERENE. Mr. President, does the Senator mean by that statement that that amount of credits were out at one time? Mr. GLASS. I do ; on each given date. Mr. POMERENE. And I assume that that statement applies to each of the other illustrations which the Senator has given? Mr. GLASS. It does. Mr. DIAL. Mr. President, do tliese figures apply to condi- tions generally over the country or simply to these particular States or regions? Mr. GLASS. They apply to the country; but the charge here has been that there was discrimination in the agricul- tural sections, and I am undertaking to show that that is ut- terly groundless. CURSK OF TOO ^lUCH CREDIT. ]Mr. President, not infrequently 'too much credit is a worse curse than too little. It allures individuals and corporations into the morass of financial disaster. Attempts to make too much money frequently result in losing all one has. Of course, some of us can see now what we could not see 18 months ago ; but -the one thing that clearly stands out is the fact that, had the banks of the country curtailed loans just before the drop in prices, as is mistakenly charged, instead of lavishly extending loans, as authenticated figures attest, thousands of people who are now in distress would be happy and content. For the good of borrowers themselves, the member banks and the Faleral reserve banks too long delayed liquidation. They loaned too much money rather than too little; at least, that would be my criticism of their administration. NEW SYSTEM NEEDED. I quite agree, ^Ir. President, in the next place, that there is need in tliis country for a strictly rural-credits system, adapted to the peculiar wants and processes of the agricultural com- munities. Such a system conjoined with the existing Federal land-bank system, extending long-time seasonal credits, em- bracing crop preparation and production as well as orderly and advantageous marketing, would be of inestimable value to the farmers of the United States. This matter was being meditated when the advent of war diverteer bauks of the Federal resei've system to meet the existing iuflatiou of 86409—22174 >- -^^ 28 currency and credits and consequent high prices, and what further steps it purposes to take or recommend to mobilize credits in order to move the 1920 crop. The Treasury experts, advised by some of the most eminent banljers of the country, held the view that any appreciable in- crease in the rediscount rate of the Federal reserve banks would accentuate the difliculties of floating the Victory loans and greatly impede the certificate borrowings of the Govern- ment, amounting to billions of dollars. My personal view also was that speculative loans should first be curtailed before we began assessing higher interest charges against legitimate commerce. All these things were conspicuously discussed in the public press, particularly in the financial journals of the country. But the various warnings went unheeded; speculation flourished; credits in greater degree expanded. The country was aghast at the range of prices and the high cost of living. England was in worse plight. The Bank of England advanced its discount rate to 6 per cent and in January, 1920, the larger Federal reserve banks, soon followed by other regional banks, ad- vanced the rate here to 6 and later to 7 per cent. Did these advances in the rediscount rates serve as a warning that a day of reckoning soon must come? Did this action by the Federal reserve banks, approved by the Federal Reserve Board, and practically urged by resolutions of Senate and House months before, result in tightening the reins? One only has to examine the figures I have presented here to see that the inflation of credits still persisted; that the volume of the currency con- tinued to increase; that even after commodity prices began to topple the Federal reserve banks made a desperate effort to impede the velocity of the fall. From January 1, 1920, to Janu- ary 1, 1921, these reserve banks expanded loans to member banks in an amount approaching $1,000,000,000. Yet, Mr. Presi- dent, in the very face of this indisputable evidence, Senators- berate the Federal Reserve Board and the Federal reserve banks with the utterly false charge of ordering and executing a policy of " murderous deflation." Such talk is wicked mummery. PASSING THE BUCK. Mr. President, Senators may wonder how this misconcep- tion got abroad about " the deflation of credits and currency." One way in which it got abroad was the willingness, first, of politicians, and then of local banks, to *' pass the buck " — I believe that is the phrase — to the Federal Reserve Board and banks. Agitators advised the cotton interests of the South to hold their cotton for 50 cents. They held it; and instead of get- ting 50 cents it fell to 11 cents. When the slump came and dis- aster ensued, these evil advisers got from under their mistaken advice by " laying it on the Federal Reserve Board." I have in mind now one of these agitators who advised the cotton plant- ers of the South to hold their cotton for 50 cents. He has been maligning the Federal Reserve Board, although his own bank was extended nearly 300 per cent above its proper quota. Of course, he tells his victims that " the Federal Reserve Board did it." In the fall of 1920, campaigning in Virginia, I learned that a bank in one of the counties where I was making a speech had refused credits to its customers and had told these patrons that it refused them credit because it " could not get any redis- 86469—22174 29 X!Ounts at tlie Federal reserve bank at Richmond.** It was a nonmember bank. It had no right to rediscounts at the Federal reserve bank. It had loaned $96,000 for the purchase of auto- mobiles, and had no more money to loan ; and, not wanting to admit its plight, it told its borrowers it could not loan monoy because the Federal reserve bank — of which it was not a mem- ber — would not rediscount its paper! I have here a form of notice sent out by a bank in an agri- cultural district to many of its borrowers, which reads as fol- lows : Your note for $ falls due — — . ^ ^ . ,. . , .^ Our Federal Reserve Bank owns this note, having rechscountcd It for us. As it has boon renewed several times, they are insisting on a pnyment. It is absolutely necessary to arrange this note on the day of its maturity. Yours, truly, ~'r.- There was not a word of truth in that; and as soon as the Federal Reserve Board found that notices of this sort were being disseminated throughout that district by member banks it issued an order exposing the deception and expostulating against it. I have here a letter from a business man of Tennessee, writ- ten to the governor of the Federal Reserve Board, saying : On September 20 I offered to the Farmers' Bank of $2,250 of third and fourth Liberty loan bonds, as collateral for a 30 day $1,000 loan ; this they refused to grant, because they claimed they did not have'tlie money and could not get it. And he wants to know "why the Federal resei-ve bank is restricting credits in that way." Gov. Harding wrote him, in acknowledgment of the letter, saying: While the Federal Reserve Board can not compel a Federal reserve bank to rediscount paper for a member bank which, in the opinion of its discount committee, Is undesirable, I feel certain that the Federal reserve bank would cheerfully have rediscountod your note for the Farmers' National Bank with the bonds as security had it been offered. Of course, it would have done it. That sort of deception by banks that do not desire to make loans has largely produced the impression throughout the country to which I have referred. Konmember banks finding an excuse for not accommodating their patrons, and member banks not having the courage to refuse a loan, "pass the buck" to the Federal reserve banks of the country. THE CHARGE OP " EXTOUTION." A great clatter has been raised about the alleged " extor- tionate" interest charges of the Federal reserve banks; Init, as in other respects, a half truth only is told. The real facts are conveniently suppressed. The " progressive " interest charge was not a feature of the original reserve act; it was put in about three years ago by Congress. It was intended by Congre'=5S as a penal provision. It was not designed to aid borrov.ing banks; it was intended to penalize any bank that should persist in borrowing more than its fair quota of the funds of a reserve bank, thereby depriving some other member bank of its fair basic line. If Congress did not want that done it should not have authorized it to be done. But, Mr. President, tliis " i>rogressive " interest charge was put into effect by but 4 of the 12 reserve banks. By these it was applied to comparatively few borrowing banks in their districts. These banks were incorrigible offenders against every require- 86469—22174 30 ment of cautious and safe banking. They were perpetually ex- ceeding their allotted line of credits ; they were incessantly ap- propriating more than their fair share of reserve bank funds. But the assailants of the reserve system suppress these facts. They fail also to tell those whom they mislead that the average rediscount rate charged by the Federal reserve banks against the great body of borrowing banks in the four districts where ''progressive" rates were very occasionally applied was much below the rate charged by these borrowing banks against their own customers. Take the case of the one little bank in the Atlanta district, the evil fate of which has so lustily been bewailed here and elsewhere. This bank was far below its lawful reserve for 11 months out of 12, It exceeded its bafiic line of credit nearly ten times. Ninety per cent of its capital teas loaned on notes indorsed by its president. It seems to have outraged every rule of sound banking. It was penalized under the act of Congress in order to restrain its excesses and to compel it to get back in line. It could not have complained fairly had it been put in the hands of a receiver. When it had been forced to abate its excesses the amount of the " progressive " rate was returned to it. I doubt if this should have been done. But why pick out a few rare and extreme cases of offending banks like this and make it appear that the Federal reserve system is " extortionate," when its general interest rate to the great multitude of borrowing banks was not only moderate but far below the average rate charged business men by these borrowing banks? Why judge the system by the discipline administered to a few banks which persisted' in " running amuck" of sane banking practices, and ignore the generous and beneficent treatment accorded the many thousands of banks throughout the Nation? Does not this very thing ex- hibit the enemies of the system in their nakedness? What evil motive could a reserve bank have to charge excessive rates when in no event can it pay its stockholding banks above 6 per cent in dividends? What unworthy prompting could the Reserve Board have in sanctioning excessive charges, when the board itself derives no single penny of profit from any trans- actions of the banks? Is not the utter foolishness of such tal^ deplorable? A DESIflNINO PHRASB. It has been asserted by Senators that if the Federal reserve banks had extended as great a percentage of credits to the " country " banks as were extended to the nu'mber banks in the great central reserve cities — New York, Chicago, and St. Louis — there would have been a billion dollars more to loan on agri- cultural products. Mr. President, already I have pointed out that credit was not the urgent need of any rationally operated business interest in this country. The crying need was markets, not greater banking facilities. But let nie expose the specious nature of this play upon the phrase "country banks," the evi- dent pui-pose being to produce the impression that " country " banks necessarily engage in financing agricultural products. As a matter of fact, every national bank in New England, out- side of the city of Boston, is classed as a " country " bank. Every bank in the great State of New York, outside New York City, Albany, and Buffalo is classed as a " country " bank ; and until recently all the banks in the great industrial city of Buf- 86409—22174 u falo were " country " banks. Every bank in the State of New Jersey is a " country " bank, and every bank in the great in- dustrial State of Pennsylvania outside Philadelphia and Pitts- burgh is a " country " bank. And so nearly all national banka In the industrial State of Ohio are " country " banks and all in Illinois outside Chicago and Peoria and in Missouri outside St. Louis and Kansas City. Most of these banks are engaged in financing industrial enterprises and not agricultural products especially. Had they borrowed greater sums from their Fed- eral reserve banks there is no assurance, indeed it is incredible to believe, tliat such funds would have been devoted to the use of agriculture. Senators who use this insinuating argument fail to state that, because of their larger reserve requirements member banks in these great central reserve cities are obliged to borrow about twice as much to keep up their 13 per cent re- serve as a country bank has to borrow to keep up its less than 7 per cent reserve. These Senators, with design, simply invoke the tyranny of a phrase to make it appear that farmers are the victims of discrimination, when facts and figures show it is not true. PRINTING PRESS ECONOMICS. Mr. President, there is one other aspect of this subject to which I think allusion ought to be made. I shall do that very briefly, because I do not want to deprive other Sena- tors of an opportunity to discuss this problem in detail and to i-eply to anything I have said. If, as it may be, I have said anything that is inaccurate, I want to be corrected. If I have drawn any deductions which are not warranted, I want them exposed. It has been said In some quarters that the Federal Reserve Board might have disregarded the reserve requirements of the Federal reserve bank act, and by doing so have issued other billions of dollars of notes and credits; and that is true. That is what England did, Mr. President, and her foreign exchange became dislocated, her trade for a long time was gravely im- paired, and in some directions destroyed; that is what France did, and the currency of the nation was debased ; that is what Germany did and is doing to-day, and the mark is worth hardly a half cent. That is the doctrine of Lenin — the printing-press doctrine — and look at the plight of Russia, where it takes a mil- lion rubles to buy 10 pounds of butter ! At that rate it would take a traiuload of printing-press " money " to buy a btile of cotton. Yes, the Federal Reserve Board might have pursue,000. So that in Boston, as in New York, officials of the Federal reserve bank, doing vastljr more business than any member bank, in- deed vastly more business than many member baidis combined, receive very much smaller salaries than many individual banks pay to their officers. 8C4G9— 22174 The Federal Reserve Bank of Philadelphia pays its governor $25,000. One individual member bank in Philadelphia pays its president $80,000; one other pays $45,000; another, $36,000; another, $25,000; one pays its vice pi-esident $40,000. The official salary account of this regional bank has an average much lower than the individual ' member banks of the district. The Federal reserve bank at Cleveland pays it governor $30,000. One individual member bank at Cleveland pays its president $50,000; another pays its president $36,000; another pays $35,000; the vice presidents of various other Cleveland banks get in excess of $30,000. The general salary acct>unt of this bank averages yery much less than the salary account of the individual banks of Philadelphia. The governor of the Federal reserve bank at Richmond gets $18,000. The president of one member bank at Richmond gets $25,000; and of another, $25,000. The general salary account of the reserve bank at Richmond just about matches that of the various member banks. The governoi* of the Federal reserve bank at Atlanta gets $18,000. Tlie president of one member bank at Atlanta gets $20,000 ; another, $17,500. The vice president of one bank there gets $18,000. Tlie salary account of the Atlanta Federal Re- serve Bank averages very mucii less than the salary account of the individuai member banks. The governor of the Federal reserve bank at Chicago gets $35,000. The chairman of the board of directors of one Chicago bank gets $75,000 and another $60,000, and the President of one Chicago bank gets $50,000 and another $36,OO0. Many Flee presidents of individual mwi^ber banks at Chicago get salaries running from $25,000 to $37,500. The average official salary paid by the Chicago reserve bank is about one-lialf the average official salary of the individual member banks. The governor of the Federal reserve bank at St. Louis gets $25,0(X). The president of one member bank at St. Louis gets $50,000 and another $45,000 ; one executive manager gets $40,000 and another $35,000. Se^^eral vice presidents get $25,000. The average of official salaries for this reserve bank is much less than the average for member banks. The salary of the governor of the Federal Reser^^e Bank of Minneapolis gets $16,000. One president of the JMinneapolis National Bank gets $45,000; another, $40,000; and several executive chairmen and vice presidents get salaries of $25,000. The average official salary for this bank is a little more than half the average for member banks. The governor of the Federal R^erve Bank of Kansas City gets a salary of $20,000. The president of one individual mem- ber bank there gets $26,000 and two $25,000 each. Tlie average salary at the St. Louis bank is very much less than at the indi- vidual member banks. The salary of the governor of the Dallas Federal Reserve Bank is $18,000. The salary of a president of one member bank is $20,000 and the two vice presidents eacli $25,000. The average official salary at tlie reserve bank is very much less tlian th« average paid at member banks. The Federal reserve bank at San Francisco pays it governor $24,000. The president of two individual member banks gets $50,000 and of another $36,000. The average official salary is 86469—22174 1 .*<■ 36 less thau half at the reserve bank than at the individual member banks. Mr. JONES of Now Mexico. Mr. President The PRESIDENT pro tempore. Does the Senator from Vir- ginia yield to the Senator from New Mexico? Mr. GLASS. 1 liope Senators will let me hurry through, because I desire to conclude. ^Mr. JONES of New Mexico. If the Senator floes not care to be disturbed, I will not interrupt him. Mr. GLASS. I yield to the Senator. Mr. JONES of New ^lexico. I merely wanted to inquire of the Senator if lie thought there was any difference between the responsibility of a bank which is dealinji only with securities coming: through and indorsed by other banks and that of a bank which is dealing with individual paper. Mr. GLASS, I think when we consider that tlie president of the New York Reserve Bank and the board of directors thereof are directly responsible for $5,000,000,000 in cash and securities, the greatest gold reserve that ever was mobilized since the world began to revolve on its axis, we must admit that the responsibility of those officers is infinitely greater than that of the officers of a dozen individual banks combined. SALAKIES FIXED BY DIRECTORS. If must be understood, Mr. President, that these salaries are fixed by the i)oard of directors of these respective Federal re- serve banks, two-thirds of which directors are selected by the stockholding banks of each district and all of them citizens of the district. The Federal Reserve Board has the right of re- view with respect to these salaries, but it must be admitted that the regional board of directors, familiar witli all the con- ditions, circumstances, and extent of labor involved, knows better than the Federal Reserve Board — knows vastly better than. Congress — wliat are the actual requirements and what is a fair average compensation. At all events the Federal Reserve Board does not initiate these salaries, and to say that honorable men who constitute this board should be indicted by a Federal grand jury because they approve the considered judgment of the boards of directors of these regional banks is to make a decla- ration that should not enhance the reputation of a Senator for sanity or for temperate speech. The salary of Gov. Strong, one-half that of several officials of individual banks in New York, was approvetl by the Federal Reserve Board on motion of the Secretary of the Treasury, Mr. McAdoo, concurred in by every other member of the board, the vote being unanimous. I realize that gentlemen may differ upon questions of expenditures, particularly with reference to ofticial salaries, but it is monstrous to charge high-minded, patriotic men with theft from the Treasury wlien we disagree with their judgments. ASTOrNDIXG MISCONCEPTIONS. In this connection, :Mr. President, let me show the Senate to what extent misconception and ignoKance on these questions may go. Several weeks ago a Senator on this side in a burst of indignation exclaimed: If the governor of the Federal Reserve Board is worth $50,000, what is the value to the couutiy of the President of the United Stales? What is the value of the Vice President? 8tJ469— 22174 37 Gov. Harding enjoys tlie luxuriant and luxurious privilege of fixing hi8 own salary. That Is a privilege which the President does not enjoy. It is a privilege that the Vice President does not enjoy. It IS a privilege that no Senator enjoys, no Congressman enjoys, no admiral in the Navy, no general in the Army, no member of the Supreme Court, ^ , W. P. G. Harding is the only man' that I know of that has been given the power to fix his own salary and to fix the salaries of his subordinates. Mr. President, I have not the remotest idea that the Senator who made this remarkable deliverance had the faintest purpose to misrepresent the Federal reserve banking system or to treat the governor of the Federal Reserve Board with derision. The Senator thought his premise was correct, hence the emphasis and feeling with which he denounced what seemed to him an extraordinary situation. As a matter of fact, a glance at the Federal reserve act would have shown him that Gov. Hard- ing has no power to fix his own salary or the salaries of any of his subordinates. He can not, except in conjunction with other members of the. board, iix the salary of a typist in his office! A glance at tlie law would have shown this indignant Senator ttiat the salary of the governor of the Federal Reserve Board is definitely fixed by Congress and may not be altered by anythmg that Gov. Harding or the Federal Reserve Board niay do. He would have seen that Gov. Harding's salary is not $50,000. It is but $12,000, so fixed by Congress, not a dollar greater than that of any other member of the board. Seemg these things, the Senator would not have tripped into tlie mistake of moralizing about evils that do not exist. I have no intimate personal relations with the governor of the Federal Reserve Board; in no sense or degree am I his spokesman here. But out of my actual observation and knowl- edge I feel, in very decency, obliged to say to the Senate that I have seen this honorable public ofilcial during a fateful period work himself to the bone for his country. I have seen him do the Government's work night and day until his very life was in peril by reason of physical exhaustion and nervous prostration. I myself have driven him from the Treasury Building for a few hours of rest to avert utter collapse. DEFAMATION OP PUBLIC OFFICIALS. I now ask the Senate's attention to a statement even more astonishing than that which I have just confuteil. Indeed, Mr. President, it is a declaration made in this Cliamber which should engage the very gravest attention ; for, notwithstanding the ludicrous misrepresentations which it comprises, it carries an implication which, if true, affects the integrity of a great Government institution, and which, if false, affects the integrity of the Senate. I am one of those who can not conceive that the constitutional immunity granted Senators and Representatives in Congress was ever intended as a shelter for libel of public men or private citizens, leaving them no means of redress. Some time back the distinguished junior Senator from Alabama! according to the Record, said in this Chamber : *-*^^!i ^''S^i.^^^t' I ana not advised as to whether or not anv of the friends of the Federal Reserve Board were speculating in cotton at that time. The Senator from Georgia [Mr. Watson] reminded us the ti^^AAn A^^^^^* ^^'^y loaned to tliemseives in the system the sum of ^lo,UUU,U(J0. 8G469— 22174 38 Think of it — a board that can not loan a dolhir to an ludi- vidiial or concern or corporation charged with liaving loaned to its own members $18,000,000! I continue reading from the statement of the junior Senator from Alabama : I want to say Just here, Mr. President, that if they invested any of that $18,000,000 in speculating on the bear side of the cotton marlcet in the month of August last year, they made a lot of money. Do you know, Mr. President, bow much money the man made who sold on the exchange 1,000 bales of cotton for the month of August, 1920? He made on that 1,000 bales $45,000 in cash. The Federal Reserve Board knew what effect its deflation policy would have upon the cotton market. Those who knew that that policy was going to run wild in August last year made millions of dollars to the distress and great injury of the cotton farmers of the country. Between the montlis of June and December that policy cost tlie cotton farmers more thdn $200,000,000 a month. Think of that. Senators! The deliberate and premeditated deflation policy of the Federal Reserve Board cost the cotton farmers more than $200,000,000 a month between Jane and December of last year. What was the value of the entire cotton crop of the country in 1920, may I ask the junior Senator from South Carolina [Mr. Dial] ? How much was it in the aggregate, approximately or roughly? Mr. DIAL. I would say about $2,000,000,000. Mr. GLASS. I wanted to know, because a multiplication of the sum given by the Senator from Alabama by the number of months will make it appear that the cotton growers lost pretty nearly the entire crop. Mr. President, the plain implication here is that members of the Federal Reserve Board had prostituted their sacred trust by using their positions for the purpose of speculating in cotton with the funds of the Federal reserve banks. If the charge is true, these public officials should not only be put iu jail but they should be kept there. The alleged act would con- stitute a crime little short of treason. If the charge is not true, then the Senate should contemplate the injurious effect of such accusations upon its own reputation. In the period to which reference is made by the Senator from Alabama the members of the Federal Reserve Board were David F. Houston, Secretary of the Treasury in President Wil- son's Cabinet ; John Skelton Williams, of Virginia, Comptroller of the Currency by appointment of Mr. Wilson ; Charles S. Hamlin, Assistant Secretary of the Treasury under President Cleveland; W. P. G. Harding, governor of the board by desig- nation of IVIr. Wilson ; Adolpli S. Miller, a university president of distinction in California; and Edmund Piatt, former Rep- resentative in Congress and member of the Banking and Cur- rency Committee of the House from New York — all appointees of Mr. Wilson. The implication of crime is leveled by the Senator from Alabama against every one of these men without exception. Is there a Senator here who believes the implication that would impute crime to these honorable public servants? If the Senator from Alabama believes that the accusation which he suggests is not a libel against their names^ and character, if he thinks he can justify^ his amazing insinuations, it is his duty to the country to ask for a grand jury investigation of these gentlemen, who have always borne and now sustain a reputa- tion among men for probity and integrity. 8G400— 22174 ao But, Mr. President, we do not have to await the verdict of the courts or the findings of a committee to see clearly the utter ab- surdity of some of these statements. The Federal Reserve Board, it is charged, loaned its own members $18,000,000, which vast sum it is suggested they used to gamble in cotton after deliberately using their official powers to depress the price for their own profit. Perhaps there are cotton pickers on plantations of the South who may be deceived by such trumpery, but surely there! is no Member of the Senate who does not understand how abso- lutely preposterous these accusations are. The Federal Reserve Board, under the law, could not loan the President of the United States 25 cents; it could not loan the Chief Justice of the Supreme Court » dollar; it could not loan John D. Rockefeller a dime; it could not loan the United States Steel Corporation or the Standard Oil Co. a penny. The Fed- eral Reserve Board has not a dollar to loan and never had a dollar to loan. No Federal reserve bank in the system can loan any individual or corporation in the United States a penny. The Federal re- serve banks neither receive deposits from nor make loans to individuals or concerns or corporations. These banks are banka of banks and do business only with banks ; so that if John D. Rockefeller, with all his millions, should desire to borrow money, he would be compelled to borrow it from a local bank; and the only way that the local bank cotild get a dollar from the Federal reserve bank in Rockefeller's district woifld be to Indorse Mr. Rockefeller's collateral note, as that of any other person, and put it up as security for a credit at the reserve bank. The Federal Reserve Board would not necessarily have any part -In or knowledge of the transaction. Aside from this, Mr. President, no member of the Federal Reserve Board is permitted by law to own one dollar of bank stock or to have any pecuniary interest whatsoever or connec- tion with the operation or profits of any banking institu- tion; and every member of the board has to take a solemn oath to this effect. Moreover, under the law, the Federal reserve banks are strictly prohibited from loaning one dollar to member banks for speculative purposes. Thus the whole charge is so literally without foundation in fact, and so saturated with mis- understanding of Federal reserve banking processes and of the Federal reserve act itself as to render it comic if it were not pitiful. IGNORANCE RUN MAD I I venture to Invite the attention of Senators and the country to another interesting discovery by the distinguished junior Senator from Alabama. On Friday of last week, in speaking to the NewbeiTy case, the Senator said : The Federal Reserve Board got an amendment to the Federal reserve act through a Republican Congress permitting them to set aside a certain percentage of earnings to be used in providing buildings and establishments for use In the service. Thev accumulated $100,000,000 te a year. What do you suppose they did? Without asking Congress the Federal Reserve Board appropriat<^ $26,000,000 or thereabouts — to do what? To build a bank building in the city of New York ia Wall Street. Mr. President, that statement comprises a paragraph of eight printed lines in the Record, It contains six distinctive asser- tions; all of it is true except the six distinctive assertions. [Laughter.] All of it is true except (1) the amendment to the 86469—22174 40 Federal reserve act was passed by a Democratic Congress, voted for by the Senator from Alabama, then a Member of the other House Mr. HEFLIN. I should like to see the Record. Mr. GLASS. I liave the Record. And was api)roved by Woodrow Wilson. So we can not make any Democratic poli- tics out of that. The Senator's statement is true except (2) that the Federal Resei-ve Board did not accumulate $100,000,000 or any other amount; except (3) that the Federal Reserve Board did not appropriate $26,000,000 or any other amount; except (4) that the Federal Reserve Board can not under the law or the operation of the system appropriate one dime for any purpose; except (5) that no Federal reserve bank to cost $26,000,000 is to be built anywhere; except (6) that the pro- posed new Federal reserve bank building in New York is not to be erected in Wall Street. Mr. WADSWORTH. Aside from that, the statement is all right. Mr. GLASS. It is all right with those six exceptions. Mr. HEFLIN. I should expect the Senator from the State where the big bank building is being erected to agree with the speech of the Senator from Virginia. Mr. GLASS. With these six exceptions the Senator's state- ment is true; and this signifies how much reliance may be put in the accuracy of statements made by the Senator from Ala- bama with respect to the Federal reserve banking system. His assaults are made up of fiction and are almost entirely devoid of facts. CONGRESS SANCTIONED BUILDINGS. It is true — and I hope Senators will mark this — that the Federal Reserve Board respectfully asked Congress to permit the Federal reserve banks to increase the amount of their sur- plus out of their earnings to an amount equal to 100 per cent of their paid capital. Congress exceeded the expectations of the board by having the increase apply to subscribed capital plus 10 per cent permanently to surplus. The board openly and frankly stated that the purpose of the request was, among other things, to provide the various regional reserve banks with better building facilities. Representative Phelan, a. Democrat of Mas- sachusetts, chairman of the Banking and Currency Committee of the House, presented and explained the amendment in that body. It was voted for unanimously. The amendment was presented to the Senate by Mr. Hitch- cock, a Democrat of Nebraska, acting for the Banking and Currency Committee of the Senate, and was unanimously agreed to here. The bill as passed was approved by Woodrow Wilson, President of the United States. It is now a law and has been for nearly three years. MORE MISINFORMATION. After first charging the reputable gentlemen who constitute the board of directors of the New York- Federal Reserve Bank with being criminals, the Senator from Alabama proceeds : Mr. President, I can not get away from these figures without looking at them once more. A banis building in Wall Street, ordered to be con- structed by the Federal Reserve Board of seven men, is to cost around $2(>,000.000 * * *. It seems to me to be surrounded and covered over with the atmosphere of graft. 80460—22174 41 At this point the Senator from Alabama was interrupted by the distinguished senior Senator from Georgia [Mr. Harkis], who said: I want to call the attention of the Senator to the fact that this $26,000,000 building in New York will accommodate only about 500 em- ployees, while the State, War, and Navy Building, which cost one-third that amount, accommodates several thousand employees. Mr. HARRIS. Mr. President Mr. GLASS. I will ask the Senator to wait for a moment. This opportune interruption of the Senator from Alabama by the Senator from Georgia, and the fine piece of information conveyed by the latter to the former, was an inspiring contribu- tion to the discussion ; and the Senator from Alabama with renewed zest exclaimed: That is a good point that my friend from Georgia made. The thing gets worse the more you look Into it. Five hupdred clerks and stenog- raphers and coin carriers in Wall Street, whose god is gold! This building will accommodate .500 people, as against buildings of less cost that accommodate thousands. Mr. President, it fills me with wonder that Senators seek to discredit the greatest banking institution on earth by giving currency to statements having no more semblance of fact in their justification. I now yield to the Senator from Georgia, in order that he may tell me where he gets sanction for his stat - ment to the Senator from Alabama that the proposed new bank building in New York will accommodate but 500 employees. Mr. HARRIS. Mr. President, I wish to state that in reading the report of the Federal Reserve Board I observed the state- ment that in this building there were 512 men, as I remember, but afterwards in reading the letter from the governor of the Federal Reserve Board, which on yesterday was printed in the Record, I ascertained that there are 512 in one building, but there are more than 2,000 in all the buildings. That is how I made the error. Mr. GLASS. The Senator does not for a moment imagine that I am suggesting intentional misrepresentation on his part? I do not believe he is capable of it ; and, for that matter, I do not believe the Senator from Alabama has intended to misrep- resent these things ; he does not just know anything about them. I do not say that in any spirit of acerbity. It is not remark- able that Senators know little about this complex matter. It is a problem repellent in its very nature, and few men have the patience or the foolhardiness to bother with it; but I say that either Senator might have found simply by reference to the letter of the Federal Reserve Board, written in response to a resolution of the Senate, that the woman's cafe alone in this building will seat 530 persons; that the men's cafe alone will seat 530 persons ; that the cafe facilities alone of this new build- ing, designed to give the men and women employees decent ..c- commodations and meals at cost, will take care of 1,060 people, or twice as many as these two Senators gave as the measure of the facilities of the entire bank buildinr. Either of these Senators might have easily ascertained that this bank building is designed and planned to accommodate 5,000 employees, ten times the number they told the Senate and the country it would accommodate. 8G469— 22174 INTENTIONAL SECOND EXPOSURE 40 Federal reserve act was passed by a Democratic Congress, voted for by tlie Senator from Alabama, then a Member of the other House Mr. HEFLIN. I should like to see the Record. Mr. GLASS. I have the Record. And was api)roved by Woodrow Wilson. So we can not make any Democratic poli- tics out of that. The Senator's statement is true except (2) that the Federal Resen'e Board did not accumulate $100,000,000 or any other amount; except (3) that the Federal Reserve Board did not appropriate $26,000,000 or any other amount; except (4) that the Federal Reserve Board can not under the law or the operation of the system appropriate one dime for any purpose; except (5) that no Federal reserve bank to cost $26,000,000 is to be built anywhere; except (6) that the pro- posed new Federal reserve bank building in New York is not to be erected in Wall Street. Mr. WADSWORTH. Aside from that, the statement is all right. Mr. GLASS. It is all right with those six exceptions. Mr. HEFLIN. I should expect the Senator from the State where the big bank building is being erected to agree with the speech of the Senator from Virginia. Mr. GLASS. With these six exceptions the Senator's state- ment is true ; and this signifies how much reliance may be put in the accuracy of statements made by the Senator from Ala- bama with respect to the Federal reserve banking system. His assaults are made up of fiction and are almost entirely devoid of facts. CONGRESS SANCTIONED BUILDIXGS. It is true — and I hope Senators will mark this — that the Federal Reserve Board respectfully asked Congress to permit the Federal reserve banks to increase the amount of their sur- plus out of their earnings to an amount equal to 100 per cent of their paid capital. Congress exceeded the expectations of the board by having the increase apply to subscribed capital plus 10 per cent permanently to surplus. The board openly and frankly stated that the purpose of the request was, among other things, to provide the various regional reserve banks with better building facilities. Representative Phelan, a Democrat of Mas- sachusetts, chairman of the Banking and Currency Committee of the House, presented and explained the amendment in that body. It was voted for unanimously. The amendment was presented to the Senate by Mr. Hitch- cock, a Democrat of Nebraska, acting for the Banking and Currency Committee of the Senate, and was unanimously agreed to here. The bill as passed was approved by Woodrow Wilson, President of the United States. It is now a law and has been for nearly three years. MORE MISINFORMATION. After first charging the reputable gentlemen who constitute the board of directors of the New York- Federal Reserve Bank with being criminals, the Senator from Alabama proceeds : Ml'. President, I can not get away from the < / MftY ^ '^ 4Rr88 V oi7/yj SHf{W ■. ; 1955 JUL 25 1932 f' *i Ui^jI. W &;{; I III ** ^^Kt9 li« •i t 1 1 r ."• ■ ■*»' END OF TITLE