COLUMBIA LIBRARIES OFFSITE 
 
 AVERY FINE ARTS RESTRICTED 
 
 in nun 
 
 AR01413392 
 1st Session } 
 
 SENATE 
 
 /Document 
 \ No. 23 
 
 NATIONAL ECONOMY AND THE BANKING 
 SYSTEM OF THE UNITED STATES 
 
 AN EXPOSITION OF THE PRINCIPLES OF 
 MODERN MONETARY SCIENCE IN THEIR 
 RELATION TO THE NATIONAL ECONOMY 
 AND THE BANKING SYSTEM OF THE 
 UNITED STATES 
 
 BY 
 
 ROBERT L. OWEN 
 
 Former Chairman, Committee on Banking and 
 Currency, United States Senate 
 
 PRESENTED BY MR. LOGAN 
 
 January 24 (legislative day, Jan. 17), 1939.— Ordered 
 to be printed with illustrations 
 
 UNITED STATES 
 GOVERNMENT PRINTING OFFICE 
 WASHINGTON : 1939 
 
 OH U 
 
[ 
 
 Digitized by 
 
 the Internet Archive 
 
 
 
 
 in 2014 
 
 
 I 
 
 https://archive.org/details/nationaleconomybOOowen 
 
FOREWORD 
 
 Twenty-five years ago today Woodrow Wilson, in the presence of 
 members of his Cabinet, chief executive officers, and leaders of the 
 United States Senate and House of Representatives, approved the 
 Federal Reserve Act. Three solid gold penholders and pens had been 
 prepared for the occasion. Three original copies of this act were 
 printed in parchment and signed by Hon. Champ Clark, Speaker of 
 the House of Representatives; Hon. Thomas R. Marshall, President of 
 the Senate ; and the President of the United States. 
 
 One of these copies went to the Secretary of State, Hon. William 
 Jennings Bryan, for permanent record. One of the copies was pre- 
 sented to Hon. Carter Glass, chairman of the Committee on Banking 
 and Currency of the House of Representatives, and one was presented 
 to the chairman of the Committee on Banking and Currency of the 
 United States Senate. One of the gold pens was given to Hon. 
 William Gibbs McAdoo, Secretary of the Treasury ; one to Hon. Carter 
 Glass; and one to the chairman of the Senate committee. 
 
 This act was generally regarded as the greatest achievement of that 
 administration. 
 
 Under this act $40,000,000,000 of liquid money was created to 
 finance the World War. It financed not only the United States but 
 financed to the extent of billions of dollars Great Britain, France, 
 Italy, and their allies. "That one act won the war," said John 
 Skelton Williams, the Comptroller of the Currency. 
 
 The United States came out of this war in a highly prosperous 
 condition. This prosperity was the result of the expansion of credit 
 and currency which enormously stimulated production and employ- 
 ment. 
 
 In 1921 those in control of the Federal Reserve System contracted 
 credit and currency by the use of the great powers of the Federal 
 Reserve Act. It resulted in depression. 
 
 Again in 1929-32 another depression followed the contraction of 
 the money supply. And a third depression took place in 1937 from 
 a similar cause. 
 
 The Federal Reserve System is supported by men of all parties. 
 Under no circumstances should it be considered in a partisan light. 
 Its operation vitally affects the economic and financial condition of 
 the entire country, including the Government itself. 
 
 There is lacking in the United States an informed public opinion 
 as to the cause and cure of depression. 
 
 With the hope of laying the foundation for a better understanding 
 of the principles of the Federal Reserve System and the use of its 
 powers to restore prosperity and prevent future depression, this 
 commentary is submitted for the considerate judgment of leaders of 
 public opinion in the United States. 
 
 Trusting that this vital matter may not be clouded by any attempt 
 to fix the blame on anybody, or to attempt to gain partisan advantage, 
 I remain 
 
 Your faithful servant, 
 
 R. L. O. 
 
 December 23, 1938. 
 
 hi 
 
Avery Architectural and Fine Arts Library 
 Gift of Seymour B. Durst Old York Library 
 
TABLE OF CONTENTS 
 
 Chapter I: Page 
 
 Why money was invented 
 
 Why money originally had intrinsic value 2 
 
 Why it is no longer necessary for money to have intrinsic value 2 
 
 Chapter II: 
 
 Money a creature of law 4 
 
 The creation of money a sovereign power of government 5 
 
 Chapter III: 
 
 The forms of money 6 
 
 The proper definition of money as employed in the United States — 7 
 Chapter IV: 
 
 The function of money as a medium of exchange 9 
 
 The function of money as a measure of value 9 
 
 The difference between value and exchange value 10 
 
 The function of money as a storage of value 10 
 
 Chapter V: 
 
 Currency as money 11 
 
 Modern check money, or bank credit 13 
 
 How this modern check money is created 14 
 
 The relative volume of currency and check money 16 
 
 Chapter VI: 
 
 The necessity for stable money 18 
 
 The evils of unstable money 19 
 
 The natural instability of our present-day check money 20 
 
 The money illusion „ 21 
 
 Chapter VII: 
 
 The orthodox traditional theory of money 22 
 
 The quantitative theorv of money 23 
 
 Chapter VIII: 
 
 The dollar index and the price level 24 
 
 How prices are influenced 25 
 
 The alleged "disequilibrium" of wholesale prices 28 
 
 The volume of money and the price level 29 
 
 Chapter IX: 
 
 The relationship of the price level to factory employment and wages. 30 
 
 The price level in relation to car loadings 33 
 
 The effect of the volume of money on the volume of construction 
 
 contracts 33 
 
 The effect on exports and imports of the contraction of credit and the 
 
 money supply 34 
 
 The effect on our business enterprises of the contraction of credit and 
 
 the money supply 34 
 
 Chapter X : 
 
 The index of industrial production 35 
 
 The relationship of the index of industrial production to the price level. 36 
 Chapter XI: 
 
 The inadequacy of the present terms "the price level" and "the pur- 
 chasing power of money" _ _ __ 37 
 
 Chapter XII: 
 
 The methods by which money is expanded and contracted 38 
 
 The velocity of demand bank deposits 42 
 
 How demand bank deposits created by the Government flow into use 42 
 
 The money created by the people 43 
 
 Credit expansion through the sale of stocks 45 
 
 v 
 
VT 
 
 VA CONTENTS 
 
 Chapter XIII: Page 
 
 Money in circulation as an index of national income 47 
 
 The volume of money employed in all economic activities 49 
 
 The origin of buying power 50 
 
 Chapter XIV: 
 
 The problem of unemployment 52 
 
 Money in relation to debt I I I. . . '_ 57 
 
 The interest on debt lllllll " 57 
 
 Labor and money ~ _~ 59 
 
 Abundance or scarcity 11. ...1 60 
 
 Monopoly and money 61 
 
 One hundred percent reserves _ 62 
 
 Chapter XV: 
 
 The call rate on the security exchanges 63 
 
 The control of the security exchanges _ _ 64 
 
 Chapter XVI: 
 
 The inflation bogey __ _ 65 
 
 Chapter VXII: 
 
 The Constitution of the United States on money 67 
 
 The powers of the Board of Governors of the Federal Reserve System 69 
 Chapter XVIII: 
 
 The importance of a national monetary policy 70 
 
 Chapter XIX: 
 
 The necessity for Government management and stabilization of 
 
 money _ 73 
 
 Chapter XX: 
 
 The effects of stable money 76 
 
 On the banks 76 
 
 On manufacturers 77 
 
 On merchants 77 
 
 On contractors 77 
 
 On corporate and individual incomes 77 
 
 On agriculture 78 
 
 On wage earners 78 
 
 On teachers 78 
 
 On Government income 78 
 
 On the creditor class 79 
 
 On the submerged third 79 
 
 On the wealthy class 79 
 
 Chapter XXI: 
 
 The capitalist system 79 
 
 Chapter XXII: 
 
 International stabilization impracticable 80 
 
 The inadequacy of the former gold standard 82 
 
 The modern use of gold and its possibilities 83 
 
 Foreign exchange 84 
 
 Chapter XXIII: 
 
 Storm signals 85 
 
 Public opinion and congressional control 87 
 
 Appendix 89 
 
 Glossary 89 
 
 Lincoln's monetary policy 91 
 
 Monetary chart No. 1 92 
 
 Monetary chart No. 2 93 
 
 Table — Selected series on business activity 94 
 
 Some improvements that have been accomplished and some that are 
 
 needed in our monetary system 97 
 
 A few quotations of notable leaders 98 
 
 Noted members of the Stable Money Association 106 
 
 Court decisions on money 108 
 
 Testimony of Robert L. Owen before committees of the House and 
 
 Senate - 108 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM OF THE 
 
 UNITED STATES 
 
 Chapter I 
 
 WHY MONEY WAS INVENTED 
 
 Money was invented as a measure of value to enable people to 
 exchange anything they had to sell for what they wanted, whether 
 services, commodities, or property. 
 
 In the earliest days of civilization men were compelled to rely 
 upon barter, to exchange a cow for so many sheep or goats, to exchange 
 a bow and arrow for a deerskin. Under such conditions there was 
 little or no incentive to manufacture the tilings people wanted in 
 quantity. There was also no incentive for merchandising. There 
 were no factories and no need for improved transportation to ship 
 goods from one point to another. 
 
 Many centuries ago, gold and silver were employed as a medium 
 of exchange because they were universally desired for their beauty, 
 resistance to corrosion and rust, compactness, and malleability. 
 They were particularly desired for ornaments. Therefore, they came 
 into use as a medium of exchange and as a measure of value. 
 
 Obviously, without money,' a farmer who brought to town his 
 vegetables, fruits, eggs, chickens, milk, and butter could not, through 
 barter, go into a store and buy shoes and stockings, shirts, and other 
 clothing in exchange in barter for these articles. It was necessary 
 for him first to convert the things he had into money and with the 
 money obtained to buy the things he wanted from the store. He 
 also needed money with which to pay the doctor and the dentist. 
 
 Thus, money was invented as a common denominator of products 
 and services for sale. Money became a measure of value and was 
 employed as a medium of exchange. Also, since money could be 
 employed at any time, it became a means of storing value which 
 could be instantly used in buying anything desired. So that money 
 thus had three distinct purposes: As a measure of value, as a medium 
 of exchange, and as a means of saving or hoarding against the day 
 of need. 
 
 Of course, money, when invented, was capable of minute subdi- 
 visions whether it was of silver or gold. 
 
 All modern money is capable of minute subdivision. The money 
 of the United States for example, consisting of the dollar, is divisible 
 into one-tenth of a dollar, called a dime; one-hundredth of a dollar, 
 called a cent; and one-thousandth of a dollar, called a mill. This 
 facilitates addition and subtraction and the keeping of accounts. 
 One of the impoitant reasons for the invention of money was to enable 
 men to keep an account of their indebtedness to each other with 
 accuracy, so that repayment could be made with precision and 
 certainty. 
 
2 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 The monetary unit in the United States was declared by law on the 
 5th of April 1792, in a statute signed by President George Washington. 
 This dollar has been the monetary unit of account in lieu of the other 
 forms of money from that day to this. 
 
 WHY MONEY ORIGINALLY HAD INTRINSIC VALUE 
 
 When money was first invented, principally in the form of silver 
 and gold, it was necessary that the commodity silver or the commodity 
 gold employed as money should have, in itself, exchange value. It 
 was necessary that it should have intrinsic value because at that 
 time there was no government exercising sovereignty of a dependable 
 stability which could by law regulate the value of money or regulate 
 the quality and quantity of the commodity to be employed as money. 
 
 As time progressed the modern nations minted coin tokens of gold 
 and silver which had at first dependable intrinsic value but which 
 were subject to change by the authority of the government, so that 
 from time to time many governments were found, for their own con- 
 venience, changing the metallic intrinsic value of the gold and silver 
 coin by using alloys of metal of less value. 
 
 What proved to be more important was the instability of the issu- 
 ance of money by government. For example, the French Govern- 
 ment at the beginning of the World War had about 16 billion paper 
 francs redeemable on demand in gold which were circulated in France 
 as the equivalent of gold. Under the extreme exigencies of the war, 
 the paper franc was expanded to about 80 billion francs and was no 
 longer convertible into gold as it had been previous to 1914. As a 
 consequence, this currency, which was deemed to be on a gold stand- 
 ard, diminished in its purchasing power to approximately one-fifth of 
 what it had been before, and at present is worth about 2.8 cents 
 instead of 19.3 cents (pre-war value) because of recent expansion and 
 because of a loss of gold with which to redeem it. 
 
 Because money having intrinsic value, such as gold, is preferred by 
 the people to paper money having no intrinsic value, when the two 
 moneys are both in circulation the gold money will be hoarded and 
 disappear whenever there comes any undue expansion of the paper 
 money. For this and other reasons all of the nations in the world have 
 now abandoned the use of gold as domestic currency. 
 
 The money of the United States depends for its value not on the 
 gold content of the dollar but strictly on the credit of the United 
 States and the demand for such money, with which to pay taxes, 
 interest, the cost of living, etc. 
 
 WHY IT IS NO LONGER NECESSARY FOR MONEY TO HAVE INTRINSIC 
 
 VALUE 
 
 The need for an intrinsic value of money which existed in former 
 years no longer exists in the United States. In previous times govern- 
 ments afforded no dependable security in the volume of money and 
 in the regulation of the value of money. Their paper money was 
 liable to expansion to a point where it decreased in purchasing power. 
 Therefore the people preferred gold as money because its purchasing 
 power did not fall as paper money did. But unfortunately for the 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 3 
 
 stability of money in those days, whenever the paper money began 
 to fall in value, gold money was held by the people and hoarded and 
 thus retired from circulation, under the working of the so-called 
 Gresham law. This law is no longer applicable in the United States 
 because the Congress of the United States, having learned that gold 
 as money in domestic circulation was a source of weakness, abolished 
 the use of gold in our domestic circulation, and confined its use to 
 international exchange as a commodity, the price of which was 
 arbitrarily fixed at $35 an ounce. 
 
 Now all paper money has, for the same reason, been made legal 
 tender. The value of this money is determined by the demand for it. 
 The demand is so great and the credit of our Government is so high 
 that legal tender currency has not only the purchasing power which 
 the gold dollar had in 1926, but it has a present purchasing power 
 index of 130 (December 1938). In other words, it has a purchasing 
 power which has increased in terms of 784 listed commodities sold in 
 the wholesale markets by 30 percent as compared with 1926, which 
 had a normal predepression price level of 100. 
 
 The further reason why it is no longer necessary that our legal- 
 tender money have intrinsic value is the collosal demand for money, 
 as compared to the supply of money. In 1926 the demand for check 
 money was demonstrated to be $845,000,000,000 as proven by the 
 amount of check money debited on the books of our banks. 
 
 In 1929, the volume of this check money rose to $1,230,000,000,000, 
 which at that time was 100 times the total monetary gold supply of 
 the entire world and about 300 times the entire monetary gold supply 
 in the United States. 
 
 It is perfectly obvious that this turn-over of money through checks 
 could not possibly have been supplied by the use of gold. The modern 
 banking system has therefore created conditions which make the use 
 of gold as money entirely impracticable. The use of gold for currency 
 would prevent the huge business which is now being carried on by the 
 American people. 
 
 Another important reason why our money should not have intrinsic 
 value is that it would deprive Congress of the power to regulate the 
 value of money by regulating the volume of money. Congress could 
 not regulate the volume of gold used as a currency, gold being limited 
 in amount, by nature, and is subject to immediate hoarding and to 
 shipment abroad if any question should arise to justify it. Congress 
 can regulate the volume of money in the form of legal tender currency 
 and alsc in the form of demand bank deposits (which will be described 
 later) upon which check money is based. 
 
 It thus follows that not only is there no longer any reason for our 
 legal-tender currency having intrinsic value, but there is a compelling 
 reason why our currency should not have intrinsic value. It should 
 have only extrinsic value. It should only have an exchange value 
 as a token. Currency being a creature of Government, the value of 
 which must be regulated by the Government, the control of the 
 money supply must be kept within the control of the Government 
 itself. 
 
4 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 Chapter II 
 
 MONEY A CREATURE OF LAW 
 
 The money of the United States is a creature of law. The Constitu- 
 tion of the United States gave to Congress the broad power exclusively 
 to create money. It withheld and denied to the States this power. 
 The Supreme Court of the United States in the Legal Tender cases 
 (79 U. S. 544), gave this interpretation of the Constitution. It has 
 remained unchallenged and is not now denied by any informed person. 
 
 We quote a portion of the opinion in the Legal Tender cases: 
 
 Congress, as the legislature of a sovereign Nation, being expressly empowered 
 by the Constitution "to lay and collect taxes, to pay the debts and provide for the 
 common defence and general welfare of the United States," and "to borrow money 
 on the credit of the United States," and "to coin money and regulate the value 
 thereof and of foreign coin"; and being clearly authorized, as incidental to the 
 exercise of those great powers, to emit bills of credit, to charter national banks, 
 and to provide a national currency for the whole people, in the form of coin, treas- 
 ury notes, and national bank bills; and the power to make the notes of the Govern- 
 ment a legal tender in payment of private debts being one of the powers belonging 
 to sovereignty in other civilized nations, and not expressly withheld from Congress 
 by the Constitution; we are irresistibly impelled to the conclusion that the impress- 
 ing upon the treasury notes of the United States the quality of being a legal tender 
 in payment of private debts is an appropriate means, conducive and plainly 
 adapted to the execution of the undoubted powers of Congress, consistent with the 
 letter and spirit of the Constitution, and therefore, within the meaning of that 
 instrument, "necessary and proper for carrying into execution the powers vested 
 by this Constitution in the Government of the United States." 
 
 In addition to the broad power exclusively to create money for the 
 people of the United States, the Constitution, in article I, section 8, 
 paragraph 5, gave Congress the explicit direction "to coin money and 
 to regulate the value thereof * * *." 
 
 When the State banks issued paper money, Congress imposed a tax 
 of 10 percent annually upon such paper money and suppressed it. 
 
 The Supreme Court held that the term "to coin money" meant to 
 print money on paper as well as to impress the Government stamp on 
 metal. 
 
 All of our paper currency is therefore directly authorized by the 
 Constitution, as interpreted' by the Supreme Court. All such money 
 is necessarily "fiat" of government and is printed on the printing 
 press. It is necessarily "fiat" money^ or "printing-press money," 
 although these terms have been used derisively by those who preferred 
 gold coin as money, or who preferred paper money made redeemable 
 in gold coin. 
 
 No one understood the powers of the Government in relation to 
 money better than Abraham Lincoln. As a means of preserving the 
 Union, Lincoln issued legal-tender money in 1861 that was receivable 
 for all public and private debts. This money never fell below gold 
 paritv. 
 
 On March 14, 1900, the Gold Standard Act was passed by the 
 Congress, declaring the dollar to be 25.8 grains, troy weight, of gold, 
 nine-tenths fine. This act placed $150,000,000 of gold coin in the 
 United States Treasury to keep at parity all paper money issued, by 
 promising to redeem on demand this paper money in gold coin. The 
 act provided for the issuance of 3-percent gold bonds as a means of 
 supplementing this supply of gold redemption money in case this 
 $150,000,000 should be depleted. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 5 
 
 Up to the domestic demonetization of gold in 1934, this gold fund 
 of $150,000,000 in gold coin had hot been depleted, for the simple 
 reason that the demand for dollars was so great that the people did not 
 care to redeem their paper currency in gold. 
 
 In 1933 Congress authorized the President to change the value of gold 
 in terms of dollars. He did so, making gold worth $35 an ounce 
 instead of $20.67 an ounce, as under the Gold Standard Act. Under 
 the act of January 1934, Congress demonetized gold in our domestic 
 circulation and has accumulated gold in the vaults of the Govern- 
 ment to the extent of $14,000,000,000. Gold is still flowing into the 
 United States from other parts of the world for the simple reason that 
 our legal-tender dollar has a greater purchasing power in the Cnited 
 States than gold at $35 an ounce. 
 
 THE CREATION OF MONEY A SOVEREIGN POWER OF GOVERNMENT 
 
 When the Constitution of the United States gives the exclusive 
 right to Congress to coin money and regulate the value thereof, it 
 should be obvious that it gave the exercise of a sovereign power 
 extending over the 48 States, Territories, and dependencies of the 
 United States. By its very nature, the function of the creation of 
 money should be exercised by the Central Government alone, as a sov- 
 ereign power. It would be impossible, if this power were subdivided, 
 to regulate the value of money by regulating the volume of money. 
 
 It is of the greatest importance to note that the failure of the 
 Congress of the United States to exercise this sovereign power led to 
 the creation of money by privately owned individual banks acting in 
 cooperation with their borrowers. 
 
 In 1863 President Lincoln was compelled to yield to the demand for 
 the establishment of the national-bank system, under which individual 
 banks were authorized to issue national bank notes based on the bonds 
 of the United States. This resulted in the issue of national bank 
 notes of various denominations by each individual bank. These 
 notes were not legal tender but were generally received because 
 Congress, in the exercise of its sovereign power, had authorized the 
 banks to issue such notes. The national bank notes, however, are in 
 process of retirement. They are being supplanted by the Federal 
 Reserve note and the silver certificate. 
 
 The Federal Reserve note is a note of the United States Govern- 
 ment which was issued, or loaned, to the individual 12 Federal Reserve 
 banks through the Federal Reserve agent at the headquarters of each 
 bank against the security of bonds, gold, and other sound bankable 
 assets. The issuance of these notes by the United States was an act 
 of sovereign power. 
 
 In 1933, as an act of sovereign power, they weie all made le<ral 
 tender. This issue exceeds $4,500,000,000. 
 
 The silver certificate, consisting of $1 bills, says on its face that it is 
 redeemable in $1 in silver. This means a coined silver dollar, or 
 silver bullion at $1.29 per ounce. The present market price of silver 
 (July 1938) is about 42 cents an ounce instead of $1.29 an ounce. 
 
 The silver certificate, therefore, outside of its bullion value in silver 
 is based upon the sovereign power of the United States, the credit of 
 the Government, and the demand for the dollar bill. The demand for 
 
6 
 
 NATIONAL ECONOMY AND THE BANKrNG SYSTEM 
 
 the dollar bill as a means of exchange is very great. No one ever 
 thinks of redeeming a silver certificate dollar bill in bullion silver. 
 
 The coinage of the silver dollar, half dollar, quarter, and dime is an 
 act of sovereignty; also the 5-cent piece, the nickel; or the 1-cent 
 piece of copper. 
 
 So that all the currency of the United States, coined by the United 
 States, is created by an act of sovereignty, universally respected by 
 the American people. 
 
 A check of a demand-bank depositor on a solvent bank is payable 
 on demand in legal-tender money. Thus the check is itself money. 
 The check transfers from one person to another in this way legal- 
 tender money, or the right to legal-tender money. 
 
 The right of the national banks to receive deposits, subject to 
 check, and the right of the national banks to make loans to private 
 citizens, or to buy the bonds of the United States, thus making loans 
 to the Government, is a grant by legislative power to the national 
 banks to create money. 
 
 The State banks exercise the same privilege by implied consent. 
 It must be remembered that money is ' 'anything having a conven- 
 tional use employed as a medium of exchange and measure of value.''" 
 A check represents a given number of monetary units employed as a 
 measure of value. When it is given by the maker to the payee, it is 
 a medium of exchange transferring a fixed number of dollars from the 
 maker to the payee and is convertible on demand into legal-tender 
 currency. 
 
 b In this manner, the sovereign right to create money, which exclu- 
 sively belongs to the Congress, has been transferred to privately 
 owned corporations, not only in the national banking system, but 
 also to the privately owned corporations comprising the individual 
 banks established under the laws of the 48 different States. 
 
 There have been very many forms of money employed in the 
 United States, including not only gold and silver, nickel and copper, 
 coined by the Government, but gold coined by private individuals 
 and companies, and tokens of other metals employed by private 
 trading companies. In addition to these tokens, employed as money, 
 there have also been printed many other forms called scrip, printed 
 on paper, leather, metal, wood, etc. 
 
 In the Chase National Bank of New York there are 2,000 forms of 
 scrip money on display, a large part of which was made in the United 
 States during the hoarding of currency in the depression of 1929-32. 
 
 The Government of the United States in its bulletin on domestic 
 coin sets forth the total issue of all types of coin employed by the 
 people of the United States as money. A brief summary follows, 
 
 Besides these issues by the Government, there were many issues by 
 private persons and corporations (see the Standard Catalog of United 
 
 Chapter III 
 
 THE FORMS OF MONEY 
 
 1938: 
 
 Gold- 
 Silver - 
 Minor 
 
 $4, 226, 218, 477. 50 
 1, 481, 204, 639. 80 
 152, 641,888. 11 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 7 
 
 States Coins and Currency, published by the Scott Stamp & Coin Co., 
 New York City). 
 
 In addition to these forms functioning as currency there was a great 
 variety of stamps employed as money in payment of letters and par- 
 cels transmitted by mail and in payment of internal revenue upon 
 various articles of merchandise. They are designated in monetary 
 units and fractions thereof. 
 
 The most familiar form of money, outside of the fractional coin 
 and currency, is the check of a depositor upon his demand-bank 
 deposit, which transfers from the maker to the payee a certain num- 
 ber of dollars and fractional parts thereof. Over 95 percent of our 
 national monetary business is transacted by the use of the check. 
 A check is a simple order on the bank to pay to the payee, or bearer, 
 a given number of dollars and its decimal parts thereof, and charge 
 it to the account of the maker of the check. 
 
 The advantage of the check, as money, is that it transfers from one 
 person to another a given number of dollars, no matter how large, 
 on a single slip of paper. The transfer to the payee is guaranteed 
 by the bank, which is responsible for identifying the signature of 
 the maker and the signature of the payee when the check is cashed 
 by the bank, or paid by the bank through the transfer of the demand- 
 bank deposit from the maker to the payee. 
 
 In this way the transfer of money is greatly facilitated, cheapened, 
 and safeguarded. To pay a million dollars in gold and silver by 
 transmitting the bullion would be expensive, require insurance, and 
 take an unnecessary element of time. If money had to be transmitted 
 by mail or express it would necessarily involve insurance and risk. 
 A check which is lost can be immediately canceled and replaced. 
 
 Another great advantage of check money is that it enables the books 
 of businessmen to be kept with ease and accuracy and enables, 
 them, from their bank books, to make up their income taxes, accounts, 
 etc., with dependable certainty; whereas, if they paid their bills in 
 currency it would be necessary for them to keep receipts for all such 
 transactions, and to take the currency in person and deliver it to the 
 merchants or payee at a considerable expense of time and trouble. 
 
 These difficulties are avoided by the check system which is safer, 
 cheaper, and more expeditious. 
 
 These are the fundamental reasons why this form of money has 
 grown in public favor in the United States and that check money 
 transactions have reached the collosal figures heretofore mentioned, 
 as $845,000,000,000 of check money paid through the banks in the 
 normal predepression year of 1926. 
 
 THE PROPER DEFINITION OF MONEY AS EMPLOYED IN THE UNITED STATES 
 
 Webster defines money as — 
 
 * * * anything having a conventional use as a medium of exchange and 
 measure of value. 
 
 The Century Dictionary and Encyclopedia defines it thus: 
 
 In a wider sense, any article of value which is generally accepted as a medium of 
 exchange; also, by extension, something which, though possessing little or no 
 intrinsic value, is recognized and accepted as a substitute for money as above 
 defined, such as paper money; any circulating medium of exchange. 
 
8 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 Professor Walker defines it as: 
 
 Any medium, no matter of what it is made or why people want it, which no 
 one will refuse in exchange for his goods. 
 
 In recent years, since the passage of the Federal Reserve Act, check 
 money has been used as a medium of exchange and accepted without 
 discount by the banks of the Reserve System and by the Reserve 
 banks so that checks in transit go into the hundreds of millions of 
 dollars at any given time. These checks function as money. They 
 represent money. They are safeguarded against counterfeiting by law. 
 They are safeguarded against fraud. They comprise the greatest 
 medium of exchange and measure of value in the United States, their 
 volume reaching the colossal figure in 1929 of $1,230,000,000,000. 
 They transact over 95 percent of the monetary business of the United 
 States; and even the currency which is employed by the people is 
 usually obtained by cashing a check in the bank and converting the 
 check into legal tender money. 
 
 Demand bank deposits, convertible on demand into legal tender 
 currency thus constitute money, subject to immediate transfer from 
 one person to another. 
 
 The demand bank deposits, as of June 30, 1938, amounted to 
 approximately $20,000,000,000. 
 
 The total amount of currency in circulation outside of the United 
 States Treasury amounted to $6,461,000,000 as of June 30, 1938. Of 
 this currency, there was $712,000,000 held by the banks 1 of the 
 United States for the purpose of cashing checks on demand. The 
 banks also held as reserves in the Federal Reserve Banks, convertible 
 into currency on demand, $7,878,000,000, as of June 30, 1938. The 
 merchants and businessmen of the country held for change with their 
 customers probably $1,500,000,000. although this amount has not 
 been accurately ascertained. About $500,000,000 of currency has 
 been destroyed or lost in process of time, or has gone abroad. The 
 remainder of the currency in circulation outside of the Treasury is in 
 the pockets of the people or hidden away, representing money which 
 individuals hold as savings deposits and hoard as savings deposits, 
 and a balance which is actively employed every day by the people 
 in their daily purchases of commodities and services. It has been 
 estimated that the currency received for wages and salaries has a 
 turn-over of approximately 26 times per annum, on an average. This 
 estimate of turn-over is merely a rough guess not capable of accurate 
 determination. 
 
 It is estimated that check money actively employed in transacting 
 the business of the country has a turn-over of approximately 50 times 
 per annum for the reason that money so employed is used as economi- 
 cally as possible. In 1929 when the demand bank deposits were 
 $24,000,000,000 and the time deposits, quickly convertible into demand 
 bank deposits, were $10,000,000,000, the actual check money amounted 
 to 50 times the demand bank deposits, not counting any turn-over 
 whatever of the time deposits. 
 
 So we see that the money of the United States consists of currency, 
 demand bank deposits, and checks drawn against demand bank 
 deposits. 
 
 The modern use of the word ' 'money' ? is expressed very well by the 
 statement made by the Honorable Marriner S. Eccles, chairman of 
 
 > Member banks Federal Reserve System. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 9 
 
 the Board of Governors of the Federal Reserve System before the 
 Banking and Currency Committee of the House of Representatives. 
 
 In purchasing offerings of Government bonds, the banking system as a whole 
 creates new money, or bank deposits. When the banks buy a billion dollars of 
 Government bonds as they are offered — and you have to consider the banking 
 system as a whole, as a unit — the banks credit the deposit account of the Treasury 
 with a billion dollars. They debit their Government bond account a billion 
 dollars, or they actually create, by a bookkeeping entry, a billion dollars. 
 
 Chapter IV 
 
 THE FUNCTION OF MONEY AS A MEDIUM OF EXCHANGE 
 
 The chief use of money is as a ' 'medium of exchange." This 
 means a medium through which the exchange of property, com- 
 modities, or services of one citizen can be transferred for the property, 
 commodities, or services of another citizen. In other words, a citizen 
 who receives payment in exchange for his labor, as wages or salary, 
 receives it in money. He then uses his money to buy the services and 
 labor, or the products of the labor, of another citizen. A farmer 
 sells his products, such as corn and wheat, for money and uses the 
 money as the medium of exchange with which to buy any of a thou- 
 sand articles for sale in, say, a department store. In this way the 
 money becomes a medium by which he exchanges his products for 
 the products of other people, collected from the ends of the earth in 
 a department store. 
 
 A citizen who receives his wages in money, uses the money to buy 
 small services, such as the money due for the newspaper, for stamps, 
 for express charges. Thus money is a medium of exchange for the 
 labor of the citizen, for the services of government, and for the 
 services of corporations. 
 
 This use of money as a medium of exchange is of supreme importance 
 and has increased in modern civilization to an extent not generally 
 understood. Money, as a medium of exchange, is required in order 
 to pay taxes, interest, living expenses, the expense of manufacturing 
 goods, the expense of transporting commodities, the expense of selling 
 and advertising commodities, and the expense of the professional 
 services of the doctor, dentist, and lawyer. Money is needed for the 
 sale of all the commodities in the wholesale markets. Money, as a 
 medium of exchange, is needed for the transfer of stocks and bonds, 
 real estate, equities, property, and services of all kinds. 
 
 This demand for money, as a medium of exchange, is what gives 
 value to money as a creature of law, although the money itself has 
 no intrinsic value. As previously stated, the check money, debited 
 on the books of all the banks of the United States in the year 1926, 
 was $845,000,000,000, and in 1929 was $1,230,000,000,000, which 
 demonstrates the enormous use to which money as a medium of 
 exchange is employed. 
 
 THE FUNCTION OF MONEY AS A MEASURE OF VALUE 
 
 In order that money may be used as a "medium of exchange/' it 
 must have the quality of being a ' 'measure of value." Money in the 
 market place measures the value of commodities. Money in the secu- 
 rity exchanges operates as a measure of value of stocks and bonds. 
 Money measures the value of real estate. Money is used as a measure 
 
10 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 of value for public services, such as carrying the mails, express services, 
 professional services, and transportation. Money is used as a measure 
 of value in insurance policies, in savings accounts, in evidence of debt, 
 such as bonds and notes. 
 
 Money may be employed as a measure of value in forms where such 
 money does not function as a medium of exchange. Ordinarily it, 
 functions both as a "medium of exchange" and as a "measure of value." 
 But money may be used as a measure of value without being actively 
 employed as a medium of exchange. 
 
 A savings account and a time deposit accurately measure the 
 value in monetary units of the debt due to the depositor, and even a 
 demand bank deposit may be a measure of value of the depositor's 
 account in monetary units without such demand deposit being em- 
 ployed as a medium of exchange. A demand deposit which is held 
 by the depositor unemployed, or inactive, is a measure of the value of 
 his deposit; but, if it is not employed to pay others, it is not a medium 
 of exchange except in a potential sense; that is, it may be converted 
 into a medium of exchange by giving it circulation. 
 
 THE DIFFERENCE BETWEEN VALUE AND EXCHANGE VALUE 
 
 The air we breathe is of great value to life, but is has no exchange 
 value. It is not a subject for merchandising. A bushel of wheat has 
 value as food to the man who raises it, and eats it, but that trans- 
 action involves no exchange value. The food which Robinson Crusoe 
 found on the island had no exchange value, not even for barter. 
 
 The exchange value of a commodity depends upon the exchange 
 of the commodit}^ for other commodities by barter or by selling for 
 money. The exchange value of wheat by barter depends upon the 
 supply of the wheat, the demand for the wheat, and the supply of the 
 commodity and demand for the commodity with which it may be 
 exchanged, as so many bushels of wheat for so many sheep. The 
 exchange value of wheat in terms of dollars depends upon the supply 
 of wheat, the demand for wheat, and the supply of dollars and the 
 demand for dollars. 
 
 The exchange value of money for labor could not be better exem- 
 plified than to recall that in the days of Christ 1 penny paid for a 
 day's labor in the vineyard. A day's labor in the vineyard now has 
 the same value as then, but not the same exchange value in pennies. 
 The exchange value for a day's labor then was 1 penny. It is now 
 300 pennies or more. The reason is perfectly plain; pennies are now 
 300 times as numerous as they were then. A day's labor buys more 
 pennies because the pennies are 300 times as numerous and the penny 
 now buys only one three-hundredth part of what it bought then. 
 The purchasing power of the penny depended upon the number and 
 supply of pennies. 
 
 THE FUNCTION OF MONEY AS A STORAGE OF VALUE 
 
 Money in terms of monetary units of account is also a storage of 
 value. A farmer sells his cattle for $2,000 and receives for the $2,000 
 a demand deposit. This is a storage of value in lieu of the cattle 
 which he had sold. 
 
 He sells his demand bank deposit to the banker for a time deposit 
 on which he receives an annual interest. This money is a storage of 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 11 
 
 value and an investment. He may transfer his time deposit into a 
 savings account, on which he receives interest at stated intervals. 
 This money also becomes a storage of value. Or he may invest his 
 demand bank deposit by buying the bonds of the United States or of 
 an industrial corporation. The bonds would be an investment and a 
 storage of value in terms of money. 
 
 A man may convert his check into legal-tender currency and hold 
 the currency as a storage of value for future use. It often happens 
 in periods of depression that citizens hoard currency as a storage of 
 value and take it out of circulation as a current medium of exchange. 
 Citizens convert stocks and bonds into demand deposits on a large 
 scale in a depression and hold these demand deposits as a storage of 
 value for future investment or use. Such demand deposits, thus 
 withdrawn from circulation, constitute a storage of value but do not 
 circulate as a medium of exchange. 
 
 In this manner the amount of money circulating as a medium of 
 exchange may be diminished by hoarding demand deposits and may 
 be increased by returning demand deposits to active use for the trans- 
 action of current business. 
 
 Chapter V 
 
 CURRENCY AS MONEY 
 
 The currency of the United States in circulation outside of the 
 Treasury is used as a medium of exchange only when actively employed 
 by an individual as a medium of exchange. The currency of a country 
 which is held by the banks as a means of paying checks in legal-tender 
 money is not in active circulation until it actually passes into the 
 hands of the citizen, who transfers if from one hand to another. If the 
 citizen withdraws from the bank a thousand dollars in currency and 
 puts it in a locked box, it is withdrawn from circulation as a medium 
 of exchange. 
 
 In the first quarter of 1933 an extraordinary demand arose for 
 currency. It was satisfied by the issuance of about $2,000,000,000 of 
 Federal Reserve notes, which passed into the hands of the banks and 
 from the banks into the hands of the citizens who had called for it in 
 payment of their demand bank deposits. A very large part of this 
 currency was hoarded by the depositors who withdrew it from the 
 banks. When their fears were allayed, almost all of this money 
 returned to the Federal Reserve banks from which it came. 
 
 During the depression of 1929-32 the hoarding of currency by the 
 citizens of cash and deposits and the contraction of check money by 
 the bank was so great that nearly a thousand cities and communities 
 established barter exchanges and/or issued scrip money in large 
 volume. Detroit issued about $40,000,000; Flint, $118,000; Grand 
 Rapids, $840,000; Lansing, $40,000; Milwaukee, over $12,000,000; 
 Dayton, $750,000; Atlantic City, upward of $5,500,000; Paterson, 
 N. J., over $2,000,000; Knoxville, more than $3,500,000; Birmingham, 
 over $1,000,000; and Atlanta, about $6,000,000. All this scrip money 
 was later retired. 
 
 Another substitute for currency has been the issuance of clearing- 
 house certificates. During the depression of 1929-32, over 
 $600,000,000 of clearing-house certificates were authorized, although 
 only partially used. 
 
 123338 — 39 2 
 
12 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 A great many citizens of small means do not keep bank accounts 
 but keep only a hoard of currency. 
 
 The currency held by stores and business houses as a means of 
 making change for customers does not function as a circulating medium 
 of exchange but only as a means of changing larger bills into smaller 
 bills for the convenience of the customer. As there are about fifteen 
 hundred thousand stores and shops in the United States, the amount 
 of such money held for change out of circulation as a medium of 
 exchange goes into very large figures, probably exceeding the amount 
 held by the banks. 
 
 Of the total of the $6,000,000,000 of currency outside of the Treas- 
 ury in circulation, it is probable that not more than a half of it cir- 
 culates as a medium of exchange. People who need money as cur- 
 rency draw it from the banks on checks, pay it out for services and 
 commodities, and it passes into the hands of the merchants in exchange 
 for goods, and by the merchant is redeposited in the bank. In the 
 event that the banks need additional currency, they have over 
 $6,000,000,000 of reserves in the Federal Reserve banks which they 
 can convert into currency on demand, or they can negotiate loans 
 with the Reserve banks, against adequate security, and obtain from 
 the Federal Reserve banks, without cost, Federal Reserve notes as 
 currency. 
 
 The currency of the United States is printed in Washington at the 
 Bureau of Engraving and Printing under great safeguards. The 
 fractional coin of the United States is minted at the various mints of 
 the Government and distributed through the Reserve banks to 
 member banks, or directly to member banks, upon demand. The 
 paper currency is printed on the finest quality of paper with silk 
 thread running through and with the finest engraving humanly 
 possible so as to prevent counteifeiting. When these notes become 
 soiled or mutilated, they are returned to the Treasury, destroyed 
 under proper safeguards, arid replaced by fresh clean notes. The 
 following table shows the amount of present outstanding currency: 
 
 Table I. — Paper currency, by denominatioyis, and coin in circulation 
 
 [Outside Treasury and Federal Reserve banks. In millions of dollars] 
 
 End of month 
 
 Total 
 
 Coin and small denomination currency 1 
 
 in circu- 
 
 
 
 
 
 
 
 
 
 lation 1 
 
 Total 
 
 Coin 
 
 $13 
 
 $2 
 
 $5 
 
 $10 
 
 $20 
 
 1937: 
 
 
 
 
 
 
 
 
 
 Julv . 
 
 6. 460 
 
 4,942 
 
 523 
 
 488 
 
 33 
 
 
 1, 550 
 
 1,454 
 
 August 
 
 8, 524 
 
 5,007 
 
 529 
 
 498 
 
 33 
 
 907 
 
 1,574 
 
 1,466 
 
 September. 
 
 6, 542 
 
 5,019 
 
 534 
 
 503 
 
 33 
 
 908 
 
 1, 574 
 
 1,467 
 
 
 6. 555 
 
 5, 029 
 
 .535 
 
 502 
 
 33 
 
 909 
 
 1.576 
 
 1,474 
 
 November 
 
 6, 561 
 
 5, 043 
 
 540 
 
 504 
 
 33 
 
 912 
 
 1,574 
 
 1,480 
 
 December .. 
 
 6, 550 
 
 5,015 
 
 .537 
 
 505 
 
 33 
 
 905 
 
 1,560 
 
 1,475 
 
 1938: 
 
 January 
 
 6, 320 
 
 4. 789 
 
 522 
 
 474 
 
 31 
 
 856 
 
 1.482 
 
 1, 424 
 
 February... 
 
 6,334 
 
 4, 798 
 
 520 
 
 473 
 
 32 
 
 863 
 
 1,489 
 
 1,421 
 
 March 
 
 6, 355 
 
 4, 734 
 
 521 
 
 473 
 
 31 
 
 860 
 
 1,487 
 
 1,412 
 
 April... 
 
 May 
 
 6, 397 
 
 4.807 
 
 522 
 
 476 
 
 31 
 
 866 
 
 1,498 
 
 1,414 
 
 6, 467 
 
 4, 856 
 
 526 
 
 487 
 
 32 
 
 877 
 
 1, 512 
 
 1,422 
 
 June 
 
 6. 461 
 
 4.837 
 
 527 
 
 481 
 
 31 
 
 875 
 
 1,503 
 
 1,420 
 
 July 
 
 6, 452 
 
 4. 836 
 
 526 
 
 431 
 
 31 
 
 879 
 
 1,508 
 
 1,410 
 
 1 Total of amounts of coin and paper currency shown by denominations less unassorted currency in 
 Treasury and Federal Reserve banks. 
 
 ' Includes unassorted currency held in Treasury and Federal Reserve banks and currency of unknown 
 denominations reported by the Treasury as destroyed. 
 
 3 Pap^r currency onlv; Si silver coins reported under coin. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 13 
 Table I. — Paper currency, by denominations, and coin in circulation — Continued 
 
 End of month 
 
 1937: 
 
 July 
 
 August 
 
 September 
 
 October... 
 
 November. 
 
 December. 
 1933: 
 
 January... 
 
 February.. 
 
 March 
 
 April 
 
 May 
 
 June. 
 
 July 
 
 Large denomination currency 1 
 
 Total $50 $100 $500 $1,000 $5,000 $10,000 
 
 1, 520 
 1,520 
 1,527 
 1,531 
 1,525 
 1,542 
 
 1,532 
 1, 538 
 1,573 
 1.593 
 1,616 
 1, 627 
 1,618 
 
 381 
 382 
 382 
 384 
 381 
 387 
 
 382 
 382 
 385 
 383 
 389 
 391 
 
 997 
 
 704 
 701 
 710 
 
 705 
 708 
 718 
 725 
 727 
 732 
 727 
 
 137 
 137 
 138 
 138 
 136 
 139 
 
 138 
 138 
 144 
 146 
 152 
 152 
 152 
 
 2*3 
 283 
 285 
 286 
 287 
 288 
 
 2S8 
 291 
 300 
 304 
 307 
 309 
 307 
 
 ■ Includes unassorted currency held in Treasury and Federal Reserye banks and currency of unknown 
 denominations reported by the Treasury as destroyed. 
 
 Back figures: See Annual Report for 1937 (table 36). 
 Source: Board of Governors of the Federal Reserve System. 
 
 MODERN CHECK MONEY, OR BANK CREDIT 
 
 Within the last half century there has taken place a great expansion 
 in the development of bank credit and bank check money. The 
 number of banks had greatly increased until 1921. Since then about 
 half the number have failed or closed their doors. The fluctuation in 
 the number of National and State banks for the years 1914 to 1935, 
 is as follows: 
 
 Table II. — National and State banks 
 
 Year 
 
 Number of 
 national bants 
 (June 30 or 
 nearest date) 
 
 Number of 
 State banks 
 
 (June 30 or 
 nearest date) 
 
 1914 
 1915 
 1916 
 1917 
 1918 
 1919 
 1920 
 1921 
 1922 
 1923 
 1924 
 1925 
 1926 
 1927 
 1923 
 1929 
 1930 
 1931 
 1932 
 1933 
 1934 
 1935 
 
 7. 514 
 7, 597 
 7. 571 
 7. 599 
 
 8. 024 
 8, 150 
 8. 244 
 8.236 
 8,080 
 3.066 
 7. 972 
 7. 790 
 7, 685 
 7, 530 
 7.247 
 6,800 
 6, 145 
 
 4, 897 
 5.417 
 
 5. 425 
 
 18, 760 
 19,008 
 
 19, 470 
 
 19, 896 
 
 20, 635 
 
 20, 821 
 21.805 
 22,410 
 21,914 
 
 21, 597 
 20, 916 
 20,413 
 19, 8S2 
 
 15. 975 
 18. 256 
 17,580 
 
 16, 605 
 15, 103 
 12,901 
 
 9, 622 
 10,418 
 10, 569 
 
 Source: Board of Governors of the Federal Reserve System. 
 
14 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 The failure' of the Congress of the United States to create the 
 money required by the people for the transaction of a greatly ex- 
 panding volume of business naturally caused the people to resort to 
 the manufacture of money through the banks by loans. 
 
 The system of handling money through checks was so cheap and 
 convenient that the people expanded this system to meet require- 
 ments. The people were compelled, of course, to pay for such ac- 
 commodation, or creation of credit, by the banks. 
 
 Six-percent interest was established in most States as a legal 
 rate of interest for loans. Sometimes, particularly in the Western 
 States, the rates went higher. Sometimes, as in contracts, higher 
 rates than the legal rate were allowed under special sections of the 
 statute. 
 
 Thus, the credit money built up by this checking S3 7 stem was based 
 on debt, subject to interest and compound interest. This made the 
 system hazardous because of the fears of the changing value of the 
 security upon which the loans of money were based when borrowers 
 were compelled to liquidate by forced sales, whether voluntary or 
 involuntary. 
 
 When the banks call their loans they destroy the money supply by 
 canceling the demand deposits. They thus increase the purchasing 
 power of money in terms of stocks, property, and commodities. 
 Thus the banks impair and diminish the value of their own securities 
 and impair the solvency of their own borrowers, thereby bringing 
 ruin upon themselves and upon the industry and commerce of the 
 country. 
 
 Every bank seeks its own safety. There is no cooperation or control 
 of the money supply through the banks. Their policy of fear, and 
 the consequences of fear, can only be neutralized by the powers of 
 the Government, which has no fear and can expand the money supply 
 when the banks, because of fear, contract it to their own ruin. 
 
 HOW THIS MODERN CHECK MONEY IS CREATED 
 
 In the eighteenth century when the Bank of Amsterdam was 
 founded it took deposits in the form of gold and gave receipts against 
 the gold on deposit. Its operators found that the receipts served a 
 better purpose than the gold itself. Under their system the gold was 
 in a vault thoroughly protected against robbery and the receipts 
 were personal receipts transferable. These receipts functioned as 
 money. So long as the bank followed the system of issuing receipts 
 only against gold on deposit, its receipts circulated as freely as gold 
 itself. 
 
 In the beginning the operators of the bank never thought of issuing 
 receipts against gold which they did not have, but as years went by 
 and the depositors very rarely called for the gold and were content to 
 circulate the receipts in place of the gold, the bank arrived at the con- 
 clusion that they would be safe issuing other receipts not covered by 
 gold but covered by mortgages and property which they thought 
 might be convertible, if necessary, into gold. 
 
 When at last it was discovered that the outstanding receipts of the 
 bank very greatly exceeded the amount of gold the bank held, it re- 
 sulted in the destruction of the bank by a flood of demands for gold 
 that the bank could not supply. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 15 
 
 In the United States the banks were permitted, on an average, 
 prior to the Bank Act of 1935, to make loans to an extent of 10 times 
 as great as the currency which they had available in vault or as reserves 
 held for them by other banks. As a consequence the banks made 
 loans against mortgages on cattle and horses, houses, the hypotheca- 
 tion of stocks, goods, and on other assets deemed to be sound bankable 
 assets. But usually the bank took security in excess of the amount 
 of the loan. 
 
 A citizen needing money for feeding a carload of cattle would give 
 his note to the bank, secured by cattle in excess of the value of the 
 note, and in excess of the corn necessary to feed the cattle. When the 
 cattle were sold, the note would be paid with its interest and the 
 borrower would retain the balance of the proceeds as his profit. 
 
 A borrower might put up as security certificates of stock in some 
 corporation of which the banker knew. 
 
 Whatever the security, the prime object of the banker was to 
 make a loan that was safe, that would pay him the legal rate of 
 interest, and that would be paid at a fixed period of time. 
 
 Mr. John Smith wanted a thousand dollars against security. Mr. 
 Smith would give his note for 90 days, bearing 6-percent interest, 
 with the security attached. And the banker would thereupon enter 
 on the books of the bank a credit to John Smith, precisely as if John 
 Smith had paid into the bank that amount in gold dollars, or in legal- 
 tender notes. 
 
 The banker and John Smith combined in this way to create a 
 demand bank deposit subject to check. 
 
 When John Smith made this contract with the bank, the bank 
 agreed to pay his checks on demand in legal tender to the extent of 
 the loan. Here was the manufacture of money in the form of a 
 demand bank deposit by John Smith and the bank. Thus public 
 and private assets were monetized by the bank. 
 
 Not only was money thus created by the bank and its depositors, 
 but the money supply of the country was contracted when the loan 
 was paid off. 
 
 When John Smith sold his cattle for somebody else's money, he 
 received a check from the buyer of the cattle on a bank. He de- 
 livered the check to his banker and was given credit for it. He then 
 paid the loans he had made, with interest, out of the demand deposit 
 created by the check received for the cattle he had sold. Thus John 
 Smith canceled the amount of money he had previously received and 
 also transferred to the banker the interest on his loan. This interest 
 was taken out of the demand deposit and transferred to the bank as 
 a profit. Such money, as profit, withdrawn from the demand bank 
 deposits, was a further cancelation of demand deposits, and a trans- 
 fer of such demand deposits to the banker as an investment, and 
 became a part of his undivided profits or capital. 
 
 It matters not how many times you multiply this transaction. 
 The principles involved are the same. The bank and the borrower 
 create money in the form of demand bank deposits subject to check. 
 They destroy the demand deposits thus created when the loan is 
 paid. The banks, therefore, through this process expand money and 
 contract money. 
 
 When a bank buys $1,000 of Government bonds, it creates $1,000 
 of demand deposits to pay for the bonds, which the Government put9 
 
16 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 into circulation by spending. This is an increase of the money 
 supply. 
 
 When the banks sell the $1,000 of bonds to their own depositors, 
 $1,000 of demand deposits is transferred from the depositors to the 
 banks as a cash asset which the banks can then lend to their customers 
 at 6 percent without expanding their deposits any further. 
 
 This means that the banks can buy a 3 percent Government bond, 
 sell the bond to demand bank depositors and loan the money re- 
 ceived at 6 percent to other customers. This asset then reappears 
 under the head of loans. It first appeared as an investment in bonds. 
 Then it retired a like amount of demand deposits by adding such 
 deposits to the assets of the banks in so-called cash on hand. That 
 cash, when loaned, reappeared under the head of loans. Thus the 
 net effect is to transfer a loan to the Government into a loan to 
 citizens at a higher rate of interest. 
 
 It is in this manner that credit is rendered more unstable, because 
 when the banks become frightened, they call the loans of the citizen, 
 whereas, if they had kept the Government bonds, they would not 
 recall the loan to the Government. 
 
 When the Government sells baby bonds on a large scale to the 
 people it has the effect of drying up the circulating medium, in the 
 form of demand bank deposits, by converting such small individual 
 demand deposits into individual investments in a nonliquid security. 
 It bee mes a savings account in lieu of liquid money available as a 
 medium of exchange. 
 
 It is of importance for students to notice the manner in which this 
 is done. It illustrates the manner in which money created can be 
 immediately retired or canceled. 
 
 THE RELATIVE VOLUME OF CURRENCY AND CHECK MONEY 
 
 It is of importance to observe the relative volume of currency, 
 outside of the Treasury in circulation, and the volume of check money 
 in circulation. 
 
 The total amount of currency outside of the Treasury for each year 
 from the years 1926 to 1936 is as follows: 
 
 Total currency in circulation 
 
 Cur- 
 
 
 rency 1 
 
 
 4. 6 
 
 1932 
 
 4. 6 
 
 1933 
 
 4. 5 
 
 1934 
 
 4. 5 
 
 1935 
 
 4. 2 
 
 1936 
 
 4. 5 
 
 
 Cur- 
 rency 1 
 
 _ 5.4 
 
 . 5.4 
 
 . 5. 4 
 
 _ 5. 6 
 
 . 6. 2 
 
 1926 
 
 1927 
 
 1928 
 
 1929 
 
 1930 
 
 1931 
 
 1 Indicates billions and decimals thereof. 
 
 Source: Board of Governors of the Federal Reserve System. 
 
 The volume of currency, as heretofore pointed out, in actual circu- 
 lation by the people as' pocket money, probably does not exceed 
 one-half of the total amount outside of the Treasury. 
 
 So that $3,000,000,000 is probably a maximum estimate at present 
 of the currency in actual circulation as pocket money, including 
 that which is hoarded. This money is largely received for wages 
 and salaries, being paid daily, weekly, and monthly. It has been 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 17 
 
 estimated that there is an average turn-over of about 26 times per 
 annum for currency. It is estimated, on the other hand, that the 
 turn-over of check money is normally much more rapid. The total 
 volume of such check money for the years 1926 to date, and the total 
 demand deposits as of June 30 for each of these years, will indicate 
 the relative speed of the turn-over on the average: 
 
 Average turnover of demand deposits 
 
 
 Volume of 
 
 Volume of 
 
 Average 
 
 
 Volume of 
 
 Volume of 
 
 Average 
 
 Year 
 
 demand 
 
 check 
 
 turn- 
 
 Year 
 
 demand 
 
 check 
 
 turn- 
 
 
 deposit? i 
 
 money 1 
 
 over 
 
 
 deposits' 
 
 money ' 
 
 over 
 
 1926 -.- 
 
 21.6 
 22.2 
 22.3 
 22 6 
 21.8 
 19 9 
 15.6 
 
 845 
 920 
 • 1,074 
 1.230 
 900 
 660 
 450 
 
 39 
 41 
 48 
 54 
 41 
 33 
 28 
 
 1933 
 
 14.4 
 16.6 
 20.5 
 23.8 
 25.2 
 24.3 
 
 430 
 470 
 530 
 611 
 637 
 »550 
 
 29 
 29 
 25 
 25 
 25 
 23 
 
 1927. 
 
 1934 
 
 1928 
 
 1935 
 
 1929 
 
 1936 
 
 1930 
 
 1937 
 
 1931 
 
 1938 
 
 
 
 I Indicates billions and decimals thereof. 
 ■ Preliminary. 
 
 Source: Board of Governors of the Federal Reserve System. 
 
 It must be remembered, however, that in periods of depression a 
 large part of the demand bank deposits are hoarded for future invest- 
 ment. Therefore, the turn-over of the entire demand deposits at 
 such a time is a theoretical fiction. It is probable that at the p resent 
 time, when the check turn-over is estimated at a total annual volume 
 of $530,000,000,000 that less than $11,000,000,000 is so employed, and 
 that this $11,000,000,000 has an actual turnover of 50 times per annum. 
 
 The total volume of money employed as a medium of exchange 
 consists of credit and currency. It was for this reason that those 
 who wished to increase the purchasing power of money and diminish 
 the price of the products and services of labor, conducted an open 
 campaign in 1920 by declaring their purpose to make a ' 'persistent 
 attack on the high cost of living by the courageous and intelligent 
 deflation of overexpanded credit and currency." Their conception 
 was that if the dollar could buy more it would be better for the people 
 who had dollars to spend. They were convinced that by the contrac- 
 tion of credit and currency the dollar would increase in purchasing 
 power. 
 
 This economic theory was completely demonstrated by what took 
 place. The Federal Reserve banks and the member" banks con- 
 tracted credit and currency on a large scale, with the result that the 
 price level, representing the volume of money employed in the pur- 
 chase of commodities in the wholesale markets, fell from an index in 
 May 1920 of 167 to 93 by June 1921. The index of the purchasing 
 power of the dollar, which is always in inverse ratio to the price level, 
 or all-commodity index, steadily rose from 60 in May 1920, to 107 in 
 June 1921. Naturally, as the volume of credit and currencv contracts, 
 the purchasing power of the dollar would rise because of the scarcity 
 created in dollars. It was merely a proof of the well-established 
 axiom that the exchange value of anything depends upon the law of 
 supply and demand. 
 
 The volume of currency in circulation outside of the Treasury is 
 naturally, as a matter of statistics, comparatively uniform, only 
 
\g NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 increasing to the extent of an increasing demand by a growing popula- 
 tion. Occasionally there arises an extraordinary demand for cur- 
 rency, such as in the first quarter of 1933. With the failure of many 
 banks, there was a sudden expansion of Federal Reserve notes due 
 to the demand for currency by frightened bank depositors. At this 
 time the currency suddenly increased about $2,000,000,000. It 
 afterward returned, in large part, to the Federal Reserve banks when 
 the fear of depositors had ceased, because of the insurance of bank 
 deposits. 
 
 In 1932, as heretofore stated, the people protected themselves 
 against the hoarding of currency by manufacturing scrip money, 
 which was not authorized by law, but which served as a substitute 
 for currency. 
 
 Check money, or bank credit in the form of demand bank deposits, 
 goes through great fluctuations, depending upon the condition of 
 credit in the banks. An illustration of these violent changes is best 
 demonstrated by the estimate of the volume of check money employed 
 from 1926 to 1938. 
 
 In comparison with the amount of currency in circulation outside 
 of the Treasury, the following table presents the volume of check 
 money employed from 1926 to 1938. 
 
 Relative volume of currency and check money 
 
 Year 
 
 Checks » 
 
 Currency: 
 
 Year 
 
 Checks i 
 
 Currency 1 
 
 1926... 
 
 845 
 920 
 1,074 
 1,230 
 900 
 660 
 450 
 
 4.6 
 4.6 
 4.5 
 4.5 
 4.2 
 4.5 
 5.4 
 
 1933 
 
 430 
 470 
 530 
 611 
 637 
 530 
 
 5.4 
 5.4 
 5.6 
 6.2 
 6.5 
 6.8 
 
 1927. 
 
 1934. 
 
 1928 
 
 1935 
 
 1929 - 
 
 1936 
 
 1930. 
 
 1937 
 
 1931.. 
 
 1938 
 
 1932.. 
 
 
 i Indicates billions and decimals thereof. 
 
 Source: Board of Governors of the Federal Reserve System. 
 
 A portion of this currency in the pockets of the people also has a 
 turn-over amounting to possibly 26 times per annum. 
 
 Chapter VI 
 
 THE NECESSITY FOR STABLE MONEY 
 
 The necessity for stable money has long been recognized as of 
 supreme importance in giving stability to the value of labor and 
 property and establishing justice between debtor and creditor. 
 
 Since money is a measure of value, obviously, to change this meas- 
 ure (the purchasing power of the dollar) would mean that there 
 would be no stability in the measure of the value due to a creditor 
 by a debtor. The creditor is entitled to be repaid in a dollar of the 
 same purchasing power that he loaned and no more. And the 
 debtor should not be required to pay his debt in a dollar of greater 
 purchasing power than the dollar he borrowed. 
 
 When the Government issued its bonds for the prosecution of the 
 World War and the purchasing power of the dollar fell to an index 
 of 60 in May 1920, such bonds ought not in justice to be required to 
 be liquidated in dollars whose purchasing power is an index of 130, 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 19 
 
 as in December 1938. This truth is thoroughly well understood by 
 all informed economists, but the difficulty in accomplishing the 
 objective of a money which shall have a uniform, debt-paying, pur- 
 chasing power from one generation to another has been a lack of 
 informed public opinion. 
 
 There has been a failure on the part of the orthodox economist, 
 who relies upon tradition, to realize the part played in the measuring 
 power of money by the modern substitute for currency, check money. 
 
 The Stable Money Association has been under the leadership of some 
 of the greatest leaders in finance and industr}^. For example, Owen 
 
 D. Young, chairman, General Electric Co. ; M. C. Rorty, vice-president, 
 International Telephone & Telegraph Co. ; Henry A. Wallace, Secretary 
 of Agriculture; Bernard M. Baruch, financier; John J. Raskob, former 
 chairman, Democratic National Committee; Alfred P. Sloan, Jr., 
 president, General Motors; John W. Davis, former Democratic candi- 
 date for President; Elihu Root, former Secretary of State and of War; 
 Nicholas Murray Butler, president, Columbia University; Otto H. 
 Kahn, president, Kuhn, Loeb, & Co.; Matthew Woll, president, 
 Union Labor Life Insurance Co.; Irving Fisher, professor emeritus of 
 economics, Yale; Charles Evans Hughes, Chief Justice, United States 
 Supreme Court; John L. Lewis, president, United Mine Workers of 
 America; Louis J. Taber, national master, National Grange; Gurney 
 
 E. Newlin, president, American Bar Association. 
 
 A more complete list of these men will be found in the appendix. 
 
 THE EVILS OF UNSTABLE MONEY 
 
 When a farmer borrows 100 bushels of wheat, he can repay it with 
 100 bushels of wheat. But if he borrows $100, he might easily find 
 himself compelled to sell twice as many bushels of wheat with which 
 to obtain the $100 for the repayment of the debt. 
 
 There have been 27 distinct periods in the history of the United 
 States during which a serious change took place in the purchasing 
 power of money, always due to the increase or decrease of the volume 
 of money. The most violent example perhaps in recent years was 
 what took place in 1921 and in 1929-32. 
 
 The following table shows some of the effects on a selected group 
 of the more prominent farm commodities of the expansion and con- 
 traction of the purchasing power of money. 
 
 Index numbers of wholesale prices for cotton, corn, wheat, and composite group of ad 
 farm products for selected periods 
 
 [1920=100] 
 
 Date 
 
 May 1920 
 
 September 1920 
 
 January 1921 
 
 May 1921 
 
 Julv 1921 
 
 July 1929 
 
 December 1929 
 
 July 1930... 
 
 Average for year 1936 
 Low of 1932 
 
 Cotton, 
 Middling, 
 per 
 
 pound, 
 New York 
 
 Corn, con- 
 tract 
 
 grades, per 
 busbel, 
 Chicago 
 
 Wheat, No. 
 
 2 Red Win- 
 ter, per 
 bushel, 
 Chicago 
 
 Group of 
 all farm 
 produce 
 
 235.8 
 
 262.9 
 
 192.8 
 
 169.8 
 
 171.5 
 
 173.3 
 
 161.6 
 
 143.9 
 
 95.3 
 
 89.9 
 
 127.2 
 
 101.6 
 
 73.8 
 
 81.2 
 
 101.7 
 
 83. 1 
 
 70.5 
 
 80.9 
 
 79.7 
 
 86.5 
 
 106.0 
 
 131. 1 
 
 86.5 
 
 107.6 
 
 98.6 
 
 118.6 
 
 S4.3 
 
 101.9 
 
 75. 1 
 
 107.2 
 
 57.7 
 
 83. 1 
 
 69. 1 
 
 111.2 
 
 71.1 
 
 80.9 
 
 1 301 
 
 * 30. 5 
 
 •29.9 
 
 »44. 1 
 
 1 June. i December. 
 
 Source: Bureau of Labor Statistics. 
 
 1 November and December. 
 
20 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 Under these conditions the farmers of the country have universally 
 suffered and millions of them have been bankrupted. 
 
 The fluctuation in the purchasing power of money, however, has 
 been much greater in the security exchanges, where prices are not 
 only affected by the abundance and scarcity of money, but also by the 
 scarcity and abundance of stocks for sale. In 1929 the common and 
 preferred stocks listed on the New York Stock exchange reached a 
 high market price of $89,000,000,000. By June 1932, they had fallen 
 to a low of $12,000,000,000. This demonstrates that the purchasing 
 power of the dollar in the stock market increased over 600 percent 
 because of the scarcity of money, or bank credit, and the super- 
 abundance of stocks for sale at the bottom of a depression. 
 
 The same thing is manifest in the real estate market, particularly 
 on real estate which has no income-producing value but which is held 
 merely for investment. Here the change is often very great. The 
 dollar will sometimes buy vacant real estate in the towns for the taxes 
 and will buy uncultivated lands for one-fifth to one-tenth of its 
 previous market price. 
 
 So, we see that the evils of a fluctuation in the way of an expansion 
 or a contraction manifest themselves in all of the products of human 
 labor and other forms of property. But the evil is far worse when 
 money rises in value because of scarcity, because it then results, as at 
 present, in 10 or 12 million people being thrown out of work and 
 unable to sell their labor at any price, and who are compelled to rely 
 upon their savings, or upon public relief and private charity and who 
 suffer from being underfed, underdo thed, and undersheltered. 
 
 Such periods of severe change in the value of money result not only 
 in the unemployment of millions of people, but it has the effect of 
 lowering the health and morale of the people by millions and causing 
 them to resort to criminal acts as a means of affording themselves 
 temporary relief. 
 
 The consequences, broadly, of the change in the purchasing power 
 of money will be more clearly seen from the monetary table for the 
 years 1913 to 1936. (See appendix.) 
 
 For a much more detailed description of the harm that money does 
 to the economy of a country, read The Money Illusion by Irving Fisher 
 professor emeritus of economics at Yale University. 
 
 THE NATURAL INSTABILITY OF OUR PRESENT-DAY CHECK MONEY 
 
 Our present check money is by its own nature unstable, as money, 
 because the volume is not under any control. 
 
 Our modern check money is created by debt. When a man borrows 
 $1,000 from the bank, he creates a debt with the bank. 
 
 In this manner a thou^nd dollars of money in the form of a demand 
 bank deposit is created, m has been explained. Until this debt is 
 paid this deposit circulates as money, being transferred from one 
 depositor to another depositor. It is immaterial if a person receiving 
 a check on this deposit puts the check with another bank. That 
 would merely be transferring the money from one bank to another 
 bank. The money, as a demand bank deposit, continues to circulate 
 until the debt is paid. 
 
 On June 30, 1929, the banks had $41,600,000,000 of such loans 
 outstanding. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 21 
 
 In addition to private loans thus made by the banks, they also 
 create money when they buy the bonds of the United States Govern- 
 ment, or of any Stated county, city, or corporation in the United 
 States. 
 
 When the banks contracted their loans of $41,600,000,000 by 
 June 30, 1932, to some $20,000,000,000, they contracted the money 
 supply correspondingly; so that the demand bank deposits and the 
 time deposits of the banks fell in 3 years, from June 30, 1929, to June 
 30, 1932, by approximately the same amount. Demand bank deposits 
 therefore fell from $24,000,000,000 to about $14,000,000,000, and 
 the time deposits were diminished by about $10,000,000,000, the time 
 deposits being transferred to the banker as demand deposits, and 
 then the demand deposits were employed to pay the debts to the 
 banks. In this manner, many thousands of banks, moved by fear, 
 caused a shrinkage in demand bank deposits and time deposits of 
 $20,000,000,000. This caused the shrinkage of the volume of check 
 money from $1,230,000,000,000 in 1929 to $450,000,000,000 in 1932, 
 and caused, at the same time, the increased purchasiug power of 
 money and the decreased exchange value of property, causing uni- 
 versal bankruptcy. 
 
 It should be clear, therefore, that when the money supply is based 
 upon loans made by privately owned banks and is subject to undue 
 expansion through overoptimism, or to undue contraction through 
 pessimism, such money is, by its nature, unstable and dangerous to 
 the welfare of all of the people — not only the poor, but also often ruinous 
 to the rich. 
 
 Money being also created by the Government through the sale of its 
 bonds, and by States, counties, cities, and corporations, the volume 
 of money is affected by such debts and is made by nature unstable. 
 This unstability will last until the powers of the Government are used 
 to render money stable by exercising the constitutional power and 
 duty of the United States exclusively to create the money which the 
 people need as a medium of exchange and to regulate the volume and 
 value. 
 
 It is known that under comparatively stable money, the national 
 production increases at the rate of 4 percent per annum, and except 
 for these depressions we should now have a normal production of over 
 50 percent more than it was in 1926. But the decrease which actually 
 took place during the last panic of 1929-32 amounts to a net loss of 
 $164,000,000,000 in the national income without counting the loss of 
 the 4 -percent increase we should have had. 
 
 THE MONEY ILLUSION 
 
 People have a general illusion that money is stable and that prop- 
 erty is unstable because it rises and falls in price; whereas, it is money 
 which falls and rises in purchasing power because of scarcity or 
 abundance. They do not realize that when all commodities and all 
 forms of property fall in value, it is. not because the intrinsic value of 
 these properties and commodities change, but because the money, 
 with which they are all measured, changes in volume and becomes 
 scarcer or more abundant. 
 
 When the commodities in the wholesale markets in 1933 required 
 40 percent less money to be bought than in 1929, it was because the 
 
 I 
 
22 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 money supply was contracted. Since money measures everything, 
 the scarcity of money causes the value of everything to fall. When 
 the money supply is more abundant, or doubles, and the volume of 
 commodities is unchanged, the exchange value in money of all com- 
 modities and properties doubles. 
 
 While this truth is recognized by all informed students, neverthe- 
 less the illusion persists with a great body of the people that it is not 
 the money that changes in value but the property. 
 
 Only an informed public opinion can change this erroneous think- 
 ing. It takes time to overcome such a world-wide error. It took 
 many decades for the people of the world to learn that the sun did 
 not revolve around the world, but that the world turned on its own 
 axis and revolved around the sun. 
 
 Chapter VII 
 
 THE ORTHODOX TRADITIONAL THEORY OF MONEY 
 
 Prior to the twentieth century it was the traditional theory of 
 money, held by orthodox professors of political economy, that gold 
 was money provided by Nature and that nothing else was money. 
 This opinion was expressed very clearly by the great financier, J. P. 
 Morgan, in December 1912, in answering a question of Samuel Unter- 
 myer during the Pujo investigation. Mr. Morgan said, "Gold is 
 money and nothing else is." 
 
 It was believed that gold, because of its stable volume, was a more 
 stable measure of value than anything known to the human race. 
 There was always a demand for it because of its beauty, malleability, 
 ductility, resistance to corrosion, handy size in relation to value, etc. 
 It was, therefore, a convenient measure of value. It was authorized 
 to be stamped by the Congress of the United States in 1792 as United 
 States money, and it continued to serve as legal tender by weight until 
 1934. 
 
 It was purchased by the Treasury at a fixed value by weight when 
 minted. On March 14, 1900, the Gold Standard Act was passed, 
 declaring the dollar to be 25.8 troy grains, nine-tenths fine. 
 
 Gold was used domestically by nearly all the leading nations of the 
 world prior to the World War and is still used as a basis of international 
 exchange. 
 
 It was the orthodox theory, therefore, that gold had been made by 
 law the standard measure of value and that currency, which was 
 redeemable in gold, and silver certificates convertible into gold, and 
 fractional coins made legal tender by statute in limited amounts, 
 comprised money in the United States and no substitute for money, 
 such as a check, could properly be called money. Upon this premise, 
 that money consisted of legalized currency and nothing else, the 
 orthodox traditional economists pointed out with justice that such 
 money (statutory currency) did not fluctuate in such an amount as 
 to account for the violent changes which took place in the market 
 price of commodities and of stocks on the security exchanges. 
 
 In 1933 the Congress passed an act making all currency legal tender, 
 later retiring the national bank notes as money and demonetizing 
 gold in domestic circulation. 
 
 Upon the premise that gold and legalized currency alone consti- 
 tuted money, the orthodox economist denied the quantitative theory 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 23 
 
 which holds that the purchasing power of money is determined by 
 its volume. They held that the overproduction of goods caused the 
 violent fluctuations in the market price of commodities. They held 
 that gambling on the stock markets accounted for the change in the 
 prices of securities. They held that the lack of public confidence 
 caused the changes in market prices. 
 
 There are many other theories, more or less fanciful, urged by other 
 economists which have been quite adequately answered by Prof. 
 Irving Fisher in his book Booms and Depressions. It is sufficient for 
 this exposition to state that the orthodox theory denies the quantita- 
 tive theory of money on the premise that nothing is money except 
 gold, or currency redeemable in gold. 
 
 Economists holding this view have therefore insisted on a return 
 to the gold standard of 1900, and have denounced the demonetization 
 of gold in domestic circulation, and the act of Congress making un- 
 lawful contracts payable in dollars of a standard weight of gold, and 
 providing that all such contracts can be liquidated in lawful money. 
 
 Students should remember that money is anything which by con- 
 ventional use is employed as a medium of exchange and measure of 
 value, and that a recognition of this truth completely solves the 
 question of what makes the value of money. A knowledge of the 
 meaning of money therefore enables the student to demonstrate 
 that money is subject to the everlasting law of supply and demand 
 and that its value always depends upon the supply of money in 
 relation to the demand for money. 
 
 THE QUANTITATIVE THEORY OF MONEY 
 
 The quantitative theory of money is simply that the value of money 
 depends upon the supply of, and demand for, money. 
 
 The colossal demand for money is well known. It takes $12,000,- 
 000,000 per annum to pay the interest charges on borrowed money. 
 It takes $14,000,000,000 of money to pay the taxes of the United 
 States, the States, and their subdivisions. It took $845,000,000,000 of 
 check money to meet the requirements of the American people in 1926, 
 and if their growth had been normal from that time to this, it would 
 have required approximately an increase of probably 4 percent per 
 annum. This increase is estimated variously as from 3 to 5 percent 
 in America, yet in Great Britain, under managed money, Sir Reginald 
 McKenna reported in February 1938 that the increase of the indus- 
 trial production of Great Britain had been 50 percent in 5 years. 
 
 The supply of money in the United States, based upon debt, has 
 suffered violent fluctuations, as heretofore set forth. At the present 
 time, December 1938, the volume of check money is estimated to be 
 at the rate of $530,000,000,000 per annum. This is far less than half 
 of what it was in 1929. 
 
 Modern students of monetary science now know with certainty that 
 the value of money depends upon the supply of money in relation to 
 the demand for money. Gustav Cassel, professor of political economy 
 at the University of Stockholm, in his lectures on Post War Monetary 
 Stabilization before the University of Columbia and the University of 
 Chicago, sets forth these correct principles. His lectures are pub- 
 lished in book form by the Columbia University Press. 
 
24 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 The value of a currency is essentially determined bv the scarcity in the «udd1v 
 of means of payment (p. 64). ^ p - 
 
 It took many years of hard work to get people to understand that the only 
 thing that has real importance for the value of a currency is the total supply of 
 the means of payment (p. 3). 
 
 < The gold standard is nothing else than a paper standard, the value of which 
 is entirely dependent upon the way in which the supplv of the means of payment 
 is regulated (p. 4). J 
 
 The purchasing power of money is exclusively dependent on the scarcity in the 
 supply of the means of payment (p. 42). 
 
 The value of money cannot possibly be dependent on anything but the supply 
 of money in relation to the demand for money (pp. 91-92)/ 
 
 Cassel uses the term "means of payment" to include currency and 
 checks. 
 
 To illustrate these truths, Professor Cassel quotes the experience 
 of the leading European nations. France, for example, increased the 
 volume of the French franc five times, with the result that the pur- 
 chasing power of the franc fell to one-fifth of what it had been. 
 
 Italy expanded the lira four times, with the result that the lira 
 fell in purchasing power to one-fourth of what it had been. 
 
 Our own experience in the United States has completely demonstra- 
 ted the truth of the quantitative theory. 
 
 The supply of money, as a medium of exchange, consists only of the 
 volume of money so employed, and does not consist of currency 
 hoarded, or currency in the tills of banks and business houses; or of 
 demand deposits which are hoarded and held inactive and dormant 
 as reserves, or for future investment. This must be remembered in 
 applying the quantitative theory. 
 
 Chapter VIII 
 
 THE DOLLAR INDEX AND THE PRICE LEVEL 
 
 For 40 years the Department of Labor has been endeavoring to 
 establish the dollar index to show the relative purchasing power of 
 the dollar in the primary wholesale markets. To accomplish this, 
 they selected 784 commodities in 1926 and established the volume of 
 each commodity for the years 1923 and 1925, taking the mean average 
 of these 2 years. This fixed volume of each commodity has remained 
 substantially unchanged up to this date (1938). 
 
 In 1926 the average price of each commodity was ascertained by 
 taking the weekly market price for 52 weeks, adding up the numbers 
 and dividing by 52, thus getting the average price for the year 1926 
 of the individual commodity. This average market price for each 
 commodity was multiplied by the units in the fixed volume of such 
 commodity on the mean average of 1923 and 1925. Thus was ascer- 
 tained the total amount of dollars received for the fixed volume of 
 such commodity when multiplied by the average price for the year 
 1926. Thus was ascertained the number of dollars required to buy the 
 fixed volume of such commodity. The products in dollars for each of 
 the 784 commodities were then added up. It was found ; by this 
 process, that the total volume of dollars required to buy the total 
 fixed volume of the 784 commodities was 54.7 billion dollars. 
 
 The Department then declared this volume of dollars to represent 
 the volume of money required to buy the volume of commodities 
 listed. And for purposes of comparison with future years used an 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 25 
 
 index of 100 to represent the price level of 1926 and the index of the 
 purchasing power of money in' the wholesale markets for 1926. 
 Obviously, following the same methods of calculation for 1927, when 
 it was ascertained that the total volume of money required to buy 
 the fixed volume of commodities was 6 percent less than 54.7 billion 
 dollars, the index of the price level would fall 6 percent, and the 
 dollar index would rise 6 percent. This would demonstrate that the 
 purchasing power of money in relation to commodities sold in the 
 wholesale markets had increased 6 percent in relation to a fixed 
 volume of the commodities. 
 
 The dollar index and the price-level index were exclusively con- 
 cerned with the actual purchasing power of money in the primary 
 wholesale markets. They did not concern themselves with the causes 
 of the changes in the selling price of commodities. These indexes 
 dealt merely with the question of price, regardless of the cause of the 
 price. 
 
 The dollar index and the price-level index were alwa} T s in inverse 
 ratio to each other. When the volume of money required to buy the 
 fixed volume of commodities was ascertained, a comparison was made 
 with this volume of money and the $54,700,000,000. In that way 
 the index of the price level was obtained. When the index of the 
 price level was obtained, such as 94 in 1927, the index of the purchasing 
 power of money was ascertained by dividing 10,000 by 94 which gave 
 the purchasing power of the dollar in the wholesale markets at 106. 
 
 It was found for the year 1929 that the amount of money received 
 for the fixed volume of commodities was 5 percent less than the amount 
 of money received in 1926 for the same volume of commodities. 
 Therefore, the index of the price level was 95 and the 'dollar index was 
 105. 
 
 In May 1938 it was found that the amount of money required to 
 buy the fixed volume of commodities was 78 percent of $54,700,000,000 
 and the dollar index was 128, showing that the dollars were buying 
 28 percent more of the fixed volume of goods than in 1926. 
 
 Since it took only 78 percent of the money required in 1926 to buy 
 the same fixed volume of goods, it not only showed the increased pur- 
 chasing power of money in the purchase of such goods, but another 
 very important factor had entered into the question of the purchasing 
 power of money, so arrived at. 
 
 HOW PRICES ARE INFLUENCED 
 
 The prices in the wholesale primary markets are not only influenced 
 by the volume of money but are similarly influenced by the volume of 
 commodities. The dollar index and the price-level index pay no 
 attention whatever to the factor of the volume of commodities. The 
 volume of commodities, with the rise and fall in the volume of com- 
 modities, is shown by an entirely different index — the index of indus- 
 trial production, which shows the increase or decrease in the volume 
 of products (elsewhere explained). 
 
 If the volume of products should decrease 25 percent (the money 
 supply unchanging) the market price of such commodities would in- 
 crease by an inverse ratio of 33 percent. 2 
 
 » For the reason that since three-fourths of the volume would increase one-tbird in price, the increase of 
 one-third in price would raise the number of dollars to the same volume, or un to 10U percent of normal^ 
 assuming the money supply available bad not changed. 
 
 ■ 
 
26 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 It would require 54.7 billion dollars to purchase three-fourths of the 
 volume having an increased average price of one-third. But the 
 actual index of the price level would show a rise of 33 M percent and 
 the dollar index would be 75. The two multiplied together would 
 make 10,000. 
 
 In other words, the purchasing power of money in terms of such 
 commodities would fall 25 percent and the index of the average com- 
 modity price would rise 33 % percent. 
 
 If, however, with a decrease of 25 percent in the commodities, 
 there was a decrease of 25 percent in the volume of money, the pur- 
 chasing power of money would remain unchanged in terms of com- 
 modities, because the volume of commodities and the volume of 
 money fell in the same ratio. If the volume of commodities increased 
 50 percent and the volume of money increased 50 percent, there 
 would be no change in the price level or the dollar index, as the dollars 
 would buy the same volume of commodities as before. 
 
 If, therefore, the volume of commodities increased 5, 10, or 15 
 percent, the volume of money should increase 5, 10, or 15 percent in 
 order to preserve a dollar of the same purchasing power in terms of 
 commodities. 
 
 In 1929 the index of industrial production rose on an average of 
 19 percent above the 1923-25 average, but the volume of money in 
 the wholesale markets did not rise 19 percent. It rose less than 19 
 percent. If it had risen 19 percent, the price level and the dollar 
 index would have remained at 100, but the price level fell 5 percent 
 to 95 and the dollar index rose to 105, showing that the volume of 
 money did not correspond with the increase in the volume of com- 
 modities. Therefore, the purchasing power of money increased 5 
 percent for the year 1929. 
 
 In May 1938 the price-level index was 78 and the dollar index 128, 
 showing that the dollar was buying 28 percent more goods than in 
 1926, notwithstanding the vital fact that the index of industrial pro- 
 duction in May 1938 was 76. In other words, the dollar was buying 
 28 percent more goods when the goods were nearly one-fourth less in 
 volume. When the goods were diminished in volume to 76 percent of 
 normal, the market price of such goods should have increased by 
 inverse ratio, or 31% percent more than normal. Since the goods by 
 virtue of their scarcity were worth 31% percent more than normal, it is 
 obvious that the dollar was buying 28 percent more than normal at a 
 time in 1938 when the goods were theoretically worth 31% percent 
 more than normal. In other words, the volume of money was buying 
 28 percent more in volume of goods worth theoretically 131% in market 
 value. 
 
 This is a substantial physical fact and can only be accounted for by 
 a greater contraction in the money supply than would be super- 
 ficially indicated by the price level of 78, or the dollar index of 128. 
 
 The actual volume of money available, therefore, in the wholesale 
 markets in proportion to the goods was approximately 31 percent less 
 than 78 percent of the normal, or a contraction of the money supply to 
 a little over 50 percent of the normal supply of money in relation to 
 the normal supply of commodities as fixed in the year 1926. 
 
 The dollar index, therefore, should be about 170, in terms of com- 
 modities to represent actual rise in purchasing power. 
 
 In 1929 the volume of check money debited was 1,230 billion dollars 
 but in December 1938 it was approximately at the rate of 530 billion 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 27 
 
 dollars yearly, a contraction of the volume of check money in the 
 United States of more than half. This confirms, by actual statistical 
 facts, that there had been in the United States a contraction of check 
 money by over half from 1929. 
 
 When the purchasing power of the dollar increased in terms of 
 stocks over 600 percent from 1929 to 1933, it did not signify that the 
 volume of money had fallen to one-sixth of what it was, because in that 
 case, along with the shrinkage of check money to one-third, there came 
 on the market a huge volume of stock certificates which distressed 
 owners of such stock parted with either from fear of further fall, or 
 from necessity, because such stocks had been bought with bank loans 
 that could no longer be carried. The oversupply of stock certificates 
 therefore, in the market had the effect of cheapening such stocks at a 
 time when the contraction of the money supply expanded the purchas- 
 ing power of money and further cheapened the stocks in terms of 
 money. 
 
 The same principle applies in regard to real estate. When the 
 depression came on, bankruptcies ensued, hundreds of thousands of 
 shops were closed and offered for rental. The surplus of such shops 
 and stores was available on the market in the depression when they 
 were producing no income and were subject to actual loss through 
 taxes, insurance, maintenance, etc. 
 
 The dollar index does not deal with these subjects which indicate 
 the purchasing power of money in the fields of real estate and stocks. 
 The dollar index concerns itself exclusively with prices in the primary 
 wholesale markets on 784 commodities, used up to 1938. The number 
 has been expanded to 813 since January 1, 1938. It is also true that 
 "in making up the price level and the dollar index, in lieu of the fixed 
 volume of commodities established by the mean average of the years 
 1923-25, the Department of Labor took the mean average o£ the 
 years 1929-31 as a new basis. The new basis, however, made no 
 substantial difference in the volume of money required to buy the 
 784 commodities (now 813) because the index of industrial production 
 was 119 in 1929 and 81 in 1931, making a mean average of 100, and 
 producing therefore an average of about 55 billion dollars which is 
 within a fraction of 1 percent of 54.7 billion dollars, used in 1923-25. 
 
 In considering, therefore, the subject of the dollar index and the 
 price level index, it should be obvious that they clearly make manifest 
 the extreme manner in which the volume of money available in com- 
 merce and industry has been contracted, and that the remedy must 
 be found in expanding the money supply with intelligent care so as to 
 restore the price-level index to par, and keep it at par by expanding 
 the volume of money as the index of industrial production can be made 
 to expand under a system of regulating the value of money by regulat- 
 ing the volume of money in circulation. 
 
 In May 1938, the index of industrial production fell to an extreme 
 low point and rapidly rose to 90 by October. This index was seriously 
 influenced by the expansion of money through the expenditure of the 
 Government and the change of policy which went into effect in June 
 1938. Moreover, in April 1937, when the index of industrial produc- 
 tion was 118, there were on hand substantial inventories which were 
 gradually reduced by June 1938. The inventories being low at that 
 time, production w as stimulated by that circumstance. This should 
 not be overlooked in considering this question. 
 
 123338 — 39 3 
 
28 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 THE ALLEGED "DISEQUILIBRIUM" OF WHOLESALE PRICES 
 
 The rise and fall of the commodities listed is normally and generally 
 due to the rise and fall in the money supply. There are some com- 
 modities that escape this normal rule for the reason that commodities 
 like copper, lead, steel, tin, and zinc are controlled by monopolies 
 that can arbitrarily fix the price. Thus the price will not go down 
 because of a shortage of money, nor will such commodities go up in 
 price, necessarily, because of an expansion of money. But the ex- 
 pansion of money lays a foundation by which commodities controlled 
 by monopolies not only can be raised in price correspondingly with 
 the rise in other commodities, but it often happens, as in the case of 
 copper and lead, that when business conditions substantially improve 
 and the demand for building purposes requires a larger volume of 
 copper and lead, the managers of the monopoly take advantage of 
 the conditions to arbitrarily raise their prices far above the average 
 rise of other commodities. In this way they have a tendency to dis- 
 courage building and to slow down the processes of a more favorable 
 market. 
 
 As elsewhere stated, the remedy for the arbitrary raising of the 
 prices of commodities, such as copper, lead, tin, steel, and zinc, does 
 not lie within the scope of monetary control, but the regulation of 
 such unfair prices fixed upon the public must be left to the Congress 
 when passing laws to regulate the monopolies and unfair practices by 
 them, or practices against the public interest. 
 
 It has been urged by some economists that the depression of 
 1937-38 was due to the arbitrary raising of the price of copper and 
 other monopoly products. But copper and the products of copper, 
 taken as a whole, only comprise about 1 percent of the average values 
 of the listed commodities on which the price level is based. The 
 effect of an arbitrary rise in such commodities would be to arbitrarily 
 increase, by an extremely small percentage, the price level without 
 such an increase being based on an increase in the money supply. 
 If the increase were due to an increase of the money supply, it would 
 mean that the increase would be accompanied by an increase in the 
 volume of production and employment, whereas the arbitrary in- 
 crease has no such foundation. When the price of copper was raised 
 business was active and continued to be active during January, 
 February, March, April, and May and the index of industrial produc- 
 tion rose until March and only began to fall as the marketing of 
 securities progressed and the hoarding of the money received from the 
 sale of such securities was carried on on a gradually increasing scale, 
 until the crash occurred in September. This has been elsewhere fully 
 explained. 
 
 In short, the so-called disequilibrium of prices is not a monetary 
 problem, and even regardless of arbitrary fixed prices by monopoly, 
 the disequilibrium (so-called) of wholesale prices is necessarily due 
 to the larger or smaller supply of individual commodities in relation 
 to the demand for such individual commodities. It is only the value 
 of all of the listed commodities that indicates the changes in the 
 purchasing power and in the supply of money. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 29 
 
 THE VOLUME OF MONEY AND THE PRICE LEVEL 
 
 Under the law of supply and demand, the demand for money to 
 pay for the 784 listed commodities manufactured in this country will 
 depend upon the supply of money available in the wholesale com- 
 modity markets. The demand for money in the wholesale commodity 
 markets is by no means the only demand for money. Money may be 
 expanded in speculation in the security markets without necessarily 
 affecting the money employed in normal trade in the commodity 
 markets. 
 
 This took place in the years 1924 to 1930, inclusive, when there was 
 a great expansion in the number of stock certificates sold to the 
 American people. There were sold, and listed on the stock exchanges, 
 over a billion shares in less than 10 years. The sales from 1922 to 
 1932 amounted to over $50,000,000,000. About $3,000,000,000 came 
 from abroad for the purpose of buying stocks on the American se- 
 curity exchanges. 
 
 The total loans made to brokers on the New York Stock Exchange 
 alone amounted to $8,600,000,000 by September 1929. The loans 
 made in other security exchange markets amounted to about $3,000,- 
 000,000 more, \ 
 
 It had the effect on the New York Stock Exchange of raising the 
 prices of common and preferred stock to a gross of $89,000,000,000. 
 When the credit was withdrawn, a violent shrinkage in the value of 
 these stocks took place. They were quoted for approximately $12,- 
 000,000,000 in 1932, at the low. 
 
 Check debits fell from $1,230,000,000,000 in 1929 to $430,000,000,- 
 000 in 1933. The effect of this contraction reflected itself naturally 
 in the increased purchasing power of the money in terms of stocks 
 that remained, so that dollars bought about seven times as much stock 
 at the low in 1932 as at the high in 1929. 
 
 The effect on the price of commodities, however, was very much 
 less because commodities comprise the actual necessities, comforts, 
 and conveniences of life which the people employ day by day. There 
 was no speculation in the commodity markets during this period. 
 Therefore, the purchasing power of money in terms of commodities 
 fell only to 60 at the low point from 95 in 1929. 
 
 While this contraction in the money supply was taking place 
 and the demand bank deposits and convertible time deposits fell 
 from $34,000,000,000 in 1929 to $14,000,000,000 in 1932, the volume of 
 commodities also fell, due to unemployment. This made commodities 
 scarcer and, therefore, worth more in terms of money, and helped 
 to prevent the money rising higher in its purchasing power of com- 
 modities. 
 
 Money, therefore, is affected in its purchasing power not only by 
 the expansion and contraction of the volume of money but also by the 
 general expansion and contraction of the volume of commodities 
 bought and the volume of securities for sale. 
 
 The price level, or all-commodity index, might be affected by a gen- 
 eral drought that would make scarce all agricultural products and 
 influence the products of animal industry. In regulating the value of 
 money by regulating the volume of money account must be taken 
 therefore, of any national drought or state of war that would i 
 with the normal flow of commodities. 
 
 linen ere 
 
30 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 There are four factors which enter into the cost of an individual 
 commodity. If the supply of wheat is in great excess of what the 
 American people require in wheat (or the substitutes available for 
 wheat) then wheat will fall in price under the law of supply and 
 demand because of its superabundance. The same thing is true with 
 cotton or potatoes, regardless of the volume of money. But, if the 
 volume of money is expanded and the potato crop is only half the 
 normal supply, the price of potatoes would rise very much higher 
 because of the two factors of scarcity cf potatoes and unusual abun- 
 dance of money. If, on the other hand, the money supply Was 
 greatly contracted and the potato crop was two or three times as much 
 as normal, in man} 7 places the potatoes would remain in the ground, 
 not worth digging up. 
 
 It is extremely difficult to forecast whether a potato crop will be 
 superabundant or extraordinarily scarce, because it depends upon 
 many factors, particularly climatic conditions. 
 
 The United States Government, however, through the employment 
 of its present facilities and its present laws, can regulate the value of 
 money in regard to commodities and all forms of property, leaving the 
 individual commodity to be controlled by other factors which may or 
 may not be controlled by the Government. 
 
 The following table shows the annual supply of check money and 
 the rise and fall of the price level from the years 1929 to 1938. 
 
 Rise and fall of checks cashed and the price level 
 
 
 Checks ' 
 
 Price 
 level 
 
 
 Checks i 
 
 Price 
 level 
 
 1929 
 
 1,230 
 900 
 660 
 450 
 430 
 
 95.2 
 86.8 
 72.1 
 03. 9 
 65.0 
 
 1934 
 
 470 
 530 
 611 
 637 
 530 
 
 74. 6 
 79.8 
 80.6 
 81.7 
 77.0 
 
 1930 
 
 1935 
 
 1931 
 
 1936 
 
 1932 
 
 1937 
 
 1933 
 
 December 1938 '.. 
 
 
 
 i Indicates billions and decimals thereof. 
 
 Source: Board of Governors of the Federal Reserve System. 
 
 Chapter IX 
 
 THE RELATIONSHIP OF THE PRICE LEVEL TO FACTORY EMPLOYMENT 
 
 AND WAGES 
 
 It is of importance to understand the relationship of the price level, 
 or money supply, to factory employment and factory wages. 
 
 Naturally, when the money supply is severely contracted, there 
 will be a shortage of money with which to buy the products of labor. 
 And, therefore, the products of labor must be diminished because the 
 factories cannot afford to create products which cannot be sold. 
 When there is a great scarcity of money, therefore, the result is a 
 shortage of the means of paying wages, salaries, and carrying inven- 
 tories, as well as the means with which to buy the products of labor. 
 When consumption of the products of labor is cut down it results in 
 cutting down the production, which means cutting down the number 
 of those employed in production. 
 
 Necessarily, a shortage of money means a lesser consumption, 
 lesser production, lesser employment. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 This reasoning is borne out by the statistical evidence collected by 
 the Department of Labor for a long period of time. It is of impor- 
 tance to understand this vital fact: That factory employment and 
 factory wages fall when there is a contraction of the money supply, 
 and rise when there is an expansion of the money supply. 
 
 The following table graphically sets forth these comparisons for the 
 years 1920 through 1935. 
 
 The effect of the rise and fall of the price level on factory employment and wages 
 
 Prices 
 
 1920: 
 
 154.4. 
 153.9. 
 156.0 
 161.9 
 165.0 
 160.7 
 159.4. 
 153.9. 
 150.0. 
 140.6. 
 130.0. 
 113.7. 
 
 1921: 
 
 112.4. 
 106.0 
 102.9. 
 99.0.. 
 96.3.. 
 93.a_. 
 93.3.. 
 93.8.. 
 93.8.. 
 93.8.. 
 93.2.. 
 92.6.. 
 
 1922: 
 91.6.. 
 93.6.. 
 95.5.. 
 95.6.. 
 98.8.. 
 99.0.. 
 102.5 
 102.6 
 101.2 
 102.0 
 103.0 
 103.4 
 
 1923: 
 103.1 
 103.3 
 105.0 
 105.0 
 103.5 
 101.7 
 99.3.. 
 99.4.. 
 101.8 
 101.4 
 100.7 
 100.0 
 
 1924: 
 
 100.0 
 100.5 
 99.3.. 
 9S.3.. 
 97.3. 
 95. 7. 
 97.3. 
 99.1.. 
 98. 5. 
 100.6 
 101.1 
 103.9 
 
 Employ- 
 ment 
 
 Pay roll 
 
 114. 
 113 
 116. 
 114. 
 112. 
 111. 
 108. 
 108. 
 107. 
 103. 
 97 
 
 SI. 
 
 82. 
 
 83. 
 
 82 
 
 81. 
 
 81. 
 
 79. 
 
 81. 
 
 83. 
 
 84. 
 
 84.2 
 
 83.3 
 
 82.5 
 84.6 
 85.9 
 85.8 
 87.9 
 89.8 
 88 2 
 91 4 
 94.5 
 97.0 
 
 5 
 
 100. 
 
 100. 
 102. 
 104. 
 105. 
 105. 
 106. 
 101. 
 105 
 105 
 104. 
 103. 
 101 
 
 100. 
 101. 
 101. 
 
 99. 
 
 96 
 
 93. 
 
 91. 
 
 92. 
 
 94. 
 
 95. 
 
 94. 
 
 96. 
 
 117. 
 115. 
 123. 
 120. 
 122. 
 124. 
 119. 
 121. 
 119. 
 115. 
 107. 
 
 82.8* 
 81.3 
 81.7 
 79.0 
 77.3 
 75.4 
 71.7 
 73.9 
 73.4 
 72.6 
 71.7 
 73.3 
 
 69.6 
 72.4 
 74.9 
 73.8 
 77.2 
 80.5 
 78.5 
 83.0 
 87.0 
 89.5 
 93. 4 
 95.7 
 
 94.6 
 97.9 
 102. 5 
 103.8 
 107.3 
 107. 5 
 103.3 
 103.8 
 104.3 
 106. fi 
 104. 5 
 102. 9 
 
 98.8 
 
 104. 1 
 
 105. 1 
 101.8 
 
 97.5 
 92.4 
 85.7 
 89.3 
 92.5 
 95. 1 
 93.7 
 97 6 
 
 Prices 
 
 1925: 
 
 106.0. 
 
 106.4. 
 
 106.6. 
 
 103.4. 
 
 102.6. 
 
 104.2. 
 
 106.3 
 
 106.6. 
 
 105.8. 
 
 104.3. 
 
 104.4. 
 
 103.4. 
 1926: 
 
 103.2. 
 
 102.5. 
 
 100.5. 
 
 100.0. 
 
 100.5. 
 
 100.8. 
 
 99.7.. 
 
 98.7- 
 
 99.6.. 
 
 99.1.. 
 
 98.0.. 
 
 97.4.. 
 1927: 
 
 96.6- 
 
 95.9-. 
 
 94.5.. 
 
 93.7- 
 
 93.7- 
 
 93.8- 
 
 94.1.. 
 
 95.2. 
 
 96.5.. 
 
 97.0.. 
 
 96.7.. 
 
 96. 8. 
 1928: 
 
 9C.3- 
 
 96.4.. 
 
 96. 0. 
 
 97.4.. 
 
 98.6.. 
 
 97.6.. 
 
 98V- 
 100.1. 
 
 97.8.. 
 96.7.. 
 9«>.7 . 
 1929: 
 97.2. 
 96.7.. 
 97.5.. 
 96.8- 
 95.8.. 
 96.4- 
 98.0.. 
 97.7.. 
 97.5.. 
 96.3.. 
 94.4.. 
 94.2.. 
 
 Employ- 
 ment. 
 
 96.3 
 
 95.4 
 
 98. 1 
 
 100.8 
 
 98.8 
 
 102.4 
 
 98.7 
 
 100.0 
 
 98. 1 
 
 100.7 
 
 98.0 
 
 98.7 
 
 97.8 
 
 96.8 
 
 99.5 
 
 99.3 
 
 101.5 
 
 98.8 
 
 in-' •> 
 
 lUt. O 
 
 101.8 
 
 104.6 
 
 101.5 
 
 105.2 
 
 100.5 
 
 100.9 
 
 101. 5 
 
 105.0 
 
 102.1 
 
 106. 5 
 
 101.4 
 
 104.4 
 
 100.4 
 
 103.1 
 
 100.3 
 
 103.3 
 
 99.4 
 
 99.0 
 
 101.4 
 
 103.4 
 
 103. 4 
 
 104.4 
 
 103. 1 
 
 107. 6 
 
 101.4 
 
 104.1 
 
 100.0 
 
 103.5 
 
 98.2 
 
 98.4 
 
 99.7 
 
 104.4 
 
 100.2 
 
 105.7 
 
 99.0 
 
 104.5 
 
 99. 1 
 
 104.0 
 
 99. 1 
 
 102.4 
 
 98. 1 
 
 98. 5 
 
 99. 3 
 
 101.9 
 
 100.5 
 
 101.4 
 
 99.6 
 
 102 1 
 
 97. 4 
 
 98 5 
 
 96. 1 
 
 99.5 
 
 95.0 
 
 96.0 
 
 96. 5 
 
 101.2 
 
 97.6 
 
 102 5 
 
 97. 1 
 
 100. 5 
 
 97.0 
 
 101.3 
 
 97.8 
 
 101. 7 
 
 97.7 
 
 99.0 
 
 100. 1 
 
 103 3 
 
 102. 2 
 
 104.7 
 
 102. G 
 
 10S.2 
 
 101.7 
 
 105.0 
 
 101.2 
 
 105.6 
 
 100.8 
 
 102.3 
 
 102.9 
 
 109.3 
 
 104. 1 
 
 111.6 
 
 105.3 
 
 112.6 
 
 105.3 
 
 112.9 
 
 105. 6 
 
 111.2 
 
 1C6. 1 
 
 107.2 
 
 107.9 
 
 112.0 
 
 109. 
 
 112.9 
 
 107.7 
 
 1 12. 4 
 
 103.6 
 
 104. 1 
 
 99.8 
 
 100.7 
 
32 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 The effect of the rise and fall of the price level on factory employment and wages— Con. 
 
 1930: 
 
 92.5. 
 91.4. 
 90.2. 
 90.0. 
 
 1931: 
 
 84.4. 
 84.3. 
 84.4. 
 83.0. 
 91.3. 
 79.6. 
 
 78.2. 
 76.8. 
 76.0. 
 78.4. 
 73.2. 
 72.1. 
 72.0. 
 72.1. 
 71.2. 
 70.3. 
 70.2. 
 
 1932: 
 
 67.3. 
 66.3. 
 66.0. 
 65.5. 
 64.4. 
 63.9. 
 64.5. 
 65.2. 
 65.3. 
 
 63.9. 
 62.6. 
 
 Prices 
 
 Employ- 
 ment 
 
 97.3 
 97.3 
 96.9 
 96.3 
 94.8 
 92.9 
 89.5 
 88.8 
 89.6 
 87.7 
 84.6 
 82.3 
 
 79.6 
 80.3 
 80.7 
 80.7 
 80.1 
 78.4 
 77.0 
 77.1 
 77.4 
 74.4 
 71.8 
 71.0 
 
 68.7 
 69.5 
 68.4 
 66. 1 
 63.4 
 61.2 
 58.9 
 60. 1 
 63.3 
 64.4 
 63.4 
 62. 1 
 
 Pay roll 
 
 95.9 
 98.8 
 98.8 
 97.7 
 95.4 
 92.3 
 84.3 
 83.3 
 84.1 
 82.2 
 76.8 
 75.2 
 
 70.0 
 74.3 
 75.6 
 74.4 
 73.4 
 69.7 
 66.2 
 65.9 
 63.4 
 61.3 
 58. 1 
 57.6 
 
 53.5 
 54.6 
 53. 1 
 49.5 
 46.8 
 43.4 
 39.8 
 40.6 
 42.9 
 44.7 
 42.9 
 41.5 
 
 1933: 
 62.0. 
 59.8. 
 60.2. 
 60.4. 
 62.7. 
 65.0. 
 68.9. 
 69.5. 
 70.8. 
 71.2. 
 71.1. 
 70.8. 
 
 1934: 
 
 1935: 
 
 72.2. 
 73.6. 
 73.7. 
 73.3. 
 73.7. 
 74.6. 
 74.8. 
 76.4. 
 77.6. 
 76.5. 
 76.5. 
 76.9. 
 
 78.8. 
 79.5. 
 79.4. 
 80.1. 
 80.2. 
 79.8. 
 79.4. 
 80.5. 
 80.7. 
 80.5. 
 80.6. 
 80.9. 
 
 Prices 
 
 Employ- 
 ment 
 
 Pay roll 
 
 60.2 
 
 39. 5 
 
 61. 1 
 
 40 2 
 
 58.8 
 
 37. 1 
 
 59.9 
 
 38. 8 
 
 62.6 
 
 42. 7 
 
 66.9 
 
 47. 2 
 
 71.5 
 
 50. 8 
 
 76.4 
 
 56 8 
 
 80.0 
 
 59.1 
 
 79. 6 
 
 59.4 
 
 76. 2 
 
 55. 5 
 
 74.4 
 
 54. 5 
 
 73.3 
 
 54.0 
 
 77.7 
 
 60. 6 
 
 80.8 
 
 64. 8 
 
 82.3 
 
 67.3 
 
 82. 4 
 
 fl7 1 
 
 81. 1 
 
 64. 9 
 
 78.6 
 
 60. 4 
 
 79.4 
 
 62. 3 
 
 75.8 
 
 59. 1 
 
 78.4 
 
 61.0 
 
 76.8 
 
 59.5 
 
 78. 1 
 
 63.2 
 
 78.6 
 
 64.1 
 
 81.2 
 
 69. 1 
 
 82.4 
 
 70.8 
 
 82.4 
 
 70.7 
 
 81.1 
 
 68.5 
 
 79.7 
 
 66.5 
 
 79.5 
 
 65.3 
 
 83.5 
 
 72. 1 
 
 85.3 
 
 75.1 
 
 84.8 
 
 74.5 
 
 84.6 
 
 72.2 
 
 Source: Hearings before the House Banking Committee on H. R. 7230, March 1938. 
 
 It will be observed that as the price level, which represents the 
 volume of money employed in buying all of 784 listed commodities 
 in the wholesale markets, rises or falls, within from 30 to 60 days, as 
 a rule, factory wages and factory employment rise and fall correspond - 
 
 The following table gives the high and low points for the same period 
 1 1 time : 
 
 Table showing index price level, factory employment, and factory wages 
 
 fAs employment and wages have a short lag, the figures in italics below have their dates a month or two 
 
 later] 
 
 Commodity index 
 
 Factory 
 employ- 
 ment 
 
 Factory 
 
 June 1920... 166.7 
 
 January 1922 down to 91. 6 
 
 April 1923 up to 105.0 
 
 June 1924 down to... 95. 7 
 
 August 1925 up to 106.5 
 
 May 1927 down to 93.7 
 
 September 1928 up to - 100. 1 
 
 October 1929 100.1 
 
 Februarv 1933 down to 59.8 
 
 Septem her 1 933 up to — 70. 8 
 
 March 1936 up to 79. 6 
 
 111.1 
 82.5 
 
 105.0 
 91.0 
 
 102. 2 
 98.1 
 
 102.6 
 
 109 
 58.8 
 80.0 
 84.2 
 
 124.2 
 69.6 
 
 107.0 
 85.7 
 
 104.6 
 98.6 
 
 108.2 
 
 112.9 
 38.8 
 59.1 
 75.7 
 
 8ource: Hearings before the Committee on Agriculture and Forestry, United States Senate, 75th Cong., 
 On farm commodity prices. June 7, 8, and 9, 1937. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 33 
 
 It is of importance to remember that for every man and woman em- 
 ployed in the factories there is a constant ratio of about two and one- 
 half persons employed in other lines of business. In order, therefore, 
 to restore factory employment and other lines of employment to a 
 maximum, it is necessary to expand the money supply and to raise the 
 price level to at least normal, until a sufficient amount of money is 
 supplied to pay annual living wages to all of those who are able and 
 willing to labor in the factory, the field, the mine, and in the services. 
 
 THE PRICE LEVEL IN RELATION TO CAR LOADINGS 
 
 The price level, representing as it does the relative volume of money 
 employed in the wholesale markets, should be compared also with the 
 index of car loadings as further proof that changes in the money supply 
 employed in the wholesale markets is accompanied by corresponding 
 changes in the index of car loadings. 
 
 The index of- car loadings is based upon absolute knowledge of day 
 to day figures and, therefore, is very dependable. 
 
 The price level and freight car loadings 
 
 Year 
 
 Price 
 level 
 
 Freight 
 car load- 
 ings 1 
 
 Year 
 
 Price 
 level 
 
 Freight 
 car load- 
 ings 1 
 
 1925 
 
 103.0 
 100.4 
 94. 1 
 96.7 
 95.2 
 86.8 
 72. 1 
 
 103 
 107 
 104 
 104 
 107 
 92 
 74 
 
 1932 
 
 63.9 
 65.0 
 74.6 
 
 55 
 58 
 62 
 64 
 75 
 78 
 
 1926 
 
 1933 
 
 1927 
 
 1934 
 
 1928 
 
 1935 
 
 79.8 
 80.6 
 81.7 
 
 1929 
 
 1936 
 
 1930 
 
 1937 
 
 1931 
 
 
 i Average per working day. 
 
 Source: Board of Governors of the Federal Reserve System. 
 
 These carloadings, it should be remembered, indicate the greatest 
 factor in the revenues of railroads. Their falling off during these 
 years plainly points out that the most important reason for the distress 
 of the railroads is the contraction of the money supply in the wholesale 
 markets. The money employed in the wholesale markets represents 
 the diminished purchasing power of the consumers due to a contrac- 
 tion of the money supply. 
 
 THE EFFECT OF THE VOLUME OF MONEY ON THE VOLUME OF CON- 
 STRUCTION CONTRACTS 
 
 It will be noted that the index of construction contracts varied in 
 the same manner, substantially, as carloadings and industrial produc- 
 tion. The index of construction contracts, as compared with the 
 
34 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 price level, or all -commodity index, or volume of money employed in 
 the wholesale markets, for the years 1926 to 1936, inclusive, follows: 
 
 The price level and construction contracts awarded {value) 
 
 Year 
 
 Price 
 level 
 
 Construc- 
 tion con- 
 tracts 
 awarded 
 (value) 
 
 Year 
 
 Price 
 level 
 
 Construc- 
 tion con- 
 tracts 
 awarded 
 (value) 
 
 1926.. 
 
 100.4 
 94. 1 
 96.7 
 95.2 
 86.8 
 72.1 
 
 129 
 
 1932 
 
 63.9 
 65.0 
 74 6 
 79.8 
 80 6 
 
 28 
 25 
 
 32 
 37 
 65 
 
 1927. 
 
 129 
 135 
 117 
 
 92 
 63 
 
 1933 
 
 1928.. 
 
 1934 
 
 1929 
 
 1935 
 
 1930 
 
 1936 
 
 1931. 
 
 
 Source: Board of Governors of the Federal Reserve System. 
 
 THE EFFECT ON EXPORTS AND IMPORTS OF THE CONTRACTION OF CREDIT 
 AND THE MONEY SUPPLY 
 
 It seems desirable to call attention to the contemporaneous effect 
 upon our imports and exports as compared with the volume of checks 
 debited — money supply. 
 
 The following table shows these relationships: 
 
 Check money and ex-ports and imports 
 
 [In billions and decimals thereof] 
 
 Year 
 
 Check 
 money 
 
 Exports 
 
 Imports 
 
 Year 
 
 Check 
 money 
 
 Exports 
 
 Imports 
 
 1929 
 
 1,230 
 900 
 660 
 
 5.2 
 
 4.4 
 
 1933.... 
 
 430 
 
 1.7 
 
 1.4 
 
 1930 
 
 3.8 
 
 3. 1 
 
 1934. 
 
 470 
 
 2. 1 
 
 1.7 
 
 1931.... 
 
 2.4 
 
 2. 1 
 
 1935.... 
 
 530 
 
 2.3 
 
 2.0 
 
 1932. 
 
 450 
 
 1.6 
 
 1.3 
 
 
 
 
 
 
 
 
 
 
 Source: Board of Governors of the Federal Reserve System. 
 
 THE EFFECT ON OUR BUSINESS ENTERPRISES OF THE CONTRACTION OF 
 CREDIT AND THE MONEY SUPPLY 
 
 During the World War, when credit was greatly expanded, from 1914 
 to 1920, the normal number of business failures which occur from the 
 incapacity of individuals was diminished. When the contraction of 
 credit and currency took place in 1921, in the summer of 1920 and 1921, 
 these failures increased in number and in the amount of money involved. 
 
 The effect of the depression of 1921 on the banks of the country was 
 very serious, since it diminished the solvency of individual borrowers 
 and the value of investments held by the banks. When the depression 
 of 1929-32 came, these effects again reappeared increasing the number 
 of failures and the amount involved. 
 
 The effect which follows such a depression is not always immedi- 
 ately felt by the business houses or by the banks because men do not 
 fail until they are forced into failure. This takes a certain element of 
 time. 
 
 There is here inserted a table showing the number of failures and 
 the amounts involved in business houses with the decline in the number 
 of banks in the United States from 1914 to 1935. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 35 
 
 Decline in the number of banks and commercial failures with amounts involved 
 
 Year 
 
 Number of 
 national 
 banks 
 (June 30 or 
 nearest 
 date) 
 
 Number of 
 State 
 banks 
 
 (June 30 or 
 nearest 
 date) 
 
 Total 
 number of 
 
 banks 
 (June 30 or 
 
 nearest 
 
 date) 
 
 N umber of 
 commer- 
 cial 
 failures 
 
 Amount ol 
 failures 
 (in mil- 
 lions) 
 
 1914 
 
 7, 514 
 
 18. 760 
 
 26, 274 
 
 18, 280 
 
 357.9 
 
 1915 -. 
 
 7. 597 
 
 19, 008 
 
 26, 605 
 
 22, 156 
 
 302.3 
 
 1916 
 
 7, 571 
 
 19.470 
 
 27, 041 
 
 16. 993 
 
 196. 2 
 
 1917 
 
 7, 599 
 
 19.896 
 
 27. 495 
 
 13, 855 
 
 182.4 
 
 1918. 
 
 7. 699 
 
 20, 635 
 
 28, 334 
 
 9, 982 
 
 163.0 
 
 1919 
 
 7, 779 
 
 20, 821 
 
 28, 600 
 
 6, 451 
 
 113. 3 
 
 
 8.024 
 
 21,805 
 
 29, 829 
 
 8, 881 
 
 295. 1 
 
 1921 
 
 8, 150 
 
 22,410 
 
 30, 560 
 
 19, 652 
 
 627.4 
 
 1922 
 
 8, 244 
 
 21,914 
 
 30, 158 
 
 23, C76 
 
 623.9 
 
 1923 
 
 8. 236 
 
 21,597 
 
 29, S33 
 
 18.718 
 
 539.4 
 
 1924 — ... 
 
 8, 080 
 
 20,916 
 
 28 996 
 
 20,615 
 
 543.2 
 
 1925 
 
 8, 066 
 
 20,413 
 
 28. 479 
 
 21.214 
 
 443.7 
 
 1926 
 
 7, 972 
 
 19, 882 
 
 27, 854 
 
 21,773 
 
 409.2 
 
 
 7, 790 
 
 18. 975 
 
 26. 765 
 
 23, 146 
 
 520. 1 
 
 1928 
 
 7, 685 
 
 18,256 
 
 25,941 
 
 23. 842 
 
 489.6 
 
 1929 
 
 7. 530 
 
 17, 580 
 
 25,110 
 
 22, 909 
 
 483. 3 
 
 1930 
 
 7. 247 
 
 16, 605 
 
 23, 852 
 
 26, 355 
 
 668.3 
 
 1931 
 
 6. 800 
 
 15, 103 
 
 21, 903 
 
 28, 285 
 
 736.3 
 
 1932 „ 
 
 6, 145 
 
 12, 901 
 
 19, 046 
 
 31, 822 
 
 928.3 
 
 1933 
 
 4. 897 
 
 9,622 
 
 14. 519 
 
 20, 307 
 
 502.8 
 
 1934 
 
 5,417 
 
 10,418 
 
 15, 835 
 
 12, 185 
 
 264.2 
 
 1935 
 
 5. 425 
 
 10, 569 
 
 15, 994 
 
 11, 879 
 
 230.1 
 
 Source: Board of Governors of t,be Federal Reserve System. 
 
 Students will recall where the contraction of money took place in 
 1921 and in 1929-32 it was reflected in the items above set forth 
 immediately. 
 
 Chapter X 
 
 THE INDEX OF INDUSTRIAL PRODUCTION 
 
 The index of industrial production is based upon the volume of a 
 number of industries, under some 60 classifications, representing about 
 80 percent of the total of the national industrial production. 
 
 This index was based upon the years 1923-25 in order to give a 
 more stable basis of comparative calculation in succeeding years. 
 These calculations are made from a vast amount of data and are 
 worked out by mathematical and economic calculations. A full 
 explanation of these calculations and the methods by which they are 
 made will be found in the Federal Reserve Bulletin of February and 
 March 1927, and reprinted in a pamphlet in November 1937. 
 
 The index of industrial production represents the percentage of the 
 volume of industrial production of 1 year as compared to the basic 
 average of 1923-25, which was put at the arbitrary figure of 100 for 
 purposes of comparison. 
 
 The kinds of industries used as a basis and their relative importance 
 are as follows: 
 
 Relative 
 
 Data used in index of industrial production magni- 
 J ^ fade 1 
 
 Manufactures 85. 71 
 
 Iron and steel and their products 19. 77 
 
 Textiles and their products 17. 72 
 
 Food products 9. 19 
 
 Paper and printing 10. 76 
 
 Computed from average annual data for the 3-base period years, 1923-25, with revisions to 1937. 
 
36 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 Data used in index of industrial production — Continued magni- 
 
 tudt 
 
 Lumber and allied products 8. 27 
 
 Transportation equipment 5. 36 
 
 Leather and its manufactures 3. 37 
 
 Stone, claj r , and glass products 2. 56 
 
 Metals and metal products, other than iron and steel 1. 75 
 
 Chemicals and allied products 1. 96 
 
 Rubber products 1. 87 
 
 Tobacco manufactures 1. 08 
 
 Minerals 14. 29 
 
 Industrial production 100. 00 
 
 Source: Board of Governors of the Federal Reserve System. 
 
 The index of industrial production should normally expand at the 
 rate of 4 percent annually because of the increase of population, of 
 horsepower, and of electric energy used for light, heat, and power. 
 
 As an example, power-producing machinery in the United States 
 has increased from 704,266,000 horsepower in 1924 to 1,198,000,000 
 in 1935. The increase of electric energy has been much greater than 
 4 percent per annum and the expansion of this power in process of 
 production may be expected to continue this increase for years to come. 
 ^ In the Federal Power Commission's pamphlet "Electric Power Sta- 
 tistics" the following table appears, giving the expansion of kilowatt- 
 hours since 1920 through 1937: 
 
 Production of electric energy in the United States 
 Total 1 
 
 1920 42, 664, 014 
 
 1921 40, 584, 040 
 
 1922 47, 071, 804 
 
 1923 54, 857, 797 
 
 1924 58, 137, 300 
 
 1925 65,011,833 
 
 1926 73, 055, 002 
 
 1927 78, 579, 669 
 
 1928 85, 769, 014 
 
 1 Thousands of kilowatt-hours. 
 
 It will be observed that the total of kilowatt-hours has increased 
 from 42.6 billions in 1920 to 121 billions in 1937, nearly 200 percent 
 in 18 years or over 10 percent per annum; whereas our money supply 
 since 1926 has decreased at least 23 percent, as shown by the volume 
 of money employed in the wholesale primary markets, the all-com- 
 modity index having gone from 100 down to 77. And our total check 
 money having gone from $845,000,000,000 in 1926 to an estimate for 
 the year 1938 of approximately $530,000,000,000, a contraction of 
 $300,000,000,000 in 12 years, or about 35 percent. 
 
 THE RELATIONSHIP OF THE INDEX OF INDUSTRIAL PRODUCTION TO THE 
 
 PRICE LEVEL 
 
 The price level, or the volume of money employed in the purchase 
 of the 784 commodities in the wholesale markets, has a very important 
 relationship to the index of industrial production, as well as to factory 
 employment. 
 
 a When the price level, or volume of money, rises in the wholesale 
 markets, the index of industrial production rises. When the volume 
 
 Total 1 
 
 1929 95, 165, 462 
 
 1930 93, 855, 381 
 
 1931 90,089,852 
 
 1932 81, 827, 806 
 
 1933 84, 175, 704 
 
 1934 90, 219, 957 
 
 1935 97,811,305 
 
 1936 111,431,357 
 
 1937 121,049,630 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 37 
 
 of money employed in the wholesale markets falls, the index of in- 
 dustrial production falls. 
 
 For example: In 1929 the price level was 95, and the index of 
 industrial production was 119, for the average of 1929. In February 
 1933 the index of the volume of money employed in the wholesale 
 markets, or the price level, was 60 and the index of industrial pro- 
 duction had fallen from 1 19 to 64. In July 1938 the index of industrial 
 production was 81 while the price level was 78.8. 
 
 It thus appears clearly that the volume of money employed in the 
 wholesale markets not only indicates the purchasing power of money, 
 but it demonstrates that with the fall of the volume of money in the 
 wholesale markets, industrial production falls in corresponding degree. 
 
 V/e have elsewhere shown that the price level, or volume of money 
 employed in the wholesale markets, indicates factory employment; 
 and that factory employment rises as the volume of money in the 
 wholesale markets rises. Of course as factory employment rises 
 industrial production would necessarily rise. So that both the reason 
 and the statistical fact should be perfectly clear that the volume of 
 money employed in the wholesale markets indicates factory employ- 
 ment and industrial production. 
 
 In dealing with factory employment and industrial production, 
 the money employed in the wholesale markets is therefore a vital 
 determining influence. 
 
 Since the rise and fall of the price level, or the money supply, 
 indicates the rise and fall of employment and factory production, it 
 is of importance to note the relationship between the price level and 
 the index of industrial production. The following table shows this 
 relationship: 
 
 The price level and the index of industrial production 
 
 Year 
 
 Price 
 level 
 
 Index of 
 industrial 
 production 1 
 
 Year 
 
 Price 
 level 
 
 Index of 
 industrial 
 production 1 
 
 1926 - 
 
 100.4 
 94. 1 
 96.7 
 95.2 
 86.8 
 72.1 
 
 108 
 106 
 111 
 119 
 96 
 81 
 
 1932... 
 
 63.9 
 65.0 
 74.6 
 79.8 
 80.6 
 81.7 
 
 64 
 76 
 79 
 90 
 105 
 110 
 
 1927 
 
 1933 
 
 1928 
 
 1934 
 
 1929.. 
 
 1935 
 
 1930 
 
 1936. 
 
 1931 
 
 1937 
 
 
 
 I Average per working day. 
 
 Source: Board of Governors of the Federal Reserve System. 
 
 Chapter XI 
 
 THE INADEQUACY OF THE PRESENT TERMS "THE PRICE LEVEL" AND 
 "THE PURCHASING POWER OF MONEY" 
 
 The present term, "the price level," based on the volume of money 
 employed in 1926, does not take into account any change in the 
 volume of commodities on which the price level is based. And, of 
 course, the term "the index of the purchasing power of money" also 
 ignores the change in the volume of the designated commodities. 
 
 It should be obvious that if for any reason the volume of such com- 
 modities should increase 4 percent per annum, the volume of money 
 employed should rise 4 percent, otherwise the money employed would 
 buy 4 percent more of the commodities and products of labor, whereas 
 
38 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 a dollar of uniform purchasing power should buy the same volume of 
 commodities from one year to another if labor is to receive a fair 
 reward in dollars for what it creates, and if the debtor is to be allowed 
 to pay the creditor in dollars of the same purchasing power 
 
 To increase industrial production requires an increase in the money 
 supply up to the point that maximum employment of men and machin- 
 ery is achieved. Beyond this point no expansion of money seems to 
 be desirable, and any serious expansion beyond this point might be 
 highly disadvantageous as it would have the effect of unduly increasing 
 the value of property and decreasing the purchasing power of money 
 in those forms of property in which money is invested, such as stocks, 
 bonds, real estate, etc. 
 
 Many people have objected to any rise in the all-commodity index 
 because it has been designated loosely as "the price level." Many 
 people think, therefore, that raising the price level means only raising 
 the price of individual commodities which they wish to buy, for- 
 getting that increasing the money supply would end unemployment, 
 would create a rising individual income, individual wages, and in- 
 crease the market price of the products of labor. This is not true. 
 If the money supply were to rise .50 percent while the volume of 
 commodities rose 50 percent, the market price of the individual com- 
 modities on the average would not be changed, since the 50 percent 
 increase of such commodities would diminish the market price of indi- 
 vidual commodities in proportion, and the increase of the money sup- 
 ply would merely offset what otherwise would be a contraction in 
 the selling price of what the people produce. Giving them a fair 
 price for what they produce, enables them to have the consuming 
 power with which to buy what they produce. 
 
 At last, the producers of the United States and the consumers of 
 the United States represent all of the people. 
 
 Individual commodity prices may be raised by the scarcity of 
 individual commodities or may be raised by artificial means through 
 monopolies fixing the price of their products, such as copper, lead, or 
 special products. The question of artificially raising prices unfairly 
 through monopoly lies outside of the field of monetary science, except 
 to call attention to it as a factor of prices. 
 
 It has been complained that prices are artificially raised in construc- 
 tion by bricklayers, plumbers, and carpenters through labor unions 
 charging an excessive price for their labor, as compared to the labor 
 of other people engaged in services to each other. This may be true, 
 but that question is a question which is no part of monetary science, 
 beyond pointing out the fact that stability in our industrial life, when 
 established through public monetary control, will enable the Govern- 
 ment to better control monopoly; and will enable labor, by virtue of 
 stability in continuous employment, to make contracts involving an 
 annual living wage, rather than the present precarious employment 
 of bricklayers, plumbers, carpenters, etc. 
 
 Chapter XII 
 
 THE METHODS BY WHICH MONEY IS EXPANDED AND CONTRACTED 
 
 The money of the country, consisting of currency and demand bank 
 deposits, is expanded as follows: 
 
 The currency of the United States, which is required for pocket 
 money and to pay for the purchases daily of products and services, 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 39 
 
 is minted and printed by the Government and distributed to the 
 banks of the country through the Federal Reserve banks. The banks 
 call for the currency to the extent that they need it for the prompt 
 and immediate cashing of checks by depositors. The people, there- 
 fore, obtain this money from the Government. The Government 
 creates all of this money. The States are forbidden to manufacture 
 it, and it is a crime to counterfeit it. This currency is used as a 
 medium of exchange. When a merchant receives from his customers 
 more currency than he needs in his till, he deposits it with the banks. 
 
 When the "banks receive more currency than they require, they 
 send it back to the Federal Reserve bank of their district and receive 
 credit for it. The currency may be returned to the Federal Reserve 
 agent by the Federal Reserve bank if it has an excess. It not only 
 is"employed as a medium of exchange by the people, but many people 
 who have no bank account keep their little supply of money in some 
 safe place as a hoard from which they can obtain money for any 
 unusual demand, such as sickness, a birth or a death, or a marriage 
 in the family. Sometimes this hoarding becomes excessive and 
 causes a dearth of the currency supply. So that this currency may 
 be contracted by the citizens who have it as pocket money. This 
 occurs during a depression when money becomes scarce. 
 
 Demand bank deposits, upon which check money is drawn, are 
 created by loans and investments as described in a previous chapter. 
 
 It is of special importance that students should observe the manner 
 in which the reservoir of demand bank deposits can be contracted 
 as a medium of exchange. 
 
 If the loan of a businessman is paid upon the demand of the bank, 
 or because the businessman wishes to pay it, it is paid with a check 
 on a demand deposit, and the demand deposit ceases to exist to 
 the extent of the amount of the check. From 1929 to 1933 such 
 business loans were contracted from 41.6 billion to about 21.2 billion 
 dollars, thereby contracting the volume of demand deposits and 
 of time deposits (which had been exchanged previously for demand 
 bank deposits), leaving the deposits of the banks 20 billion dollars 
 less than they had been in 1929. This was a contraction of the 
 demand deposits by the contraction of loans. The amount in which 
 demand deposits were contracted from 1929 to 1938 is shown by the 
 following table: 
 
 Contraction of demand deposits and decline of bank loans 
 
 
 
 Estimated 
 
 
 
 Estimated 
 
 
 
 debits to 
 
 
 
 debits to 
 
 
 Total loans, 
 
 individual 
 
 
 Total loans, 
 
 individual 
 
 
 all banks 1 
 
 accounts for 
 
 
 all banks 1 
 
 accounts for 
 
 
 
 all commer- 
 
 
 
 all commer- 
 
 
 
 cial banks 1 
 
 
 
 cial banks 1 
 
 1929 
 
 41. 5 
 
 40.6 
 35.4 
 27.8 
 22.2 
 
 1,230 
 900 
 fifiO 
 450 
 430 
 
 1934 
 
 21.3 
 20.3 
 20. 1 
 22.5 
 21. 1 
 
 470 
 530 
 fill 
 637 
 530 
 
 1930 
 
 1935 
 
 1931 
 
 
 1932 
 
 1937 
 
 1933 
 
 1933 
 
 
 
 • In billions of dollars; June 30 or nearest date. 
 1 In billions of dollars; annual figures. 
 
 Source: Board of Governors of the Federal Reserve System 
 
40 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 It will be seen by this table that when the United States began in 
 1933 to increase the money supply by the sale of bonds, the deposits 
 began to rise again. 
 
 It is of the greatest importance that students should understand 
 that a demand deposit, winch is hoarded by the depositor and kept 
 unemployed awaiting future use or investment, does not function as a 
 medium of exchange. A hoarded deposit is not used for the employ- 
 ment of human labor, for the payment of wages and salaries, or for 
 carrying inventories of the products of labor. A hoarded demand 
 deposit is temporarily as useless in the national economy of production 
 as if it did not exist. The Federal Deposit Insurance Corporation 
 in October 1934 located many billions of demand deposits that were 
 held as reserves. They were called dormant accounts. 
 
 Such inactive, unemployed demand deposits contract the volume 
 of the medium of exchange existing in the form of demand bank 
 deposits. 
 
 When the Treasury sells baby bonds to small demand bank deposi- 
 tors, it withdraws such demand deposits. The proceeds of the sale 
 of the baby bonds become dormant accounts until expended by the 
 Government. When the Government sells its bonds through the 
 banks to the citizens, it has the same effect of temporary contraction. 
 
 When it sells its bonds to the banks and the banks retain the bonds, 
 the volume of demand deposits is increased until the bonds are paid 
 off. When the bonds are paid off they are paid off through taxes 
 collected by the Government from demand deposits. And, therefore, 
 the payment of the national debt by taxation, without any further 
 expansion of the demand bank deposits, would reduce demand bank 
 deposits to zero and cause universal bankruptcy. 
 
 Whenever the Government collects money by taxes it contracts 
 temporarily the demand deposits, or the money supply. About 
 $4,000,000,000 of the present demand deposits are held by the Gov- 
 ernment, the States, and their subdivisions, as heretofore pointed out. 
 
 When corporations, States, cities, or counties sell their bonds to 
 the banks they create new money because the banks create and give 
 them demand deposits in exchange for their bonds. The banks 
 therefore create money by their investment in these bonds. When 
 the bank takes the bonds, it, in effect, makes a loan to the State, 
 city, county, or corporation. When such bonds are paid off, they are 
 paid off with demand deposits as to the proceeds of taxes, or as divi- 
 dends arising from profits to the corporations. 
 
 When a corporation sells its goods to the public and receives there- 
 for a net profit, it withdraws the net profit in the form of demand 
 deposits. 
 
 When an insurance corporation receives its premiums and makes a 
 net profit, it does so by withdrawing from the country demand 
 deposits. This is a contraction of credit process. When these 
 moneys are paid out in dividends they are paid out in demand deposits 
 and expand demand deposits again, as a circulating medium. 
 
 When any creditor receives interest on bonds or on loans or debts, 
 he is paid in demand deposits. The demand deposits may then and 
 there be withdrawn from circulation as a reserve for future investment. 
 
 During the last few years $5,000,000,000 or $6,000,000,000 of gold 
 has come into the United States for the purchase of American dollars. 
 
 r 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 41 
 
 This gold has been bought by the United States through the issuance 
 of bonds and converted into gold certificates which have been delivered, 
 or pledged, to the Federal Reserve banks. When the Government 
 bought this gold they contracted the money supply, to the extent 
 represented by the gold, and when they issued their bonds in payment, 
 they expanded the money supply through demand deposits. The net 
 result of these transactions was to prevent any expansion of monetary 
 credit by the flow to the United States of this gold. 
 
 It was a contraction process when the $2,000,000,000 stabilization 
 fund was established, as it withdrew from circulation that amount of 
 gold or its monetary equivalent. When the Government sterilized 
 $1,500,000,000 of gold, it was a credit contraction process. 
 
 A member bank may contract demand deposits by selling its bonds 
 to the demand bank depositor, or by selling the depositor time deposits 
 in exchange for his demand deposit, or a savings account in exchange 
 for his demand deposit. A member bank, when it collects interest 
 on its loans and passes such interest to the account of undivided 
 profits, contracts demand deposits to that extent because the bank 
 is paid out of demand deposits by the borrower who owes the interest. 
 
 When the Federal Reserve banks buy the bonds of the United 
 States, it will be an expansion of the money supply. If bought from 
 the citizen who holds such bond, the citizen would sell his bond 
 through his local bank, receiving demand deposits for the bond and 
 the bank would transmit the bond to the Reserve bank as an addi- 
 tion to the bank's reserves. Such a transaction would increase the 
 reserves of the member banks and increase the volume of demand 
 bank deposits in the bank through which the sale was made. 
 
 If the Reserve bank were to buy a million dollars of bonds from a 
 member bank, it would increase the reserves of such member bank 
 by $1,000,000 in the Reserve bank but would not add to the demand 
 deposits of citizens engaged in industry. It would, however, facilitate 
 the opportunity of the bank to lend such money to the citizen. 
 
 If the Reserve banks were to"" buy from citizens on the open market 
 State bonds, county bonds, city bonds, or corporation bonds, it 
 would have the effect of increasing the reserves of the banks which 
 sold them to the Reserve bank. If they were bought from citizens 
 it would increase the demand deposits of the citizens and also increase 
 the reserves of the member bank through which the transaction was 
 made. 
 
 The Federal Reserve banks, therefore, have the power to expand 
 the money supply to whatever extent is necessary to achieve maxi- 
 mum employment, maximum production, maximum consumption, 
 and to restore the dollar index to the predepression normal of 100. 
 They have the power to contract the money supply by selling the same 
 secutities back to the citizens who have demand deposits. 
 
 The Government, therefore, has the power, through the Federal 
 Reserve System, of expanding and contracting the money supply to 
 whatever extent the public good requires. They can correct the 
 present scarcity of money and they can end the indefensible con- 
 traction of the money supply which has taken place since 1920. 
 They can prevent any indefensible expansion of the money supply 
 (demand deposits or bank credit) by selling the bonds and sound 
 bankable assets previously bought. 
 
42 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 THE VELOCITY OF DEMAND BANK DEPOSITS 
 
 It has been a habit of those discussing the turn-over of demand 
 bank deposits by checks to speak of this turn-over as the velocity of 
 money. They determine the velocity by the number of times the 
 total of demand bank deposits is contained in the volume of checks 
 debited on the books of all the banks. 
 
 This conception ignores the fact that the total volume of demand 
 bank deposits represents the holdings of millions of depositors, 
 represents deposits which turn over 100 times per annum, and other 
 deposits that turn over once or twice, or perhaps not at all during a 
 given 3 T ear. 
 
 In recent years it has been learned that in periods of active business 
 and full confidence, a very large part of those deposits turn over at 
 the high speed, and a comparatively small percentage are inactive 
 and dormant. 
 
 In times of depression, it has been found that inactive and dormant 
 accounts comprise a very substantial portion of the demand bank 
 deposits. Therefore, it has become necessary to clearly appreciate 
 and to ascertain by a proper inquiry the extent to which demand 
 deposits are dormant, inactive, and not vigorously functioning as a 
 medium of exchange, economically employed in the rapid transaction 
 of daily business. 
 
 The Federal Deposit Insurance Corporation, in 1934, found that 
 $6,000,000,000 of demand deposits were held as reserves by corpora- 
 tions and individuals for future investment. 
 
 In 1929 the total turn-over of demand deposits reached approxi- 
 mately 50 times the volume of demand deposits. The demand 
 deposits were $24,000,000,000 and the volume of checks debited was 
 $1,230,000,000,000. But there were $10,000,000,000 of time deposits, 
 quickly convertible into demand deposits, in that year. A sub- 
 stantial part of these time deposits were functioning as demand 
 deposits for the reason that the reserves required by law to be held 
 by the banks against time deposits were small and the amount required 
 to be held against demand deposits was large. In 1938, after the 
 panic of 1937, about $4,000,000,000 of $26,000,000,000 was held by 
 the Federal Government, State governments, and their subdivisions, 
 received from taxes and in process of expenditure, and that the 
 expenditures were being constantly replaced by taxes collected from 
 demand deposits of those who pay taxes. 
 
 The estimate made by the Government that the average turn-over 
 for 1938 would be $530,000,000,000, would indicate that only 
 $11,000,000,000 of demand deposits were turning over at a pre- 
 depression normal of 50 times per annum. 
 
 Thoughtful students will therefore beware of treating all demand 
 deposits as moving with the same velocity, for this is by no means 
 true. 
 
 HOW DEMAND BANK DEPOSITS CREATED BY THE GOVERNMENT FLOW 
 
 INTO USE 
 
 The question has been raised that perhaps new demand bank 
 deposits, created by the purchase of Government bonds by the 
 Reserve banks, would remain unemployed and idle. 
 
 Those who sell interest-bearing securities for the purpose of obtaining 
 liquid money do so because they wish to invest such money more 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 43 
 
 profitably. Some of them might hold it dormant, anticipating a more 
 favorable opportunity for investment. But this would be entirely 
 immaterial because there is no limit to which these deposits could be 
 increased, if necessary, to cause an additional medium of exchange to 
 function. It should be obvious, however, that when a country is 
 famishing for ready money, the demand for it will cause the new 
 liquid money to How into commerce, industry, and investment. 
 
 What is of the greatest importance to observe is that the present 
 money, in the form of demand deposits held by those who merchandise 
 in money and stocks, will cease to be dormant whenever the Govern- 
 ment declares its purpose to expand the money supply with a view 
 to expanding employment. This is exactly what the dormant ac- 
 counts are waiting for. They are waiting for evidence of a dependable 
 rising market. 
 
 When, therefore, the Congress declares a national monetary policy 
 and instructs the Board of Governors of the Federal Iieserve System, 
 the Treasu^ Department, and the Reserve banks to make eflectiye 
 such a national monetary policy, those who have been speculating in 
 money, those who have been hoarding money, those who have been 
 holding money as reserve, and those who have thus contributed to a 
 cornering of the money supply, will make haste, because of the profit 
 motive, to invest money, which threatens to fall in exchange value, for 
 property, which promises to rise in market price. 
 
 Those who are merchandising in money with a view to speculative 
 profits are well advised by trained monetary experts, who tell them 
 when it is desirable to accumulate mone} 7 , and when it is desirable 
 to invest money in stocks and other forms of property. There need 
 be no fear that those who merchandise in money will fail to act with 
 intelligent self-interest in search of profit. 
 
 Thoughtful students will perceive the great importance of this 
 suggestion. 
 
 THE MONEY CREATED BY THE PEOPLE 
 
 It has been pointed out that the failure of the Government to furnish 
 the growing nation with a sufficient amount of money to transact a 
 vast expansion of commercial business resulted in the people creating 
 money for themselves through National banks and State banks. How 
 this was done, through private and public loans, has been described. 
 
 But it is of importance to understand the volume which the people 
 have thus created for their own convenience. 
 
 Taking the figures of 1929, before the panic, the people had created 
 $55,000,000,000 of deposits in the banks. These deposits consisted 
 of savings accounts, time deposits, and demand bank deposits. The 
 savings accounts and the time deposits had been obtained from demand 
 bank deposits previously existing which were sold or transferred to 
 the banks in exchange for time deposits and savings accounts. These 
 savings accounts and time deposits of course could be converted into 
 demand deposits by the depositors, at their will, after an agreed num- 
 ber of days' notice. 
 
 The savings accounts had great stability because they represented 
 money which prudent people kept in reserve for use in case of some 
 unexpected exigency. The demand deposits were about $24,000,- 
 000,000; the time deposits, about $10,000,000,000; and the savings 
 
 123338—39 4 
 
44 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 accounts, about $21,000,000,000. This did not include the postal 
 savings, nor the four or five billion dollars of inter-bank deposits. 
 
 So, it may be roughly said, that the people of the United States 
 had manufactured their own money, holding at that time about 
 $24,000,000,000 of demand deposits as an available medium of ex- 
 change and $31,000,000,000 of time and savings deposits, while the 
 banks had an additional $5,000,000,000 of interbank deposits created 
 by loans to, or deposits with, each other. In addition to this money, 
 there was about $7,000,000,000 of bank capital, including their surplus 
 and undivided profits. 
 
 The savings ^ accounts and the time deposits were, as heretofore 
 stated, money in storage and not employed as a medium of exchange 
 in the transaction of monetary business. The people of the United 
 States, through the system of corporations and the security exchanges, 
 where the stocks and bonds of such corpoiations and of governments 
 are traded in, had set up a vast machinery by which over 
 $100,000,000,000 of such securities could be converted immediately 
 into liquid money. These stocks and bonds, going into colossal 
 figures, were investments of the American people, out of which they 
 not only received dividends, but upon which they could rely in case 
 of need to obtain liquid money by immediate sale in the security 
 markets. On the New York Stock Exchange alone at present are 
 1,400,000,000 shares of common and preferred stock. 
 m There are many other exchanges and there are over 300,000 corpora- 
 tions whose stocks and bonds are not listed, but whose book values, as 
 shown by the records of the Collector of Internal Revenue, exceed 
 $155,000,000,000 as of December 31, 1929. 
 
 Reference is made to these organizations and to the national wealth 
 to show that the volume of money created by the people for their 
 own use has been greatly in excess of what they require in the form 
 of liquid money, or demand bank deposits circulating as a medium 
 of exchange. It is because of these great values and investments of 
 the people that they have required so large an amount of money as a 
 medium of exchange and as a storage of value. 
 
 Students will thus realize that the volume of checks debited on the 
 books of the banks in 1926 ($845,000,000,000) is not surprising in 
 view of the active dealings of the people with each other in the prop- 
 erties involved. 
 
 But since money is not only a medium of exchange but is a measure 
 of value, it becomes of supreme importance that the Government 
 should control and manage the volume of money required as a medium 
 of exchange and measure of value. If the medium of exchange were 
 expanded beyond the actual needs of the people for exchanging 
 their products and services, it would result in inflation without 
 adding anything to the convenience and necessity of the people for an 
 adequate medium of exchange. 
 
 For this reason it becomes vitally important that the Government 
 should not only regulate the volume of money in order to regulate 
 the value of money, but should accomplish this through a statute 
 setting up a sound national monetary policy that would always 
 furnish the people with an adequate supply of money without 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 45 
 
 inflation, which would unduly expand the market price of property. 
 Such a system would be fortified equally against any inflation and 
 any indefensible contraction of the money supply. It should be 
 implemented through competent executive officials directed by law 
 to carry out the national monetary policy declared by Congress. 
 (The quantity of money currently required has been heretofore 
 explained.) 
 
 CREDIT EXPANSION THROUGH THE SALE OF STOCKS 
 
 In 1900 the stock certificates on the New York Stock Exchange 
 amounted to 56,090,180. These certificates increased by less than 
 1,000,000 shares per annum until 1920, when they amounted to 
 220,753,423. But by the end of 1931 they had increased to 1,296,- 
 
 o h (j n ^ io - 
 
 OOOOOO 0000,-lr-l 
 
 0> <7» o> o* o o>0) o* cn o o> o*cr*c7io}(7>crCT»(7>cJ>ocio^<y>CT>o>cr>o> 
 
 Source: New York Stock Exchange Bulletin 
 
 794,480 (these figures are for January of each year, common and 
 preferred stocks combined). A chart, taken from the New York 
 Stock Exchange Bulletin for August 1931, showing this trend, follows: 
 
 The number of issues increased from 377 in 1900 to 691 in 1920 
 and then to 1,308 in 1931. 
 
 Students will observe that beginning with 1921, the number of 
 shares increased over 1,000,000,000 by 1931 which were sold to the 
 general public and paid for by checks drawn on demand bank deposits. 
 
 During the 10 years from 1921 to 1930, inclusive, these stocks sold 
 for $50,000,000,000 to the public and were paid for through the use of 
 demand bank deposits. There was thus an expansion of credit in 
 the form of salable stock certificates of about $50,000,000,000. 
 
 In addition there was a sale of corporation bonds to the public. 
 The New York Stock Exchange gives these figures from 1925 to 
 August 1931, in the following table: 
 
46 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 Data on all listed bonds 
 
 Date 
 
 Number 
 of is- 
 suers 
 
 Number 
 of issues 
 
 Average 
 price 
 
 Par value of 
 listed bonds 
 
 Total market 
 value 
 
 Jan. 1, 1925.. _ 
 
 
 1. 332 
 1. 367 
 1.420 
 1.491 
 1, 534 
 1. 543 
 1, 573 
 1. 578 
 1,607 
 1,615 
 1. 609 
 l! 607 
 1.602 
 1,605 
 1,610 
 1, 605 
 1,608 
 1. 608 
 1, 608 
 
 $94. 79 
 95. 98 
 
 98. 06 
 
 99. 98 
 97. 51 
 
 95. 59 
 97. 47 
 97.69 
 97. 38 
 
 96. 47 
 95 74 
 94! 63 
 95. 32 
 95, 53 
 95. 42 
 94.84 
 
 93. 67 
 
 94. 77 
 93. 14 
 
 $35,457, 811,674 
 
 36, 995, 0S9, 533 
 
 37. 900, 053, 650 
 36, 881.320,122 
 48, 588, 549. 854 
 49. 058. 099, 434 
 50. 375, 127,717 
 50, 457, 382, 317 
 50. 027. 129,653 
 50. 191. 572. 803 
 
 *U1 n(M KAf (\t\A 
 CKJ, in, 04/, D l J4 
 
 .50. 072. s79, 897 
 49, 881,922, 059 
 50, 108, »76, 488 
 50, 788. 506, 210 
 50,911, 768,944 
 
 50, 848, 575. 244 
 
 51, 846, 247, 978 
 51, 938, 698, 878 
 
 $33,611,817, 346 
 35.509,211,458 
 37. 167, 607, 468 
 36, 874, 717, 458 
 47, 379, 028, 502 
 
 46. *92, 458. 780 
 49. 101,893,301 
 49, 293, 758, 598 
 48,715, 222, 900 
 48,417.892. 161 
 47, 959, 730, 628 
 
 47, 3X1. 805, 889 
 
 47, 546, 190, 092 
 47, 869,817, 155 
 
 48, 463, 021.490 
 
 48. 282, 336, 086 
 
 47, 629, 698. 234 
 
 49. 132, 895,753 
 
 48, 375, 745, 828 
 
 Jan. 1, 1926 
 
 
 Jan. 1, 1927 
 
 
 Jan. 1, 192S 
 
 Jan. 1, 1929 
 
 Jan. 1, 1930 
 
 Aug. 1, 1930 
 
 Sept. 1, 1930 
 
 Oct. 1. 1930 
 
 Nov. 1, 1930 . 
 
 Dec 1 1930 
 
 Jan. 1. 1931 
 
 Feb. 1, 1931.... 
 
 Mar. 1, 1931 
 
 Apr. 1, 1931 
 
 May 1, 1931. 
 
 July 1, 1931 
 
 Aug. 1, 1931 
 
 "824" 
 824 
 840 
 842 
 840 
 840 
 837 
 838 
 836 
 837 
 835 
 835 
 836 
 839 
 842 
 
 Source: New York Stock Exchange Bulletins. 
 
 The sale of these securities was affected by discreet advertising 
 campaigns and by bodies of salesmen trained to dispose of such 
 securities to individuals. 
 
 It resulted in a bull market which began to recede in 1929, when 
 the loans of the banks contracted from $41,000,000,000 by $20,000- 
 000.000 at the end of 1932. 
 
 The effect of this expansion of credit and contraction of credit in 
 the value of the securities sold will be seen from the following table: 
 
 Expansion and contraction of the average market price of securities 
 
 Date 
 
 Number 
 of issues 
 
 Number of 
 shares 
 
 Average 
 market 
 price 
 
 Date 
 
 Number 
 of issues 
 
 Number of 
 shares 
 
 Average 
 market 
 price 
 
 July 1, 1925 
 July 1, 1926 
 
 968 
 1.065 
 1,075 
 1,118 
 1,238 
 1,319 
 1,296 
 
 462, 596. 000 
 542. 866, 000 
 623, 764, 000 
 688. 360. 000 
 945. 341. 000 
 1, 231, 273, 000 
 1, 303. 489, 000 
 
 $64. 19 
 65. 59 
 67.27 
 76.89 
 81.73 
 51,89 
 36. 38 
 
 July 1, 1932 
 July 1, 1933 
 
 1,253 
 1,207 
 1,203 
 1, 184 
 1,194 
 1,236 
 1,256 
 
 1,315.172, 000 
 1, 285, 081, 000 
 1,294, 762,000 
 1,304,145. 000 
 1, 339. 680, 000 
 1, 399, 550, 000 
 1, 426, 893, 000 
 
 $11.89 
 28.29 
 26.20 
 27. 78 
 
 38. 00 
 
 39. 21 
 29.41 
 
 July 1, 1927 
 
 July 1, 1934 
 
 July 1. 1928 
 
 July 1, 1935 
 
 July 1, 1929 
 
 July 1. 1936 
 
 July 1. 1930 
 July 1. 1931 
 
 July 1, 1937 
 July 1, 1938 
 
 
 
 Source: New York Stock Exchange Yearbook and monthly bulletins. 
 
 Students will observe that the average market price per share for 
 1929 was $81.73, and was only $11.89 in 1932, showing an increase in 
 the average purchasing power of the dollar of over 600 percent in 3 
 years. 
 
 The expansions of credit through these processes were man made, 
 were uncontrolled by the Federal Government, and were incapable of 
 control by individual bankers, who were, nevertheless, exercising the 
 legal right to manufacture money in the form of demand bank de- 
 posits, and contracting money so made through the simple process of 
 requiring the loans they had made to be paid off. ^ The legal right of 
 privately owned banks, State and national corporations to expand and 
 contract the money supply of the country without governmental reg- 
 ulation, fully explains the financial and commercial disaster which 
 began in 1929 and has not yet ceased (December 1938). 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 47 
 
 Chapter XIII 
 
 MONEY IN CIRCULATION AS AN INDEX OF NATIONAL INCOME 
 
 The National Bureau of Economic Research, in New York, esti- 
 mated the income of the people of the United States for the years 
 1919 to 1933 in terms of the current purchasing power of the dollar 
 for each year and also in terms of the purchasing power of the dollar 
 for 1929. A table comparing these figures with the price level, or the 
 volume of money employed in buying 784 commodities in the whole- 
 sale markets follows: 
 
 The price level and the value and volume of national -production 
 
 Year 
 
 Price 
 level 
 
 National production 
 
 Year 
 
 Price 
 level 
 
 National production 
 
 Current value 
 of output 
 
 Volume of out- 
 put valued at 
 1929 prices 
 
 Current value 
 of output 
 
 Volume of out- 
 put valued at 
 1929 prices 
 
 1919..... 
 1920 
 
 135.6 
 166. 5 
 93.4 
 96.3 
 1003 
 94.9 
 103. 
 100.4 
 
 $62, 022, 000, 000 
 74, 494, 000, 000 
 47, 292. 000, 000 
 51, 219, 000, 000 
 63, 121,000,000 
 60. 047, 000, 000 
 65, 047, 000. 000 
 68, 610, 000. 000 
 
 $50, 383, 000, 000 
 52, 069, 000, 000 
 45, 345. (XX), 000 
 52, 125, 000. 000 
 60, 727, 000, 000 
 58. 615. 000, 000 
 62, 860. 000, 000 
 66. 588, 000, 000 
 
 1927 
 1928 
 
 94. 1 
 96.7 
 95.2 
 86.8 
 72.1 
 63.9 
 65.0 
 
 $66, 118, 000,000 
 69, 294, COO, 000 
 71, 290, 000, 000 
 59. 899, 000, 000 
 44, 302, 000, 000 
 28, 287, 000, 000 
 
 2 35, 442. 000, 000 
 
 $65, 922, 000, 000 
 68, 600, 000, 000 
 71, 290, 000, 000 
 64, 054, 000, 000 
 54, 487, 000, 000 
 40. 426, (100, 000 
 
 2 49, 857, 000, 000 
 
 1921 
 
 1922 
 
 1929 
 1930 
 
 1923 
 
 1931 
 
 1924 
 
 1925 
 
 1926 
 
 1932 
 
 1933 
 
 • Includes production of raw and finished commodities, construction and output of services directly related 
 to production, transportation, and distribution of commodities. 
 1 Preliminary. 
 
 Source: National Bureau of Economic Research. Not published currently. Board of Governors of the 
 Federal Reserve System. 
 
 In 1919 and 1920 there was a great scarcity of commodities due to 
 the World War and the withdrawal of many millions of men from works 
 of destruction to works of production. There was great speculation 
 in such commodities and therefore the volume of money employed in 
 the wholesale markets rose to an excess compared to normal. This 
 speculation was suppressed by the contraction of credit and currency 
 of 1921, whereupon a new speculation took place in the sale and market- 
 ing and trading of securities as heretofore explained. 
 
 The variation in the estimate of national production, above shown, 
 is accounted for by the fact that the index of industrial production for 
 1929, for example, was 119; and for 1933 was 76. This made an 
 important difference in the actual purchasing power of money because 
 in 1929 the volume of commodities was 19 percent above normal and 
 in 1933 it was 24 percent below normal. (See chapter on The Dollar 
 Index and the Price Level.) 
 
 The figures used by the National Bureau of Economic Research are 
 not as extensive as are the figures employed in the more recent work 
 by the statisticians of the Department of Commerce, who found that 
 the national income was $81,000,000,000 in 1929 instead of $71,000,- 
 000,000 having employed a broader basis in their estimate. For 
 purposes of comparison with the amount of money employed, these 
 differences are comparatively unimportant. The national income, 
 however, as estimated by the^ Department of Commerce from 1929 to 
 date, is here included with a comparison of the price level foi each of 
 
 3 
 
48 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 those years; that is, a comparison of the amount of money employed 
 in the wholesale commodity markets for the purchase of 784 com- 
 modities. It must always be remembered that the price level, from 
 1926 to date, represents only a percentage of the $54,700,000,000 
 employed in 1926 for the purchase of a fixed volume of 784 designated 
 commodities in the wholesale markets. 
 
 The -price level and national income 
 
 Year 
 
 Price 
 level 
 
 National 
 income 
 produced 1 
 
 Year 
 
 Price 
 level 
 
 National 
 income 
 produced 1 
 
 1929 
 
 95.2 
 86.8 
 72. 1 
 63.9 
 65.0 
 
 81, 128 
 68, 302 
 53. 822 
 40, 014 
 42, 256 
 
 1934 
 
 74.6 
 79.8 
 80.6 
 81.7 
 79.0 
 
 50, 052 
 55, 186 
 63, 466 
 69, 817 
 * 30,000 
 
 1930 _. 
 
 1935 
 
 1931 _ 
 
 1936 
 
 1932 
 
 1937 
 
 1933 _ 
 
 1938 (July) 
 
 
 
 ' In millions of dollars. 
 
 » Estimated for the first half of 1938. 
 
 Source: Survey of Current Business, June 1938. Board of Governors of the Federal Reseive System. 
 
 Since the income of the people of the United States determines their 
 taxpaying power, we show a comparison of the check money employed 
 annually and the annual Government income. 
 
 Comparison of check money employed annually and Government income 
 
 Fiscal year ending June 
 
 Check 
 money 1 
 
 Total 
 Treasury 
 receipts * 
 
 Fiscal year ending June 
 
 Check 
 money 1 
 
 Total 
 Treasury 
 receipts 1 
 
 1932 
 
 450 
 430 
 470 
 530 
 
 2.1 
 
 2.2 
 3.3 
 4.0 
 
 1936 
 
 611 
 637 
 »530 
 
 4.1 
 5.2 
 6.2 
 
 1933... 
 
 1937 
 
 1934 
 
 1938 
 
 1935 
 
 
 1 In billions of dollars. 
 
 2 In millions of dollars. 
 
 3 Estimated. 
 
 Source: Board of Governors of the Federal Reserve System. 
 
 According to the estimates of the Department of Commerce of the 
 national income of the people, begmning in 1929 with $81,000,000,000 
 and ending with $67,000,000,000 in 1937, it is obvious that the people 
 of the United States, by virtue of the depression of 1929 and the 
 collapse of bank credit, have failed to increase their national income 
 by the normal increase of 4 percent. Not only have they failed to 
 increase their income bv this amount, but have actually suffered a 
 loss. In 1930 the lossVas $13,000,000,000; 1931, $17,000,000,000; 
 1932, $41,000,000,000; 1933, $39,000,000,000; 1934, $31,000,000,000; 
 1935, $26,000,000,000; 1936, $18,000,000,000; 1937, $12,000,000,000; 
 making a total loss of $197,000,000,000 besides failing to gain 4 
 percent per annum on $81,000,000,000, or 32 percent of $81,000,000,000 
 by 1937. 
 
 The loss of 4 percent per annum for 1930 on $81,000,000,000; 
 the loss of 8 percent for 1931; the loss of 12 percent for 1932; the loss 
 of 16 percent for 1933; the loss of 20 percent for 1934; the loss of 24 
 percent for 1935; the loss of 28 percent for 1936; the loss of 32 percent 
 for 1937: and the loss of 36 percent for 1938 would make a total loss 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 49 
 
 of 180 percent on $81,000,000,000 equal to a loss of $145,800,000,000, 
 which could have been achieved under a wiser monetary system of 
 government with stable money. 
 
 This makes a total loss of $197,000,000,000 plus $145,800,000,000, 
 or $342,800,000,000. We failed to gain $145,800,000,000 and we 
 actually lost $197,000,000,000. This demonstrates what the future 
 holds for America under a wiser system of stable money, stable 
 business, stable capital, and stable labor. 
 
 These figures emphasize the fatal effects of leaving the volume and 
 value of money in private hands, that arc moved by optimism and 
 fear, instead of carrying out the constitutional mandate, winch 
 gave exclusive power to Congress to create money and the specific 
 duty "to regulate the value thereof." 
 
 If, therefore, under Government control of the money supply, an 
 adequate supply of money should be provided for maximum employ- 
 ment and industrial production, it is perfectly manifest that the 
 people of the United States will soon be enjoying great abundance, 
 ending unemployment, public relief and private charity, balancing 
 the Budget, lowering taxes, and putting an end to undeserved poverty 
 in the United States. This can be accomplished only by an informed 
 public opinion which reflects itself in suitable legislation in the Con- 
 gress of the United States. 
 
 THE VOLUME OF MONEY EMPLOYED IN ALL ECONOMIC ACTIVITIES 
 
 The price level deals only with the volume of money employed in 
 the wholesale commodity markets, which comprises only a small 
 part of the volume of money employed in other fields of our economic 
 life. 
 
 Money is employed on a colossal scale in trading between individual 
 and individual and corporation and corporation in the many steps 
 through which raw materials go in the process of production until 
 they are finally prepared for consumption. Money is used on a vast 
 scale in the purchase and sale of real estate, and in the purchase and 
 sale of all sorts of property and equities. Money is employed not 
 only in the payment of wages and salaries, in carrying inventories 
 and in producing commodities for the markets, but is used on a vast 
 scale in the transportation business, and in the transmission of intelli- 
 gence by mail, telephone, telegram, radio, and cable. It is used on a 
 large scale for the payment of interests on debts, and for the payment 
 of taxes to the Nation, the States, counties, and cities. It is used on 
 a large scale to pay for the public-utility services, water, gas, electric 
 lights, and power. It is used on a vast scale in the buying and selling 
 of securities on the various security exchanges throughout the United 
 States. 
 
 Fortunately, we have not only a knowledge of the amount of money 
 employed in the wholesale commodity markets for the purchase of 
 784 different commodities but we have positive and absolute knowl- 
 edge of the volume of money used in the transaction of all lines of 
 business when the money is paid by check. This check money has 
 been carefully calculated with dependable accuracy by the Federal 
 Reserve Board. The figures have heretofore been given. 
 
 In addition to this use of money, as recorded by the checks debited 
 on the books of the banks, the people have as pocket money probably 
 
 m 
 
50 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 half of the currency in circulation outside of the UnitecTStates Treas- 
 ury. The total of such outstanding circulation has been given. It 
 is probable that the people have as pocket money approximately 
 $3,000,000,000, some of which is kept hoarded as a savings account 
 by people who have no bank deposits. 
 
 The individual turn-over of money may be daily. Where check 
 money is employed in transacting an active line of business, the daily 
 income may be daily used to liquidate the debts of the merchant. 
 The average annual turn-over of demand bank deposits, on which 
 checks are drawn, was 50 times in 1929. A small unknown portion 
 of these deposits had no turn-over, being held as reserves and for 
 investment. 
 
 So that the actual turnover of those deposits, which were in active 
 employment for the transaction of business, was higher than 50 times 
 per annum. 
 
 In 1932 when the demand deposits reached a low point of about 
 $14,000,000,000, the total check money turn-over was $450,000,000,- 
 000, or about 32 times per annum. Assuming that the demand de- 
 posits which were actually employed in active business were turning 
 over at 50 times per annum, it would have taken only $9,000,000,000 
 of demand deposits in active circulation to have produced $450,000,- 
 000,000 of check turn-over, indicating that there was at that time 
 probably $5,000,000,000 of demand deposits held as reserves or for 
 future investment, and thus withdrawn as an active circulating 
 medium. 
 
 At present, July 1938, the total demand deposits amount to about 
 $26,000,000,000, of which about $4,000,000,000 are held by the Federal 
 Government, the States, and their subdivisions as money withdrawn 
 for taxation and in process of expenditure. Therefore, the total 
 amount of money at this time in demand deposits is $22,000,000,000, 
 producing an actual turnover at the rate of $530,000,000,000 per 
 annum, indicating that less than $11,000,000,000 is actively employed 
 at the normal rate of fifty times per annum. 
 
 When the money supply contracts, the people invent credit methods 
 as a substitute for the shortage of money. Under this practice the 
 merchants and manufacturers sell their goods on a partial payment 
 plan. Finance companies are established to facilitate this substitute 
 for an adequate money supply. The installment plan has grown to 
 great proportions because of this shortage of money. This system 
 involves a risk and is very expensive upon customers who pay for 
 what they get, with abnormal interest. 
 
 THE ORIGIN OF BUYING POWER 
 
 The origin of buying power is the income received by individuals 
 from wages, salaries, pensions, and investments of all sorts. Unless 
 those who are consumers receive enough income from these several 
 sources to enable them to buy they could not sell what they would be 
 able to produce. Therefore, it is of importance in the national 
 economy to consider the income of consumers as vitally necessary to 
 maximum production, 
 
 When people are unemployed in large numbers it necessarily cuts 
 down production, because their labor is not utilized in the production 
 of products and services. The problem is to achieve maximum em- 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 51 
 
 ployment at wages and salaries sufficient to enable all the producers, 
 who are also consumers, to buy the things produced, otherwise produc- 
 tion based upon the profit system cannot achieve a maximum of 
 abundance. 
 
 In this connection, the following table shows the classification of the 
 39,450,300 individuals who received incomes for the fiscal year ending 
 June 30, 1936: 
 
 Distribution of national income 
 
 DistributiOD, by income groups 
 
 Distribution of 
 rational income 
 
 Distribution of income 
 
 Indi- 
 vidual 
 average 
 
 Persons 
 
 Received 
 income 
 
 Indi- 
 viduals 
 
 Received 
 
 $1,000 a year or less .- 
 
 $1,000 to $2,000 a year 
 
 $2,000 to $3,000 a year.. 
 
 $3,000 to $5,000 a year 
 
 $5,000 to $10,000 a year 
 
 $10,000 to $25,000 a year 
 
 $25,000 to $50,000 a year 
 
 $50,000 to $100,000 a year 
 
 Over $100,000 a year 
 
 Total 
 
 SUMMARY 
 
 $2,000 a year or less... 
 
 $2,000 to $10,000 a year 
 
 Over $10,000 a year 
 
 Total 
 
 Percent 
 46. 54 
 35. 28 
 11.24 
 4.60 
 L 51 
 .66 
 . 13 
 .03 
 .01 
 
 Percevt 
 18. 23 
 33. 02 
 17.85 
 11.21 
 6.91 
 6. 43 
 2.96 
 1. 53 
 1.86 
 
 18, 358. 949 
 13, 920, 349 
 4, 434, 065 
 1, 818, 269 
 595, 908 
 260, 430 
 51, 882 
 13, 041 
 5, 387 
 
 $10, 806, 660. 000 
 19, 573, 219. 000 
 10, 576, 567, 000 
 6, 643. 463, 000 
 4, 0.)2. 226, 000 
 3,810.613,000 
 1,751, 851,000 
 908. 485, 000 
 1,095,544,000 
 
 $588 
 1,406 
 
 2, 385 
 
 3, 654 
 6, 867 
 
 14, 678 
 33, 766 
 69, 664 
 203, 368 
 
 100. 00 
 
 100.00 
 
 39, 458, 300 
 
 59, 258. 628, 000 
 
 1,501.80 
 
 81.82 
 17. 35 
 .83 
 
 51.25 
 35. 97 
 12. 78 
 
 32, 279, 298 
 6, 848, 262 
 330, 740 
 
 30, 379, 879, 000 
 21, 312, 256, 000 
 7, 566, 493, 000 
 
 Average 
 $941 
 3,112 
 22. 877 
 
 100. 00 
 
 100.00 
 
 39, 458, 300 
 
 59, 258, 628, 000 
 
 1,501.80 
 
 Source: Consumer Incomes in the United States, compiled by the National Resources Committee, 
 Washington, D. C. 
 
 It should be obvious that the amount of money required for food, 
 clothing, and shelter per individual could not be very high where 
 limited to the ordinary comforts and conveniences of a decent standard 
 of living. 
 
 The problem of maximum production so as to provide an abundance 
 of the comforts and conveniences of a decent American standard of 
 living is the real problem. The above table shows that a high per- 
 centage of the American people are in truth underfed, underclothed, 
 and undersheltered. The percentage of the people who received 
 more than is required for the highest standard of living, and even 
 luxury, is very small. Those receiving less than $2,000^ a year per 
 individual amount to 81.82 percent of the persons receiving incomes 
 and averaged only $941 per year, out of which the family must be 
 supported. 
 
 Individuals receiving over $10,000 a year represent only 0.81 percent 
 of the persons receiving incomes. Persons receiving over $100,000 a 
 year represent 0.01 percent, or 1 out of 10,000 workers, or 1 out of 
 about 30,000 people. 
 
 It should be obvious that the remedy for the disparity in income is 
 not to be found merely in super taxes on the highest incomes but in 
 raising the incomes of the lower brackets through the employment of 
 all the people and through raising the compensation of the workers 
 in the lower brackets by increased wages and salaries. If they are 
 employed to a maximum, the wealth which they would create would 
 be more than sufficient to raise the consumers buying power to a high 
 
 f 
 
52 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 standard of living without relying upon punitive super taxes on capital 
 income. 
 
 The American capitalist system being based on the profit motive 
 the great leaders in our economic life who produce through their genius 
 and management need not be denied the accumulation of great wealth, 
 which of necessit}^ passes on to the service of the race at the death of 
 the ambitious individual. The policy should not be to excessively 
 tax the great industrial leaders but to expand the income of those who 
 are engaged in production in the lower brackets. 
 
 This objective can best be achieved through congressional control 
 of the volume of money and regulating the value of money so as to 
 give it the same purchasing, debt-paying power from one generation 
 to another. 
 
 Chapter XIV 
 
 THE PROBLEM OF UNEMPLOYMENT 
 
 The contraction of the money supply not only increases business 
 failures and decreases individual and Government income but results 
 in throwing millions of people out of employment compelling the 
 Government to resort to various measures of relief and the expendi- 
 ture of public funds on a colossal scale in order to protect the people 
 from actual starvation and physical deterioration. 
 
 The National Industrial Conference Board of New York, repre- 
 senting the leading industrial organizations of the United States, has 
 collected information with regard to unemployment. We insert 
 their table showing the number of unemployed for the years 1929 to 
 date. 
 
 Unemployment figures 
 Annual average: 
 
 1929 
 
 1930 
 
 1931 
 
 1932 
 
 1933 
 
 t Preliminary. 
 Source: National Industrial Conference Board, Inc. 
 
 In estimating the need for an additional supply of money to prevent 
 unemployment, these figures are of great significance, for they show 
 that unemployment expands as the money supply contracts. The 
 problem of unemployment is made worse by the fact that many who 
 are listed as employed are employed on short hours in a limited num- 
 ber of days instead of working a maximum number of normal days and 
 hours. 
 
 These figures on unemployment should be compared with the price 
 level, representing the volume of money employed in the wholesale 
 markets. There should also be a comparison between the check 
 money actually employed in these years. Students will observe that 
 as check money went down and as the volume of money went down 
 in the wholesale markets employment went down. A table showing 
 this comparison is here inserted for the years 1929 to June 1938: 
 
 469, 000 
 3, 849, 000 
 8, 148, 000 
 12, 516, 000 
 12, 773, 000 
 
 Unemployment figures — Continued. 
 Annual average: 
 
 1934 10,523,000 
 
 1935 9, 843, 000 
 
 1936 8, 159, 000 
 
 1937 7, 028, 000 
 
 1938 (June l ) 10, 981, 000 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 53 
 
 The price level, check money, and unemployment 
 
 Year 
 
 Price 
 level 
 
 Check money 
 
 Unemploy- 
 ment 
 
 Year 
 
 Price 
 level 
 
 Check money 
 
 Unemploy- 
 ment 
 
 1929 
 
 95.2 
 86.8 
 72. 1 
 63.9 
 65.0 
 
 $1,300, 000. 000 
 900, 000, 000 
 660, 000, 000 
 450, 000, 000 
 430, 000, 000 
 
 469. 000 
 3, 849, 000 
 8, 148, 000 
 12, 516, 000 
 12, 773, 000 
 
 1934 
 
 74.6 
 79.8 
 80.6 
 81.7 
 88.0 
 
 $470, 000, 000 
 530. 000, 000 
 611,000, 000 
 637, 000, 000 
 
 1 530, 000, 000 
 
 10, 523, 000 
 9, 843, 000 
 8, 159,000 
 7. 028, 000 
 
 10, 981,000 
 
 1930 
 
 1935.. 
 
 1931 
 
 1936- 
 
 1932 ... 
 
 1937 
 
 1933.. 
 
 1938 (June).. 
 
 1 Estimated for 1938. 
 
 Source: Board of Governors of the Federal Reserve System. 
 
 It is thus perfectly obvious that these figures demonstrate that as 
 the money supply is contracted employment is contracted and as the 
 money supply is increased employment increases. 
 
 The remedy, therefore, for unemployment is to frankly recognize 
 the shortage of the money supply and to expand the money supply 
 through the Federal Reserve banks by authority of the Government, 
 without penalizing those who ignorantly or innocently contract our 
 money supply. 
 
 THE UNEVEN DISTRIBUTION OF MONEY 
 
 Naturally, in a great industrial nation where immense corpora- 
 tions are built up and financed in great financial centers, there would 
 be a tendency to attract the accumulation of wealth and a larger 
 supply of the money of the country to such centers because the profit 
 arising from factory production flows back to the centers where these 
 corporations have their central offices. 
 
 It results therefore in an uneven distribution of the money supply 
 and diminishes the purchasing power of those communities from whom 
 the purchasing power is thus withdrawn by profits, interest, insur- 
 ance premiums, etc. The United States Government has, through 
 its departments and its various bureaus of research, ascertained the 
 substantial facts in regard to this matter. 
 
 The profit of a corporation is an actual withdrawal from the ulti- 
 mate consumers of money held by the consumers, and such profit 
 leaves the domicile of the consumer and goes to the head office of the 
 manufacturing corporation. This profit means a transfer of local 
 demand deposits to the industrial center at the expense of the money 
 supply of the consumers. Unless the farmers receive from consumers 
 of agricultural products a profit sufficient to supply the local money 
 needs, the buying power of the farmer is cut off to that extent, to the 
 injury of the city factory, depriving it of a needed market for machine 
 production. 
 
 In 1920 agricultural products reached a high price because of the 
 scarcity of agricultural products produced by the World War and 
 the superabundance of money created by the World War through 
 bond issues. When the contraction of credit and currency took place 
 in 1921, it removed the factor of money abundance while the scarcity 
 of agricultural products had been substantially corrected. This 
 resulted in the market price of agricultural products falling to less 
 than half of what they bad been. 
 
54 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 In 1932 the depression of agricultural prices was extremely severe 
 due to the contraction of the money supply accompanied bv an 
 abundance of agricultural products. 
 
 The farmer always suffers in the selling price of his products more 
 than the manufacturers because the manufacturer can control the 
 price of his own products and hold them in storage awaiting a fair 
 price and can regulate the volume of his products. The manufac- 
 turers are highly organized and well financed. The farmers are not 
 organized, are not capable of being easily organized, are not well 
 financed and their products go upon the domestic market and upon 
 the foreign market in keen competition with the products of the farm- 
 ers of the whole world. 
 
 Due to these causes the farmers always suffer more in a depression 
 than other producers. 
 
 It is for the above reasons that the farmers should be more deeply 
 interested in stabilizing the value of money through the regulation 
 by the Government of the volume of money. 
 
 The farmers of the country, who represent approximately 21 percent 
 of the labor of the country, have not been receiving 21 percent of the 
 national income, although it is notorious that the farmer must give 
 almost his entire time, from morning until night, in the cultivation of 
 his fields and in the conduct of animal industry. It is of interest to 
 note what the income of the agricultural classes has been in com- 
 parison with the national income. For that reason there is here 
 submitted a table showing the income of the farmers and stockmen, 
 as compared with the income of the Nation for the years 1929 through 
 1934. 
 
 The national income and the income of the farmers from 1929 to 
 1934, inclusive, were as follows: 
 
 HOW THE FARMERS HAVE SUFFERED 
 
 Year 
 
 National 
 income 
 
 Agricultural 
 
 incoT.e 
 
 Percent- 1 
 age 
 
 Year 
 
 National 
 income 
 
 Agricultural 
 
 income 
 
 Percent- 
 age 
 
 1929 
 
 1930 
 
 1931 
 
 $78, 576, 000. 000 
 72, 973. 000, 000 
 61,433, 000, 000 
 
 $6, 157, 000, 000 
 4, 595. 000. 000 
 4, 271, 000, 000 
 
 7.8 
 6.3 
 6.9 
 
 1932 
 
 1933 
 
 1934 
 
 $47, 904. 000, 000 
 44. 431,000.000 
 49, 440, 000. 000 
 
 $3. 192, 000, 000 
 2, 993, 000, 000 
 3, 299. 000. 000 
 
 6.7 
 6.7 
 6.8 
 
 
 
 
 When the contraction of credit and currency took place in 1921 it had 
 the effect of depressing the price of farm commodities and the value of 
 farm lands and also making it more difficult for the farmers to meet 
 their debts in the form of mortgages. 
 
 The depression of 1921 reduced the market value of the lands of the 
 agricultural class $20,000,000,000. An index of the wholesale prices 
 of a few of the principal farm commodities is here submitted to show 
 the manner in which all farm prices were affected by the contraction of 
 credit and currency (see p. 38). 
 
 The extent to which those engaged in agriculture have been com- 
 pelled to mortgage the farms upon which they live is shown for the 
 various States in the following table: 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 Farms mortgaged 
 
 55 
 
 State 
 
 Mississippi 
 
 Oklahoma 
 
 Alabama 
 
 Georgia 
 
 North Dakota.. 
 
 Louisiana 
 
 South Dakota.. 
 
 Iowa 
 
 Nebraska.. 
 
 Arkansas 
 
 South Carolina. 
 
 Texas 
 
 Kansas 
 
 Colorado 
 
 Minnesota 
 
 Idaho 
 
 Illinois 
 
 Missouri 
 
 Wisconsin 
 
 Montana 
 
 North Carolina 
 
 Wyoming. 
 
 Indiana 
 
 Tennessee 
 
 Farms 
 mortgaged 
 
 Percent 
 mortgaged 
 
 oai Hon 
 
 83 7 
 
 MO Mftfi 
 
 SO. 4 
 
 ono ooo 
 ZU-, uuu 
 
 78 Q 
 
 ion noo 
 
 lVfW, UUU 
 
 78. 2 
 
 AO OOO 
 DU, UUU 
 
 78 2 
 
 i e/o, uu 1 • 
 
 77 6 
 
 
 77 4 
 
 1 on, UUU 
 
 77 3 
 
 go onn 
 yy. uuu 
 
 77 2 
 
 186. 000 
 
 77.0 
 
 121, 000 
 
 76. 7 
 
 377, 000 
 
 76. 1 
 
 119,000 
 
 71.9 
 
 40,000 
 
 67.9 
 
 125, 000 
 
 67 8 
 
 27, 000 
 
 f.7.1 
 
 141,000 
 
 66.2 
 
 169. 000 
 
 66. 1 
 
 119.000 
 
 65.9 
 
 ?0. 000 
 
 64.5 
 
 176, 000 
 
 63.2 
 
 10, 000 
 
 ii2. 5 
 
 111,000 
 
 61.4 
 
 147, 000 
 
 60.2 
 
 State 
 
 Oregon 
 
 Delaware 
 
 California. 
 
 Washington 
 
 New Jersey 
 
 Vermont 
 
 Michigan 
 
 Utah 
 
 Maryland 
 
 Massachusetts... 
 
 Connecticut 
 
 Ohio 
 
 New York 
 
 Kentucky 
 
 Nevada 
 
 Florida 
 
 Virginia 
 
 Pennsylvania. . . 
 
 Rhode Island 
 
 Arizona 
 
 New Hampshire 
 
 New Mexico 
 
 Maine 
 
 West Virginia... 
 
 Farms 
 mortgaged 
 
 32. 000 
 
 59. 6 
 
 5, 000 
 
 58. 6 
 
 79,000 
 
 58! 3 
 
 40! 000 
 
 57. 7 
 
 14, 000 
 
 57. 6 
 
 14, GOO 
 
 56. 4 
 
 95! 000 
 
 56. 2 
 
 15, 000 
 
 55. 9 
 
 23! (K)0 
 
 53 4 
 
 13. 000 
 
 53! 1 
 
 9,000 
 
 52. 7 
 
 113, 000 
 
 51.9 
 
 82. 000 
 
 51.7 
 
 126, 000 
 
 51.4 
 
 1.000 
 
 46.3 
 
 26. 000 
 
 44.9 
 
 75. 000 
 
 44.3 
 
 75. 000 
 
 43.9 
 
 1,000 
 
 43.4 
 
 5.000 
 
 41.8 
 
 5.000 
 
 38.4 
 
 12,000 
 
 33.4 
 
 13. 000 
 
 35. 1 
 
 26, 000 
 
 32.6 
 
 In the above table was a very large number of farms of 3 acres or less, which were not mortgaged. Except 
 for this fact the percentage of larger farms under mortgage would have been substantially higher. 
 
 The total value of the farms in 1935 was about 832,000,000,000. The value in 1920 was $67,000,000,000. 
 
 The estimated debt on these farms in 1934 was $9,500,000,000, and because of foreclosures and other forced 
 transfers to other purchasers of 1H billions, the debt remaining is about $8,000,000,000 for 1935. 
 
 Source: Hearings before the Committee on Agriculture and Forestry, U. S. Senate, 75th Cong., on Farm 
 Commodity Prices, June 7, 8, and 9, 1937. 
 
 As an evidence of the uneven distribution of bank deposits we 
 submit the following table, showing how much poorer some States 
 are than others in the way of an adequate money supply to carry on 
 their local business: 
 
 Check money, by States, October 1984 
 
 States 
 
 Percent- 
 age of 
 insured 
 deposits, 
 io num- 
 ber 
 
 Percent- 
 age of 
 insured 
 deposits, 
 in value 
 
 Dollars per 
 
 capita uf 
 Insured and 
 uninsured 
 demand 
 bank de- 
 posits 
 
 Alabama 
 
 Arizona 
 
 Arkansas 
 
 California 
 
 Colorado 
 
 Connecticut 
 
 Delaware 
 
 District of Columbia 
 
 Florida 
 
 Georgia... 
 
 Idaho 
 
 Illinois. _ 
 
 Indiana 
 
 Iowa 
 
 Kansas 
 
 Kentucky 
 
 Louisiana 
 
 Maine 
 
 Maryland 
 
 Massachusetts 
 
 Michigan. 
 
 Minnesota 
 
 Mississippi 
 
 Missouri 
 
 99.3 
 98.6 
 99.0 
 97.9 
 93.7 
 98.4 
 97.4 
 98.7 
 
 99. 
 
 98.6 
 97. 9 
 
 98.8 
 98.8 
 y9 
 98.7 
 
 59.7 
 59.0 
 63.5 
 - 52.5 
 52.8 
 50.8 
 46.7 
 53.6 
 50.8 
 50.6 
 66.2 
 37.2 
 60.3 
 64.9 
 61.4 
 63.9 
 45.5 
 73.6 
 45.8 
 38. 8 
 51.fi 
 53 fi 
 65.6 
 44. 1 
 
 $26. 61 
 46.71 
 23. 29 
 
 123. 41 
 95.16 
 
 107. 10 
 
 200. 02 
 
 220. 24 
 56. 14 
 39.38 
 46. 14 
 
 152. 30 
 56.32 
 63. 43 
 76.68 
 47.69 
 48. 52 
 53.46 
 90.98 
 
 170.73 
 61 03 
 79 90 
 21. 10 
 
 138. 22 
 
56 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 Check money, by States, October 1984 — Continued 
 
 States 
 
 Percent- 
 age of 
 insured 
 deposits, 
 in num- 
 ber 
 
 Percent- 
 age of 
 insured 
 deposits, 
 in value 
 
 Dollars per 
 capita of 
 insured and 
 uninsured 
 demand 
 bank de- 
 posits 
 
 Dollars per 
 capita of 
 insured 
 bank de- 
 posits of 
 
 $5,000 and 
 under 
 
 Montana -.. 
 
 98.2 
 
 63.7 
 
 $64. 54 
 
 $41. 11 
 
 Nebraska 
 
 98.8 
 
 57.7 
 
 82. 46 
 
 47. 57 
 
 Nevada. 
 
 98.2 
 
 63.0 
 
 83. 64 
 
 40. 09 
 
 New Hampshire... 
 
 ' 98.9 
 
 i 66.6 
 
 54. 95 
 
 36. 59 
 
 New Jersey 
 
 98.7 
 
 63.7 
 
 92. 65 
 
 59. 01 
 
 New Mexico... 
 
 99.0 
 
 63.8 
 
 31.36 
 
 20. 00 
 
 New York. 
 
 97.2 
 
 23.7 
 
 406. 60 
 
 96. 36 
 
 North Carolina . 
 
 99.0 
 
 51. 1 
 
 28. 75 
 
 14. 69 
 
 North Dakota . 
 
 99.2 
 
 78. 7 
 
 31. 33 
 
 24. 65 
 
 Ohio 
 
 98.9 
 
 56. 1 
 
 71.68 
 
 40. 21 
 
 Oklahoma.. 
 
 J 99.0 
 
 i 47.6 
 
 59.50 
 
 38. 32 
 
 Oregon.. 
 
 99.0 
 
 63.5 
 
 66. 55 
 
 42. 25 
 
 Pennsylvania... 
 
 98.6 
 
 46.7 
 
 134.20 
 
 62. 67 
 
 Rhode Island 
 
 98.2 
 
 54.0 
 
 112. 39 
 
 60. 69 
 
 South Carolina ... . 
 
 99.0 
 
 58.2 
 
 21.56 
 
 12.54 
 
 South Dakota 
 
 99. 1 
 
 71.9 
 
 43. 96 
 
 31. 53 
 
 Tennessee 
 
 99. 1 
 
 53. 5 
 
 42. 14 
 
 22. 54 
 
 Texas 
 
 98.7 
 
 48.5 
 
 81.27 
 
 39.41 
 
 Utah 
 
 98.7 
 
 56.2 
 
 55. 03 
 48. 94 
 
 30. 92 
 
 Vermont 
 
 99.0 
 
 84. 1 
 
 41. 15 
 
 Virginia 
 
 99. 1 
 
 61.9 
 
 55.99 
 
 34.64 
 
 Washington 
 
 98.6 
 
 53.5 
 
 67. 30 
 
 36. 00 
 
 West Virginia.. 
 
 99.3 
 
 65.7 
 
 47. 80 
 
 31.40 
 
 Wisconsin 
 
 99. 1 
 
 65.6 
 
 55. 97 
 
 36.71 
 
 Wyoming- 
 
 99.0 
 
 68.3 
 
 60. 67 
 
 41.43 
 
 i Excludes figures of 1 State bank member of Federal Reserve System. 
 
 Source: Hearings before the Committee on Agriculture and Forestry, U. S. Senate, 75th Cong., on farm 
 commodity prices, June 7, 8, 9, 1937. 
 
 The total amount of insured demand bank deposits in small ac- 
 counts of $5,000 and under in December 1936 was only 5.5 billion 
 dollars. There were, roughly, 14.5 billion dollars in large accounts 
 (insured only up to the first $5,000). The 14.5 billion dollars in large 
 accounts is "held by only 2 percent of the bank deposits in number. 
 The other 98 percent in number must get along on only 5.5 billion 
 dollar * to transact their business. 
 
 It must be remembered, however, that the great corporations repre- 
 sent a large number of stockholders, and that these corporations do 
 employ their uninsured demand deposits in transacting their own 
 business. 
 
 Students will observe from these tables that there is an uneven 
 distribution of the money supply and that this accounts in sub- 
 stantial degree for the inability of some sections and classes to buy 
 freely of factory production, and therefore prevents maximum pro- 
 duction by the factories of the country. 
 
 If the Government, through Congress^ was regulating the volume 
 of money, the new money annually required to meet the increase in 
 industrial production could be so distributed among underprivileged 
 classes and sections, where buying power is lacking, as to build up 
 gradually a buying power that would be most beneficial to the ex- 
 pansion of our Industrial production in the cities. It is now generally 
 recognized that the welfare of those who produce in the cities is inti- 
 mately bound up with the welfare of those who produce outside of 
 the cities; and that the success of the one is vital to the success of the 
 other. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 57 
 
 MONEY IN RELATION TO DEBT 
 
 The indebtedness of the people of the United States, governmental, 
 corporate, and individual, is estimated variously at around $250,- 
 000,000,000. It therefore follows that the indebtedness of the Gov- 
 ernment, incurred during the World War when credits were expanded 
 and the dollar index went down to 60, has become a greater burden 
 on the taxpayers, as this dollar has risen to its present purchasing 
 power of 130. The same thing is true for the debts of all the States, 
 counties, and cities. The same thing is true for the debts of corpora- 
 tions and individuals. 
 
 The most grievous burden which afflicts the economic life of the 
 people of the United States is this enormous burden of debt of the 
 people to each other. It paralyzes the Nation and prevents the full 
 expansion of economic life. 
 
 The increased purchasing power of money is therefore an affliction 
 to people who have loans on their farms, or city property, or homes; 
 and upon all people and corporations who have borrowed money on 
 bonds. It makes more difficult the payment of debt, and it has been 
 proven to be grossly unfair and ruinous to the debtors. 
 
 It has made it more difficult for the European nations to pay their 
 debts to the United States. They have been compelled to humiliate 
 themselves by advising the United States Government that they were 
 not able to meet the indebtedness incurred during the World War, to 
 the great injury of the American people who had relied with con- 
 fidence upon the payment of the European debts to the United States. 
 
 It has compelled the foreclosure of hundreds of thousands of mort- 
 gages. 
 
 It has bankrupted millions of people and contributed to the unem- 
 ployment of the Nation. 
 
 The demand to restore the purchasing power of money back to 
 the 1926 price level has been justified by the relation of money to debt, 
 because 1926 had a dollar whose index of purchasing power was sub- 
 stantially the same as the average dollar index of 1921-29, inclusive, 
 and also the same, approximately, as the average for the years 1914-30, 
 inclusive. 
 
 The relation of money to debt must be considered in establishing 
 justice between debtor and creditor. It is an error to think that the 
 creditor always profits at the expense of the debtor through the sale 
 of the debtor's property, for the bankruptcy of the debtor, the destruc- 
 tion of his earning power, and the destruction of the value of the prop- 
 ertv of the debtor often injures thecreditor in the most serious manner. 
 The interest of debtor and creditor alike will be served by restoring 
 the money supply to a normal, predepression basis and thereby 
 increasing the production and the income of all the people. 
 
 THE INTEREST ON DEBT 
 
 Under the capitalist system all of the States of the Union, and the 
 United States as well, have passed laws legalizing rates of interest, 
 running from 6 to 10 percent. 
 
 These rates have been made greater on the debtor in many cases by 
 applying the rate discounts. They have been made greater often by 
 charging commissions, directly or indirectly, upon the borrower. 
 
58 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 They have been made greater by requiring the borrower to keep on 
 deposit a substantial part of the loan he makes. 
 
 There are other devices and practices to the disadvantage of the 
 borrower. This is one of the penalties which naturally flow from 
 turning over to privately owned corporations and banks the creation 
 of our money and a practical monopoly of our money supply; and the 
 power of the banks to contract the money supply and thereby increase 
 the burden on the debtor, whose income and whose property is 
 diminished in value b}^ the process of contracting the volume of money. 
 
 We see the term "easy money" employed. This term is emp loved 
 even by our highest officials on the Federal Reserve Board. What is 
 meant by "easy money" is merely the low rate of interest which is 
 charged in New York City and elsewhere by the banks in lending 
 money to the United States on the purchase of bonds and notes of 
 the United States by the banks, or from other borrowers whose credit 
 is beyond question; it does not mean the average borrower throughout 
 the United States, who has borrowed money on the farm, for instance, 
 as a means of financing production on the farm, nor in the local 
 factory. 
 
 It is, therefore, of the greatest importance to observe a change 
 taking place throughout the world as one of the results of the depres- 
 sion, and as one of the results of increasing intelligence with regard to 
 the importance of promoting production and employment by means of 
 money supplied at low interest rates. 
 
 In this connection attention is called to the fact that Great Britain 
 for over 6 years has been furnishing monej^ for industry and commerce 
 at an unbroken rate of 2 percent per annum, while the normal rate 
 throughout the United States is probably three times this amount. 
 
 Attention is called to the present current rates in Europe. The 
 Federal Reserve Bulletin of November, 1938, page 1025, has a table 
 on money rates in foreign countries. The private discount rate in 
 Switzerland has been 1 percent since August 1937; in the Netherlands 
 it has been 0.14 percent; in Belgium it has been about 1.50 percent; 
 in France it has been 2 l / 2 to 3 percent; and it has been 2.88 percent 
 in Germany. 
 
 Against these interest rates the United States must compete. 
 
 In Canada the Canadian Government has taken over the National 
 Bank of Canada and has authorized 2-percent loans to be made to the 
 municipalities of Canada, b}^ the national bank. 
 
 On page 998 of the November Federal Reserve Bulletin appears the 
 following rates in New York for the past year: 
 
 Prime commercial paper has been 1 percent and three-fourths to 1 
 percent; prime bankers acceptances have been at seven-sixteenths 
 percent; stock exchange time loans have been 1% percent; stock ex- 
 change call loan renewals have been 1 percent; and United States 
 Treasury bills (short-term loans) had a rate of only 0.03 percent for 
 the week of October 22, 1938. 
 
 These rates merely signify that the enormous accumulation of cash 
 capital unemployed is being loaned in this mamier at an extremely low 
 rate. It does not mean that the ordinary man employed in agricul- 
 ture, in stock raising, or in local manufacturing can borrow money for 
 production and the carrying of inventories at these rates, or have any 
 assurance that such loans will be carried from year to year while he is 
 engaged in the processes of production. It is another evidence of the 
 maldistribution of money. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 59 
 
 It points out that the instability in the cost of the use of money is 
 one of the most serious elements indicating the instability of the mone- 
 tary system of the United States. It demonstrates the importance of 
 the Congress of the United States reviewing the whole question of the 
 laws fixing the rates of interest in the United States and considering 
 the question as to fixing a rate which will make possible the ultimate 
 accomplishment of the abolition of debt and the payment of interest 
 by those who are engaged in producing the commodities and services 
 which are necessary to the enjoyment of life by the American people. 
 
 LABOR AND MONEY 
 
 Without money, the compensation for labor and services would 
 necessarily be by barter. The labor of many people is compensated 
 by barter in very large part, such as the labor on the farm where 
 shelter and food is furnished in exchange for labor. Millions of 
 housewives and dependents in the household receive food and shelter 
 in exchange for domestic services. 
 
 The wages paid to labor by industrial enterprises are paid in very 
 large part in money, and labor is organized in labor unions with the 
 right of collective bargaining as a means of securing a more just 
 compensation. These labor unions are organized into the American 
 Federation of Labor, the Committee on Industrial Organization, and 
 in other organizations. There are many farm organizations such as 
 the National Grange, the American Federation of Farm Bureaus, the 
 National Educational and Cooperative Union of Farmers, and the 
 National Cooperative Council (representing about 4,000 farm organi- 
 zations and 1,200,000 dues-paying members). Many other organiza- 
 tions exist having in view the protection of their members who labor. 
 
 In our industrial life those who manage the capital invested natu- 
 rally try to keep down the cost of the articles manufactured and, 
 therefore, often drive hard bargains with those who labor, making it 
 necessary for the Government to pass laws for collective bargaining, 
 and other processes, through which labor may be better protected in 
 the matter of wages and salaries and safety in employment. Labor 
 suffers severely from booms and depressions, which result in millions 
 of men and women being suddenly thrown out of employment and 
 kept out of employment month after month and year after year. In 
 1932 the unemployed rose to 14 millions and was about 11 millions in 
 1938. One million two hundred thousand adults are added annually 
 to the columns of those who are qualified for labor and who need em- 
 ployment. 
 
 It, therefore, is of supreme importance that the Congress of the 
 United States should have a wise monetary policy that would give 
 stability to the volume of money employed in our industrial life, 
 and by which wages and salaries are paid, and by which those who 
 produce receive the money with which to buy, as consumers, the 
 products of the labor of others. The volume of this money must 
 constantly rise in order to supply an adequate volume to provide a 
 medium of exchange for the products and services of 1,200,000 adults 
 annually entering the fields of labor. It is of importance not only to 
 furnish an adequate supply of money through the powers of Govern- 
 ment but to prevent the indefensible expansion and contraction of 
 money which results in depression and unemployment. It is of impor- 
 
 123338—39 5 
 
60 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 tance to have stability of employment so that those who labor shall 
 receive a reasonable annual living wage, and so that those who employ 
 labor may make contracts which will run, not day by day or week by 
 week or month by month, but from year to year with as little in- 
 stability as possible. 
 
 The lack of stable, permanent employment compels laborers to 
 demand higher prices for their labor when their employment is for 
 comparatively short periods of time. This accounts for the complaint 
 often lodged against labor when the labor unions fix wages at a price 
 deemed too high. Such arbitrary high figures have a necessary 
 tendency to prevent the building of houses for the shelter of labor. 
 
 The national policy of Government should be directed to stabilizing 
 employment. Stability of employment depends upon stability in 
 the medium of exchange. There must be an adequate supply of 
 money, neither too little nor too much, and only the Government 
 with its financial power and legal authority can accomplish this end. 
 
 By brain or by brawn, practically all of the people of the United 
 States labor and are producers and consumers. A man of wealth 
 directs the employment of his wealth, but as a consumer he draws no 
 more in food or clothing than millions who are not wealthy. The 
 accumulated wealth is distributed by law as the men of wealth die. 
 
 ABUNDANCE OR SCARCITY? 
 
 It is a grave fallacy to believe that scarcity is unavoidable or that 
 abundance for all is unattainable because scarcity afflicts millions of 
 people in a land of unlimited natural opportunities. Many men 
 believe and have been taught to believe by suffering that scarcity is 
 unavoidable; that there is a necessary limitation on the demand for 
 labor; that many must of necessity go unemployed; that, therefore, 
 the demand for employment should be distributed by a fewer number 
 of working days and by a shorter number of working hours. A fewer 
 number of working days and shorter hours will be justified when the 
 American people shall have fully developed and fully employ the 
 machines their inventive genius has developed, and the power pro- 
 duced through coal, petroleum, water power, and electricity. This 
 objective has not been achieved. 
 
 But until abundance for all is produced and full employment is 
 provided through an adequate supply of the medium of exchange, 
 the energy and intelligence of statesmen should be directed toward 
 furnishing an adequate medium of exchange for the transfer of 
 maximum products and services of the people to each other. 
 
 Labor leaders have had the artful appeal made to them that a rise 
 in the index of the price level means a rise in the cost of living. This 
 means this argument opposes a rise in the volume of the money re- 
 quired to create abundance and to create a larger volume of products. 
 This argument has been shown heretofore to be entirely fallacious 
 because as the money supply rises employment and wages increase 
 and of course the products increase in volume as laoor increases in 
 the number employed. When the volume of money and the volume 
 of commodities rise together, as they do, the purchasing power of 
 money remains unchanged and the average price of commodities re- 
 mains unchanged as far as money is concerned. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 61 
 
 In Loeb's "Chart of plenty," which had its origin in the Department 
 of Commerce and the labor of a number of experts, it has been demon- 
 strated beyond the possibility of successful contradiction that with the 
 existing machinery, technological processes, manpower, organization, 
 increase of electrical energy, and our natural resources the people of 
 the United States could easily produce $130,000,000,000 annually, if 
 they were fully employed. This chart should be studied by patriotic 
 men who desire our country to reach the highest standard of living for 
 all of the people. It should be studied by those who desire to end 
 human misery in the United States. It should be studied by those 
 who desire equality of opportunity for the children who are daily born 
 into the world. It should be studied by those who desire the farmers 
 of the United States to have a fair reward for the hard labor they 
 perform. It should appeal to those who have been disturbed by the 
 growth of organizations based on discontent and which not only has 
 caused a widespread demand for the protection of the weak and de- 
 fenseless by the Federal Government, but has also caused the growth 
 in this country of subversive organizations winch regard democracy 
 as incapable of giving all of the people sufficient food to live on. 
 
 There was a great leader who proclaimed his purpose in entering' 
 the world that He came to bring life, and life more abundantly. He 
 told His disciples the first means by which to accomplish it. As I 
 remember it, He said, "Seek ye first the Kingdom of God and His- 
 righteousness and all these things shall be added unto you." 
 
 National prosperity and abundance cannot be founded on blind 
 selfishness. It must be founded upon the doctrine which declared r 
 "Thou shalt love thy neighbor as thyself." 
 
 MONOPOLY AND MONEY 
 
 For many decades the people of the United States have been en* 
 deavoring by law to control the. unfair exactions of monopolies in our 
 industrial life. The Sherman Antitrust law imposed severe penal- 
 ties for the restraint of trade by our powerful industrial organizations. 
 But in the test cases brought the Supreme Court held that Congress 
 only intended to forbid and penalize unreasonable restraints of trade. 
 This decision imposed upon the complainant the responsibility and 
 necessity of proving that the restraint complained of was unreasonable 
 and left the question of reasonableness to be determined by the judic- 
 iary. This made the law ineffective. Naturally, great and powerful 
 combinations, with enormous capital and great resources, can monop- 
 olize the supply of raw materials needed in mass production and can 
 obtain special advantages in many ways which makes successful 
 competition almost impossible. 
 
 Such monopolies can fix the price of their products so that when 
 depressions come and the dollars become very scarce, the products of 
 monopoly are more costly to the consumers in terms of their own 
 products, which are subjected to a severe lowering of price in the 
 markets due to money scarcity. This profoundly afflicts the farming 
 population of the country as well as the dwellers in the cities. 
 
 Recently in the beginning of 1937 we witnessed the price of copper 
 rise from 9 to 17 cents a pound because the supply of copper was con- 
 trolled by monopoly. In this manner the increase of such products in 
 
62 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 price arbitrarily had the immediate effect of obstructing the natural 
 reaction from depression which otherwise was taking place. 
 
 No mere monetary policy can prevent the copper producing com- 
 panies from charging what they please. It is true that they operate 
 by public charter, that they employ the public mails and trans- 
 portation system, and all the facilities for marketing provided by the 
 public and the services of other citizens. It is also true that as yet 
 no public control has been established to adequately control the 
 abuses of monopoly, or to establish a completely fair competitive 
 system. The correction of such practices and abuses lies outside of 
 the question of monetary science. Monetary science must confine 
 itself to the public control of the volume of money and the regulation 
 of the value thereof. This duty has been imposed by the Constitu- 
 tion of the United States on the Congress of the United States. 
 
 ONE HUNDRED PERCENT RESERVES 
 
 It has heretofore been pointed out that the power of the privately 
 owned banks, State and national, to expand the money supply by 
 loans and contract the money supply by liquidating the loans, or 
 requiring the loans paid has been the means of repeated booms and 
 depressions in the United States. 
 
 In order to put an end to this destabilizing influence and power, 
 many economists now believe with Prof. Irving Fisher of Yale that 
 the national and State banks should be required to have 100 percent 
 reserves with the Federal Reserve banks against their demand bank 
 deposits. The effect of this would be: 
 
 1. The inability of the banks to cause booms and depressions by 
 the indefensible expansion and contraction of credit. 
 
 2. The absolute stability in the security of the demand bank 
 deposits all of which could be liquidated instantly on the demand of 
 the demand bank depositors. 
 
 3. By this method the banks would have perfect security against 
 the possibility of any sudden demand. 
 
 4. The banks would still have the money arising from savings 
 accounts and time deposits which they could invest, or could loan 
 for business purposes. 
 
 5. The banks would still have the right to obtain loans from the 
 Federal Reserve banks or sell to the Federal Reserve banks commercial 
 bills and real estate loans on long time. 
 
 6. The banks of course would have the earnings from handling 
 deposit accounts, both as to number and in the volume of such 
 accounts. 
 
 7. The banks would have stability in the solvency of their borrow- 
 ers and stability in the value of their investments, and would auto- 
 matically cease to finance speculative operations on the security and 
 commodity exchanges under a properly ordered system. 
 
 In addition to these advantages to the banks the United States 
 would have the advantage of acquiring through the Reserve banks 
 the United States bonds, which the banks and public hold, by the 
 payment of these bonds when they fall due or are sold to the Reserve 
 banks in credit of the Federal Reserve banks. Under this system the 
 Federal Reserve banks would gradually acquire the public debt, save 
 the interest on such bonds and the amortization charges, and there- 
 fore greatly facilitate the balancing of the Budget. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 63 
 
 The 100-percent reserves required against the demand bank de- 
 posits would make it impossible for the banks to create an inflation 
 of the money supply of the United States with its destabilizing 
 influence. The banks at present have in cash and bonds a 100-percent 
 reserve against their demand deposits. 
 
 Chapter XV 
 
 THE CALL RATE ON THE SECURITY EXCHANGES 
 
 The call rate on the New York Stock Exchange was exempted by 
 statute of the State of New York from the rule forbidding an interest 
 rate above a fixed rate in cases where the loans were $5,000 and up, 
 and secured by stock market collateral. Thus, generally, there was 
 no limitation on the rates of interest charged for call money. 
 
 One of the most potent causes of the instability of credit and 
 money was the uncontrolled call rate on the New York Stock Exchange. 
 
 In the fall of 1907 tins rate went up to 100 percent. In the fall of 
 1919 it went up to 30 percent, after the Federal Reserve Board called 
 upon the banks in New York to liquidate their loans from the Federal 
 Reserve banks. 
 
 The effect of this high call rate was to create the general impression 
 throughout the country that money could not be obtained, even on 
 call where it could be liquidated in 1 day, except at a high rate. 
 This naturally and necessarily disturbed the confidence of the whole 
 country in the stability of our credit structure. 
 
 The Brookings Institution published a work by Owens and Hardy 
 "Interest Rates and Stock Speculation" on the effect of the cab" 
 money rate on deterring speculation, or encouraging reaction from 
 depression. This work demonstrated, citing six major and minor 
 depressions, that a high rate of interest did not deter speculation on 
 the stock market and did not restore credit to normal during a 
 depression. 
 
 The effect of a 6 percent rediscount rate of interest imposed by 
 the Reserve banks in 1929 was to notify the businessmen of the 
 United States through the media of the banks, that the banks could 
 not obtain money from the Reserve banks and lend it to their cus- 
 tomers, except at a loss, because the banks were forbidden by law to 
 lend money at above 6 percent. It was estimated that it cost the 
 banks 1.3 percent on the average, for making and collecting loans. 
 So, unless they could charge at least 7.3 percent on their loans, they 
 would be losing money. 
 
 The attention of students is invited to the call rate on the New 
 York Stock Exchange for the years 1926 to 1937, inclusive. 
 
 Call rates on New York Stock Exchange 
 Percent 
 
 1926 4. 50 
 
 1927 4. 06 
 
 1928 6. 04 
 
 1929 7. 61 
 
 1930 2.93 
 
 1931 1. 74 
 
 Percent 
 
 1932 2. 05 
 
 1933 1. 16 
 
 1934 1. 00 
 
 1935 . 56 
 
 1936 . 91 
 
 1937 1. 00 
 
 Source: Board of Governors of the Federal Reserve System. 
 
£4 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 While the average for 1929 was only 7.61 percent for the entire year, 
 the rate actually went up to 20 percent at critical periods during the 
 year, greatly destabilizing the credit structure of the United States and 
 creating the impression that even on the finest security, which could be 
 sold within 24 hours, the use of money was worth 20 percent per annum, 
 and that money under any conditions was extremely difficult to get. 
 The truth was, and is, that the United States and the Federal Reserve 
 banks have had the power at any time to expand the money supply to 
 meet the necessities of the country by converting nonliquid securities 
 into money through purchase. 
 
 The effect of a high call rate on the New York Stock Exchange was 
 to invite money from every bank in the United States, because such 
 loans were abundantly protected by margin. They were easily made 
 through correspondent banks in New York City and they were profit- 
 able and safe. The result, however, of such loans was to expand 
 credit indefensibly, unjustifiably, and unwisely in the security exchange 
 and to make money scarce in the home bank, where production and 
 local industry had to get their money. The effect also was to inflate 
 the value of the securities being marketed by the great industrial cor- 
 porations between 1921 and 1929. The inflation of stock prices thus 
 created naturally resulted in a crash in the stock market when the big 
 operators in stocks determined to sell their stocks and the public 
 finally discovered it. 
 
 It is an open secret that in July 1929 certain great houses marketed 
 their securities and loaned the money freely on call to less sagacious 
 operators who did not realize the threatened reaction which was in 
 sight to those who had greater vision. 
 
 Thus the high call rate, followed by the raising of the rediscount 
 rate by the Federal Reserve Board and the Federal Reserve banks, 
 contributed to the collapse which took place in 1929 and the vicious 
 downward spiral which followed. 
 
 When the collapse in the stock market took place and the violent 
 contraction of credit occurred, a wave of pessimism swept the country. 
 Consumption diminished within less than 12 months by 25 percent. 
 
 The monthly Federal Reserve bulletins show all the figures as to 
 the expansion and contraction of the money supply and economic 
 effects thereof. Students are referred to these bulletins for confirma- 
 tion and detail. 
 
 THE CONTROL OF THE SECURITY EXCHANGES 
 
 It was the recognition of these truths which caused the Congress of 
 the United States to regulate the security exchanges by law, and to 
 put the Federal Reserve banks under more rigid control by the Federal 
 Keserve Board, in order to enable the Government to determine the 
 margins required in stock operations, to forbid member banks from 
 acting as agents in making loans on call for other banks, and to require 
 the strict supervision of the security exchanges. 
 
 The old maxim "Let the buyer beware' ' was modified by a new 
 rule, "Let the seller also beware." 
 
 The control of the security exchanges is tending to abate the 
 recurrence of stock-market booms and crashes, and to partly stabilize 
 the credit and business structure of the United States, but is by no 
 means sufficient to give complete stability. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 65 
 
 Chapter XVI 
 
 THE INFLATION BOGEY 
 
 It would be a grave error for students of modern monetary science 
 to ignore, or to overlook, the fact that the establishment of the 
 principles of modern monetary science is skillfully opposed by the 
 advocates of the old system under which we have suffered. "We have 
 not all suffered. Some of our people have become enormously wealthy 
 under the old system, during which monopoly has flourished and 
 bull movements and bear movements have been caused in security 
 exchanges by skillful propaganda. 
 
 It would "be unintelligent to ignore the fact that there are some 
 people who know how to make money on a large scale, through bull 
 markets and bear markets, and that this money is made not by creating 
 wealth, but by acquiring wealth under operations in the security 
 exchanges where the sagacious few know how to make money at the 
 expense of others. The general public, through propaganda, is 
 induced in bull markets to make the attempt to acquire wealth by 
 speculation without creating it by labor and services. 
 
 In depressions, which follow inflations, the sagacious few who have 
 acquired available credit can profit by buying property below its 
 Dormal value. 
 
 The old system is vigorously defended. Its advocates and defenders 
 fill the American press with articles dealing with the question of our 
 economic life in which they attribute the evils arising under the 
 existing system to many other causes than the real fundamental 
 cause. Modern monetary science exposes the real cause beyond the 
 possibility of doubt or successful contradiction. But the advocates 
 of the old order, minimize or denounce monetary causes as being 
 responsible for our national distress. The purport of these various 
 articles seems to be to warn the Members of the Senate and House of 
 Representatives and the people against "tinkering with the currency," 
 against "fiat" money, against "printing press money," and against 
 the dangers of "inflation." The experience of Germany following 
 the World War is pointed out as a terrifying example, in which 
 inflation resulted in the destruction of the value of bank deposits, 
 bonds, insurance policies, mortgages, and other evidences of debt, 
 by reducing the German mark to zero value through the inflation 
 of the German mark billions of times. 
 
 The term "inflation" has thus been built up as a bogey warning 
 the people against any necessary expansion by using the term as 
 equivalent to a defensible and necessary expansion of the money 
 supply. 
 
 These advocates of the old system (which has continuously repro- 
 duced one depression after another) seem to rely upon the lack of an 
 informed public opinion. They frighten the people by the bogey of 
 "inflation" as if the advocates of modern monetary science proposed 
 "inflation." Modern monetary science vigorously opposes "infla- 
 tion." It vigorously opposes the "inflation" which has been employed 
 by the sagacious few to profit and to acquire the wealth of the ignorant 
 many. 
 
 Modern monetary science proposes an adequate plan by which to 
 prevent inflation for all time. 
 
56 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 Inflation is the indefensible expansion of credit and currency. 
 Inflation produces an unsound currency and destroys the uniform, 
 permanent, debt-paying purchasing power of money, which is the 
 chief objective of modern monetary science. 
 
 Both of the great political parties in the United States have ex- 
 pressly promised in their national platforms and have demanded a 
 <4 sound currency at all hazards." 
 
 Democratic national platform in 1932: 
 
 We maintain that the depression of 1920 and the depression of 1929 were due 
 to the indefensible contraction of credit for private profit at public expense and 
 we pledge the Democratic Party to preserve a sound currency at all hazards. 
 The Democratic candidates pledge their endorsement of this platform 100 percent. 
 We promise to restore property values and to endeavor to establish a dollar of 
 uniform permanent debt-paying power. 
 
 Democratic national platform in 1936: 
 
 We approve the object of a permanent sound currency stabilized so as to 
 prevent the former wide fluctuations in value, injuring in turn, the producers, 
 debtors, and property owners, on the one hand, and wage earners and creditors, 
 on the other — a currency which will permit full utilization of the country's 
 resources. 
 
 Republican national platform, 1932: 
 
 We pledge a sound currency at all hazards. We will restore to the Congress 
 the authority lodged with it by the Constitution to coin all money and regulate 
 the value thereof. 
 
 Republican platform for 1936: 
 
 We advocate a sound currency to be preserved at all hazards. 
 
 ******* 
 i We will restore to the Congress the authority lodged with it by the Constitu- 
 tion to coin money and regulate the value thereof * * *. 
 
 Progressive Party platform, 1938: 
 
 The ownership and control of money and credit, without qualification or 
 reservation, must be under public and not private control. 
 
 Farmer Labor Party platform, 1934: 
 
 Congress shall exercise the constitutional power to coin money and to regulate 
 the value thereof. 
 
 Modern monetary science proposes a plan to establish this sound 
 currency. The only sound currency is a currency whose debt-paying, 
 purchasing power shall remain the same from one generation to 
 another. It is a currency which shall be equally fair to the creditor 
 and the debtor. It can only be obtained by the exercise of the con- 
 stitutional power of the Congress of the United States to regulate the 
 value of money by regulating the volume of money. 
 
 The advocates of the old system, which fed upon inflation and un- 
 sound money, have made many people believe that nobody under- 
 stands what makes the value of money. Modern monetary science 
 has demonstrated that this theory has no foundation of fact, but is a 
 part of the propaganda which has served to prevent the establishment 
 of the principles of modern monetary science, by which sound currency 
 can be established and through which the indefensible expansion and 
 contraction of credit shall be ended by Government power through a 
 legislative mandate of Congress. Modern monetary science proposes 
 a legislative mandate establishing a sound modern monetary policy 
 of government, by Congress, with the machinery necessary to make 
 it effective. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 67 
 
 Chapter XVII 
 
 THE CONSTITUTION OF THE UNITED STATES ON MONEY 
 
 One of the contributing causes of the Declaration of Independence 
 was the action of Great Britain in forbidding the Colonies to issue 
 money and compelling the people to buy English money with their 
 products in order to have a legal medium of exchange. 
 
 When the Colonies fought the Revolutionary War they emitted 
 colonial paper money not supported by adequate law. This money 
 ultimately proved to be worthless because not backed by the power 
 of taxation. Nevertheless, the money issued by the Colonies com- 
 prised a vital force to enable the Colonies to successfully carry on the 
 War of the Revolution. 
 
 When the Constitution of the United States was established the 
 members of the Constitutional Convention were perfectly well aware 
 of the importance of establishing the right to create money as a sover- 
 eign right of government. They, therefore, in the Constitution 
 forbade the States to create money and, broadly, through the powers 
 of the Constitution, gave the right to create money exclusively to 
 the Congress of the United States. And they gave explicit directions 
 to Congress in article I, section 8, paragraph 5 "* * * to coin 
 money and to regulate the value thereof * * *" {Legal Tender 
 cases). 
 
 The Government of the United States in the beginning was weak. 
 The Members of the Senate and House did not realize the great 
 powers given by the Constitution. The Congress contented itself 
 with passing an act declaring the dollar and its decimal parts to be 
 the monetary unit of account in the United States, and authorized 
 the coinage of gold and silver of a given weight and fineness as dollars. 
 
 Those who understood the power of a privately owned bank to 
 create money, and were familiar with the Bank of England and its 
 power of creating money, obtained a charter from the Congress to 
 establish the Bank of the United States. But the bank fell into 
 disfavor and renewal of its charter was denied. A second Bank of the 
 United States was established and the renewal of its charter denied 
 by the Congress. 
 
 Individual small banks grew up out of the need of the people for a 
 larger supply of money than was afforded by the currency issued by 
 the Congress of the United States These banks created money in 
 the form of demand bank deposits by loans and they also issued paper 
 money. But Congress during the Civil War imposed a tax of 10 per- 
 cent annually upon this paper money issued by the privately owned 
 banks. In 1861, under Abraham Lincoln, Congress issued legal 
 tender paper money as a means of carrying on the Civil War. This 
 legal tender money was a means of saving the Union. 
 
 Lincoln thoroughly understood the constitutional right of Congress 
 to exclusively create money and to regulate the value thereof. An 
 abstract of his views is given by McGeer in Conquest of Poverty. 
 The views of Lincoln are of surpassing importance. McGeer's 
 abstract will be found in the appendix. 
 
 This power was vigorously resisted by the privately owned banks, 
 and the opposition to President Lincoln were able, due to the stress 
 of the war, to put through a national banking system, by which a 
 
gg NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 national bank, privately owned, was authorized to issue paper cur- 
 rency secured by United States Government bonds. These banks 
 were put under the supervisory control of the Government. 
 
 These privately owned banks,, and banks chartered by the various 
 States, also privately owned, became the chief source by which money 
 was created in the United States. These banks served the country 
 well, notwithstanding periodic depressions due to an inherent weakness 
 in the system. This weakness was the uncontrolled power of the 
 banks and their borrowers to expand and contract the volume of 
 money, as heretofore described. 
 
 In 1913 the Federal Reserve System was established, which required 
 all member banks of the System to keep their principal reserves with 
 the district reserve bank, thus concentrating the reserves in a banking 
 system supervised by the Government through the Federal Reserve 
 Board. 
 
 Great powers were given to the Federal Reserve Board and to the 
 Federal Reserve banks. 
 
 The powers to expand credit were employed through these banks in 
 such a manner as to finance the World War without serious difficulty. 
 
 Since that time, by amendments, the System has been greatly 
 strengthened, giving the Board of Governors of the Federal Reserve 
 System the power to control the interest rate, to control the expansion 
 and contraction of credit, and to dominate the so-called Open Market 
 Committee. 
 
 All money has been made legal tender, gold has been removed from 
 our domestic circulation, and the Board of Governors have the power 
 to buy and to sell bonds through the Federal Reserve banks. The 
 Congress, notwithstanding these important improvements, has failed 
 to regulate the value of money as required by the specific terms of the 
 Constitution. The Congress has not passed any act instructing the 
 Board of Governors of the Federal Reserve System or the Federal 
 Reserve banks as to the duty of regulating the value of money, or 
 laying down any standard or plan by which it could be accomplished, 
 beyond imposing the duty of using the powers of the System to serve 
 the interests of commerce and industry. 
 
 President Wilson, like Lincoln, understood the constitutional power 
 of Congress to create and regulate the value of money. It was due 
 to him and to his administration that the Federal Reserve Act was 
 passed with this broad objective. 
 
 The Congress has given a great deal of attention to the problem. 
 When the Federal Reserve Act was under discussion, 3,000 pages of 
 testimony was taken from the leading financiers and businessmen of 
 America. In 1924, 1926, and 1932 special investigations were made 
 by the House of Representatives with regard to regulating the value 
 of money. On May 2, 1932, the House of Representatives passed 
 a bill which declared the monetary policy of the United States and the 
 means of its execution. 
 
 This act declared it to be the monetary policy of the United States 
 to restore and maintain the purchasing power of money as it had been 
 ascertained by the Department of Labor for the average of the years 
 1921-29. The act further required the Secretary of the Treasury, 
 the Federal Reserve Board, and the Federal Reserve banks to make 
 effective this policy. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 59 
 
 It failed in the Senate, but the study of this question by the House 
 has continued. There are at present pending in the Congress a 
 number of bills proposing to perfect the Federal Reserve Act which 
 contemplate a national monetary policy declared by Congress in 
 pursuance of the Constitution. 
 
 The present administration, under Franklin Delano Roosevelt, has 
 recognized the soundness of the views of Lincoln and Wilson and 
 declared the great objectives of establishing a dollar whose debt-paying, 
 purchasing power should remain the same from one generation to 
 another, and to restore the predepression price level. These objec- 
 tives can only be achieved by clearly recognizing the constitutional 
 power and duty of Congress to exclusively create and regulate the 
 value of money. 
 
 THE POWERS OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE 
 
 SYSTEM 
 
 The Federal Reserve Act, approved December 23, 1913, intended 
 to give to the Board of Governors (then the Federal Reserve Board, 
 the name was changed to the Board of Governors of the Federal 
 Reserve System in 1935) supervisory power over the member banks 
 of the System so as to control the flow of credit, or the creation of 
 money in the form of demand deposits by public and private loans 
 made by the banks, in such a manner as to serve the interests of indus- 
 try and commerce, and to prevent the indefensible expansion and 
 contraction of credit. 
 
 It was the intention of the act to prevent the indefensible expansion 
 and contraction of credit by the banks through which booms and 
 depressions arose. 
 
 The powders to expand credit under the System were exemplified 
 during the World War when the Government expanded its loans to 
 the extent of $40,000,000,000 for the financing of the war, without 
 disturbing the credit structure of the banks. 
 
 The power to contract credit by the Board of Governors was set 
 forth in a letter of the Governor of the Board, W. P. G. Harding, of 
 May 25, 1920, an abstract of which follows: 
 
 1. Discount rates should be raised. 
 
 2. Member banks should call loans on agricultural products, thus 
 forcing the sale of such products. 
 
 3. Member bank credits should be restricted. 
 
 4. Existing loans should be liquidated. 
 
 5. Expansion of loans should be checked. 
 
 6. That member banks should use their power to limit the volume 
 and character of loans. 
 
 7. The Federal Reserve banks should establish normal discount or 
 credit lines for each member bank and should impose graduated 
 discount rates on loans in excess of the normal line. 
 
 8. Served notice that the Federal Reserve banks have power to 
 refuse to discount any form or class of paper. 
 
 9. Suggested notice to the public that the Federal Reserve banks 
 have the power to control and regulate credit. 
 
 10. Served notice to the public that they must economize, must 
 limit demands for banking credit, and must begin to pay existing 
 debts. 
 
70 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 11. Suggested that the member banks educate and impress the 
 public with notice of the Federal Reserve's announced policy. (These 
 11 points are taken from S. Rept. No. 1328, 75th Cong.) 
 
 The present powers of the Board were briefly stated by the chair- 
 man of the Board, Hon. Marriner Eccles, as follows: 
 
 The primary function of the Federal Reserve System is to influence the flow of 
 money and to contribute to the soundness of the banking situation. 
 
 ******* 
 
 Complete authority over all matters of major national policy, such as the deter- 
 mination of discount rates, reserve requirements, margin requirements on security 
 loans, and maximum rates of interest to be paid on time deposits, is vested in the 
 Board of Governors. Authority over open-market operations is vested in an 
 open-market committee, consisting of the seven members of the Board of Gover- 
 nors and five members elected by the Reserve banks. 
 
 ******* 
 
 The banks can create and destroy money. Bank credit is money. It is 
 the money we do most of our business with, not with that currency which we 
 usually think of as money. 
 
 The Board of Governors and the Reserve banks have the power to 
 -extend credits to the member banks, to furnish them with currency, 
 and by their influence can cause the member banks to contract or ex- 
 pand credit. 
 
 The Federal Reserve Act as amended, however, had, up to the 
 close of the Seventy-fifth Congress, failed to give a specific legislative 
 mandate establishing a national monetary policy providing for the 
 creation of money adequate to conveniently serve as a medium of 
 exchange in transferring the products and services of the people to 
 and from each other, or to achieve maximum employment and maxi- 
 mum industrial production. 
 
 These latter objectives were submitted to the Seventv-fifth Congress 
 by various bills, such as H. R. 7230 (the Patman bill), H. R. 9800 
 (the Binderup bill), S. 3800 (the Logan bill), and others. 
 
 One of the powers of the Federal Reserve Board in the creation 
 of money is the power to buy bonds and bankable assets through a 
 committee called the open-market committee. This committee 
 consists of seven members of the Board and five members chosen by 
 the Reserve banks. The bills pending in Congress propose to remove 
 private persons from the open-market committee on the ground that 
 the question of controlling the expansion of money should be exclu- 
 sively in the hands of the Board of Governors. 
 
 These bills also propose to discontinue the so-called Federal Reserve 
 Advisory Council, consisting of one member from each Federal 
 Reserve bank, and having the power to advise the Board on the 
 exercise of its powers, for the same reason. 
 
 Chapter XVIII 
 
 THE IMPORTANCE OP A NATIONAL MONETARY POLICY 
 
 In order to carry out the constitutional duty of Congress to regu- 
 late the value of money, it is absolutely essential that Congress should 
 declare by legislative mandate the policy of the Government, as follows: 
 
 That Congress shall by law exclusively create money and regulate 
 the value thereof; that Congress does, by statute, set forth the manner 
 in which the expansion and contraction of bank credit should be accom- 
 plished; that Congress shall, by statute, establish the Board of Gov- 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 71 
 
 ernors of the Federal Reserve System, or some monetary authority, 
 and charge them with the duty' of using the Reserve banks for the 
 expansion and contraction of the supply of money; that Congress 
 shall retain adequate control over its monetary agents; that the 
 Reserve banks shall be required to function as they were originally 
 intended to function, as banks established in the interest of the 
 public creation and regulation of the value of money and for the 
 accommodation of industry and commerce. 
 
 In the original act, introduced in the Senate on June 26, 1913, by 
 the chairman of the Committee on Banking and Currency, there was 
 an express provision that the powers of the System should be em- 
 ployed "to promote a stable price level." The language "to promote 
 a stable price level" meant precisely the same as if it had been written 
 "to promote a stable dollar of uniform, debt-paying, purchasing 
 power." 
 
 This language was stricken from the bill, leaving no specific legis- 
 lative mandate in the bill requiring the Federal Reserve Board of 
 Governors, or the Federal Reserve banks, to pursue a policy by which 
 to regulate the value of money or "to promote a stable price level." 
 
 The omission of this language led to the unhappy results which 
 produced the panic of 1921 and contributed to the more serious 
 catastrophe of 1929-32. It, therefore, is now of supreme importance 
 for Congress to declare a national monetary policy which shall be 
 specific and shall give the Congress an agency through which it may 
 be accomplished. 
 
 If a monetary policy clearly defining the above objective was 
 merely declared by the Chief Executive, or by the Secretary of the 
 Treasury, or by the Board of Governors of the Federal Reserve Sys- 
 tem, it would not be enough, since a change in the Presidency, or in 
 the Secretary of the Treasury, or in the Board of Governors of the 
 Federal Reserve System would subject the policy to change and would 
 not be so dependable as an act of Congress. Not only might the 
 executive officers of the Government be entirely changed in personnel, 
 but they might change their opinions under the influences which 
 heretofore have been so powerful a factor in the conduct of these offices. 
 What the country needs is that those who are engaged in production, 
 transportation, and distribution should be enabled to make their con- 
 tracts with dependable security upon a fixed policy of the Government 
 having the greatest possible stability. 
 
 It is in vain to expect a law to be effective if it is not administered 
 by those who understand it and are in sympathy with it. For that 
 reason, it is of the greatest importance that the members of the 
 Board of Governors of the Federal Reserve System, the Secretary 
 of the Treasury, and those in charge of the 12 Federal Reserve banks 
 should thoroughly understand the monetary policy and have an intel- 
 ligent comprehension as to the manner in which it may be carried 
 out. It is of importance that they should not be, by virtue of their 
 previous environment and training, at heart opposed to the creation 
 and regulation of the value of money by the Government. As a 
 condition of their service, proof of their fitness should be required and 
 an adequate means should be provided for their removal from office, 
 without stigma and without technical difficulties, in the event that 
 the Congress has its confidence in their efficiency impaired. 
 
72 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 That these principles are well understood in Congress will appeal 
 from the language of bills that are now pending in Congress, such as 
 the Binderup bill (EL R. 9800); in the proposed amendments to the 
 Patman bill (H R. 7230) ; and in the bill introduced by Senator M. M. 
 Logan of Kentucky, former attorney general and chief justice of the 
 State Supreme Court of Kentucky. The language of part of the 
 Logan bill (S. 3800) is as follows: 
 
 The Board of Governors of the Federal Reserve System is hereby declared to 
 be the agency of the Congress to create money and regulate the value thereof, as 
 authorized by the Constitution of the United States; and the individual members 
 of such Board shall hold office subject to the will of the Congress of the United 
 States; and either the Senate or the House by resolution may authorize and 
 request the President of the United States to nominate a successor to a member 
 of the Board from any Federal Reserve district regardless of the term for which 
 he was appointed, whereupon, the office of such member upon the passage of such 
 resolution shall be vacated. 
 
 The Binderup bill and amendments to the Patman bill have lan- 
 guage of similar purport. 
 
 The Patman bill, endorsed by 160 Congressmen, also required the 
 Treasury to purchase the stock in the Federal Reserve banks. The 
 Binderup bill also proposed the purchase of the stock. 
 
 The testimony taken on the Patman bill contained all the evidence 
 necessary to justify these principles of the Patman and the Binderup 
 bills. 
 
 The Binderup bill makes the State banks subject to the same condi- 
 tions as the member banks of the Federal Reserve System, which is 
 obviously a necessary principle to make the System uniform. 
 
 The importance of a legislative mandate that cannot be overlooked, 
 avoided, or defeated has been already sufficiently illustrated by the 
 administration of the Federal Reserve Act since 1919. It should be 
 perfectly obvious that the mandate in the act that the powers of the 
 System should be employed to accommodate commerce and industry 
 has been entirely ignored by the Federal Reserve Board, and the 
 Board of Governors of the Federal Reserve System, for they have 
 pursued policies resulting in and permitting the absolute destruction 
 of both commerce and industry in the past, as pointed out in the 
 evidence taken on the Patman bill in the testimony of the author of 
 this book, as well as by the testimony of others. 
 
 Another provision of value is that the currency of the country should 
 consist of one form of legal-tender paper money in order to prevent 
 the public being confused by the various kinds of paper money which 
 have been permitted to prevail in the past. For instance, we have 
 had not only the original greenbacks of President Lincoln, but the 
 so-called Treasury notes of 1890, and thousands of different lands of 
 National bank notes, Federal Reserve notes, Federal Reserve bank 
 notes, silver certificates, etc. Simplicity, economy, keeping of 
 records, and management would be simplified by one form of legal- 
 tender paper money. 
 
 A desirable bill should also provide a method by which the entire 
 powers of the System should be made available for the protection 
 of the individual bank against any untoward incidents that might 
 happen to it, and all banks should be made subject to the same 
 conditions as far as their reserves are concerned. Such a bill should 
 provide for one form of examination, without cost to the banks, as a 
 part of the expense of the System in stabilizing the banking structure. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 73 
 
 The distribution of new money required annually to keep up with 
 the increase of the index of industrial production should be provided 
 through the Social Security organization. A proposal to this end will 
 be found in the Binderup bill. 
 
 In considering such a bill the Congress should make a thorough 
 review of the question of legalized interest rates by the member banks 
 with a view to giving the American businessmen a rate of interest at 
 least as low as that enjoyed by the businessmen of nations engaged in 
 competitive commerce (see ch. XIV). 
 
 In regulating the flow of money to meet the expansion of industrial 
 production and the increase of population, it must be remembered 
 that there is at present a very large volume of demand bank deposits 
 which are held by the depositors as corporate reserves, or as reserves 
 for investments by individuals. These funds may become active 
 again when a fixed policy of Government is established. 
 
 To prevent such funds expanding the medium of exchange beyond 
 the point necessary to restore the predepression price level, the Gov- 
 ernment must be prepared to contract the money supply when neces- 
 sary. This can be done by reselling the bonds and bankable assets 
 previously bought. It must be remembered, however, that to achieve 
 maximum production would readily absorb a large part of these 
 reserves when they are restored to active use as a circulating medium, 
 and for that reason this potential expansion is entirely within the 
 control of the Government. 
 
 Chapter XIX 
 
 THE NECESSITY FOR GOVERNMENT MANAGEMENT AND STABILIZATION 
 
 OF MONEY 
 
 It should be obvious from the terrifying panics from which this 
 country has repeatedly suffered, especially those of the last 30 years 
 (1907, 1921, 1929-32, and 1937) that the whole system of creating 
 and contracting money has been uncontrolled and exceedingly in- 
 jurious to the people of the United States. 
 
 The Congress alone has the legal authority and the legislative and 
 financial power to regulate the va^ue of money. The Constitution 
 broadly gave the Congress the exclusive power to create money. 
 The Constitution specifically directed Congress to regulate the value 
 of money. This direction of the Constitution requiring Congress to 
 regulate the value of money is a constitutional mandate which re- 
 quires intelligent obedience by those who take the oath of office to 
 support the Constitution. 
 
 When the panic of 1921 occurred, we had 30,000 banks. Over 
 16,000 of these banks have since been compelled to go out of business 
 because of the impairment of the solvency of their borrowers and the 
 destruction of the value of their loans and investments. 
 
 While the banks have been of great use to the people of the United 
 States in the creation of money and in the management of the banking 
 business, their inability to cooperate with each other — even if they 
 had the constitutional right to create money — justifies and makes 
 necessary the regulation of the value of money by the Congress, where 
 such duty is by law imposed. 
 
74 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 When the Congress shall declare a national monetary policy which 
 shall give the Nation a dollar whose debt-paying, purchasing power 
 shall remain the same from one generation to another, the people of 
 the United States, for the first time in their history, will have an honest 
 dollar. 
 
 The only honest dollar is a dollar of stable, debt-paying, purchasing 
 power. The only honest dollar is a dollar which repays the creditor 
 the value he lent and no more, and requires the debtor to pay the 
 value he borrowed and no more. 
 
 The people of the United States are entitled to a sound currency. 
 The only sound currency is a currency whose exchange value is the 
 same from one generation to another. The failure of the Govern- 
 ment to create and stabilize the value of money has not only resulted 
 in the unemployment of millions of people through no fault of their 
 own, but it has seriously changed the relationship between debtors 
 and creditors, affecting contracts of over $200,000,000,000, repre- 
 senting the public and private debts of the country. It has mate- 
 rially changed the market price and exchange value, not only of money, 
 but of all commodities and services measured by money. It has 
 changed the exchange value of securities on the most colossal scale. 
 It has changed the value of real estate, buildings, and equities of all 
 kinds. It has rendered human labor unstable when the greatest need 
 of the Nation is complete stability in the employment of all the 
 people, with an annual living wage for the least of them. 
 
 The desirability of governmental control is demonstrated by the 
 fact that the control of the value of money requires the control of the 
 volume of money. The control of the volume of money by expansion 
 immediately produces an increased industrial production, employment, 
 wages, and corporate, individual, and governmental incomes. The 
 regulation of the volume of money by the Government, with the intel- 
 ligent purpose of giving money a stable purchasing power, will not 
 only benefit the day laborer, who is entitled to an annual living wage, 
 but it will benefit all workers in field, factory, and mine, and in the 
 offices of the various businessmen of America. 
 
 When the national industrial production is doubled it will result in 
 many important benefits. It will enable taxes to be greatly reduced 
 in percentages because the income of the country will be twice as 
 much as it is now and would justify the rate of taxation being cut to 
 one-half. It would put an end to public relief and charity for the 
 unemployed, in large measure. Since to expand the volume of credit 
 and currency should be accomplished by the purchase of Government 
 bonds, it would have the effect of cutting down the interest and amor- 
 tization charges on Government bonds, thereby reducing the demand 
 on the Budget by approximately $1,000,000,000 a year. 
 
 The elimination of the work for public relief and the interest and 
 amortization of the bonds would make an annual saving at present of 
 approximately $4,000,000,000. 
 
 Moreover, when the Government regulates the value of money on a 
 basis of stability, it would be justified in creating approximately 
 $2,000,000,000 annually of new money, in the form of demand deposits, 
 to be distributed where it is most needed under the Social Security Act. 
 
 The regulation of the value of money by creating money through the 
 Government authority, and for the benefit of all the people, would 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 75 
 
 result as it has in Great Britain, ' which in 5 years has increased its 
 industrial production 50 percent and given to the country a rate of 
 interest for 6 years at 2 percent per annum without a break. When the 
 Government of the United States seriously undertakes the problem 
 of creating the money the people require for maximum industrial 
 production, it will abolish poverty in the United States by creating a 
 demand for labor at an annual living wage that will give a satisfactory 
 standard of living to all the people. 
 
 The treasure house of natural resources of the United States, the 
 enormous power which now goes to waste from streams which could 
 produce many times the amount of power the people now enjoy, is 
 evidence that there is no limit to what the people can create and enjoy. 
 
 The United States has suffered excruciatingly from underconsump- 
 tion because of the stringency of the supply of a medium of exchange, 
 by which alone the people can exchange their products and services 
 adequately with each other. 
 
 The experience of the last 31 years of four serious panics and 
 depressions is proof positive that the banks cannot control the volume 
 of money, and that their failure to do so has not only destroyed 
 thousands of banks, but has inflicted the people with great suffering. 
 
 The Government alone can give relief. The Government alone 
 has the legal authority and duty to establish and regulate the value 
 of money, and to create it in sufficient quantity to serve the national 
 use. It alone has the power and the duty to prevent either injurious 
 expansion or destructive contraction. 
 
 The creation of the money required by the people to achieve maxi- 
 mum industrial production is now provided for by the Federal Reserve 
 Act, as amended. Some additional amendments are necessary and 
 desirable. The Federal Reserve banks, are, in effect, public banks 
 under the supervisory control of the Congress of the United States, 
 which has delegated the supervision of these banks to the Board of 
 Governors of the Federal ReseT*ve System. Under the present statute, 
 the money which is now required to restore maximum employment 
 can be obtained by the Reserve banks buying Government bonds and 
 other bankable assets to the extent required. When maximum 
 employment and industrial production is accomplished, the Govern- 
 ment can prevent any excessive expansion of credit, and can reduce 
 any excessive expansion of credit by the simple process of selling the 
 bonds and bankable assets previously bought by the Federal Reserve 
 banks. 
 
 Since the country requires approximately $2,000,000,000 annually 
 of increased money to meet the natural expansion of production, this 
 increase can be created by giving the United States credit with the 
 Reserve banks and spending such money under the Social Security 
 Act for the benefit of people who are disabled by age, sickness, or 
 other incompetency. 
 
 It is well known that the supply of money in the United States is 
 most unevenly distributed among the citizens and among the States 
 as well. Therefore, in creating new money, provision should be made 
 for the annual distribution of a portion of it among the consumers 
 who otherwise may not be able to buy. 
 
 123338—39 6 
 
76 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 Chapter XX 
 
 THE EFFECTS OF STABLE MONEY 
 ON THE BANKS 
 
 The bankers of the United States, in spite of the weakness of the 
 banking system, have been of great service in creating credit for 
 legitimate production. They have suffered greatly because of the 
 instability of the credit structure. Over 16,000 banks have failed 
 because of the impairment of the solvency of their borrowers and 
 of the security which they had taken from their borrowers. No 
 class will be more greatly benefited by the stabilizing of money 
 through a sound national monetary policy than the bankers. They 
 will be completely protected, not only by the insurance of their 
 deposits, but by the insurance of stability in business and a steady 
 rising in the national production and income. 
 
 Under the new system the bankers could earn as good or a better 
 income on their capital and services than they have heretofore done. 
 At the last known estimate of the Federal Deposit Insurance Cor- 
 poration there were about 50,000,000 deposits in the banks of the 
 United States. If these deposits paid a dollar a month on an average, 
 depending on the size of the deposit and the activity of the deposit, 
 it would produce an income of approximately $600,000,000. These 
 deposits should double under the new system. If the bankers received 
 payment for the volume of checks, on which they guarantee the signa- 
 ture of the maker and of the payee, at the rate of a dollar a thousand 
 it would net them, on the volume of checks debited in 1926, for 
 example, $845,000,000 a year. They would have the right to charge 
 for other services to clients. Besides these revenues the banks would 
 have the opportunity of lending or investing the money represented 
 by savings accounts and time deposits which should, under these cir- 
 cumstances, greatly increase. They could also lend their capital 
 and surplus with impunity. 
 
 Moreover, the banks could make long-time loans with dependable 
 security on real estate, homes, apartment, and business buildings. 
 They would have the additional advantage of stability in the value 
 of their bonds and mortgages. Their own investments would increase 
 in value. 
 
 So, even if the United States should, as a part of its monetary 
 policy, exercise its right to exclusively create money, the banks would 
 be benefited by such a system. 
 
 Under the new conditions of Government creation of the money 
 required for the transaction of the business of the country, there should 
 be an increase in industrial production and consumption, such as has 
 taken place in Great Britain where the Government and banks are 
 pursuing the policy of managed money. 
 
 The volume of deposits and the business of the banks should go 
 through an expansion corresponding with the expansion of industrial 
 production. 
 
 Under the new system, governed by the principles of modern mon- 
 etary science, the banks would receive complete protection from the 
 Government against the terrifying evils of future depressions. Thus 
 the solvency of borrowers and the value of the investments of the 
 banks would be given a stability which they have not enjoyed in the 
 past. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 77 
 
 ON MANUFACTURERS 
 
 Stable money, with stability in business, and a steadily rising vol- 
 ume of production, manufacturers would enjoy an increasing pros- 
 perity without fear of collapse from depression, and could, therefore, 
 forecast their future and get the benefit of the savings due to maximum 
 employment of their existing machinery and facilities, with other 
 economies due to stability of production. They could afford to make 
 their contracts with labor on the basis of an annual living wage, with 
 benefits both to the manufacturer and the laborer. 
 
 They would be assured of a stable consuming power and a steadily 
 increasing demand. Their sources of supply of raw material would be 
 stabilized and made more dependable. They would be benefited by 
 the lowering of the interest rate on credits required in the transaction 
 of their business. They would be able to obtain credits to an extent 
 on goods in process of manufacture and distribution which they do 
 not at present enjoy. 
 
 The wholesaler's accounts payable, which are his income from the 
 merchants and the collection of which enables him to pay the manu- 
 facturer, would be stabilized, and establish thereby a volume of de- 
 pendable credit not now available under the operation of the Federal 
 Reserve System. 
 
 ON MERCHANTS 
 
 The stabilization and the steady expansion of business under stable 
 money would be of service to the wholesale merchants and retail 
 merchants, and would enable the retail merchants to employ the 
 credits they extent to customers to be used as a basis of bank credit, 
 if they need it in the transaction of their business. 
 
 ON CONTRACTORS 
 
 Contractors could make their contracts for the future with depend- 
 able security, knowing that the dollar would not suffer any substantial 
 change in debt-paying, purchasing power. Contracts could thus be 
 made for buildings and structures running over longer periods of time 
 without danger to the contractors or to those who employ the 
 contractors. 
 
 ON CORPORATE AND INDIVIDUAL INCOMES 
 
 Under conditions of stability in the purchasing power of money 
 and in business, the incomes of the 400,000 corporations in the United 
 States would be steadily increasing or made more' stable. Their divi- 
 dends would be made more dependable. Individual incomes would be 
 increased, not only through the payment of dividends by the corpora- 
 tions, but by the earning power of individuals under these more 
 favorable conditions. 
 
 There are over 500 distinct avocations in the professional and 
 business world that would be interested in the stabilization of business 
 conditions in the United States. There are two and one-half times as 
 many people, adults earning their livelihood by social services, as 
 there are people employed in the factories. 
 
78 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 ON AGRICULTURE 
 
 The record proves clearly that those who are engaged in agriculture 
 and animal industry suffer more severely than any other class of people 
 from depression. 
 
 When all of the people are employed and maximum industrial pro- 
 duction is achieved, the people of the cities, towns, and villages will 
 have the means through their wages, salaries, and dividends of buying 
 an increased volume of the products of agriculture and animal in- 
 dustry. This increased consumption will increase the market for 
 such products and enable the farmers to receive a return commensurate 
 with the products of the farms. 
 
 The income of agriculture and animal industry will thus be stabilized 
 and the farmers will receive an adequate return for their labor, with a 
 reasonable profit on the capital which they employ. It should result 
 in individual ownership of farms, the liquidation of their mortgages, 
 the end of tenant farming, and the establishment of liberty-loving 
 people in dependable homes in every State in the Union. 
 
 ON WAGE EARNERS 
 
 Under stable conditions of business, increased production and 
 consumption, and under conditions which will afford a good market 
 for the employment of the labor of wage earners and those who receive 
 salaries, these classes will be able to receive a reasonable annual living 
 wage and reasonable salary. 
 
 ON TEACHERS 
 
 It is notorious that in some parts of the United States those who 
 teach the youth of America are not paid a reasonable annual living 
 wage. Under conditions where the Government of the United States 
 creates the money required to stabilize business, the uneven distribu- 
 tion of money, employed in consumption and production can be so 
 modified as gradually to substantially increase the income of the 
 underpaid teachers. 
 
 It should be remembered that the income of the States, counties, 
 and cities is profoundly affected by the money supply in the various 
 States and that, therefore, State employees and social workers, and 
 even ministers of the gospel, are deeply affected by the wealth or 
 poverty of the State in which they live. 
 
 ON GOVERNMENTAL INCOME 
 
 The income of the United States Government is derived directly 
 from taxes which are imposed on the people. These taxes are neces- 
 sarily limited by the capacity of the people to pay. Therefore, in 
 States, counties, and cities where there is an unequal distribution of 
 money, the Governments are themselves limited in paying employees. 
 
 During the depression of 1932, the United States Government 
 income fell to less than one-half of what it was before. But under 
 conditions of stability, when industrial production can be increased to 
 twice what it is at present, the Government income would be expanded 
 correspondingly, and with the cutting off of the expense of public 
 relief, of interest and amortization on the public debt (proposed by 
 the new system), the taxes on all classes of people could be greatly 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 79 
 
 reduced and the services of the Government, the States, counties, 
 and cities could be employed in the matter of protection, education, 
 health services, and other public facilities. 
 
 ON THE CREDITOR CLASS 
 
 Under stabilized conditions, where the national industrial produc- 
 tion is increased or doubled, the creditor class would be benefited by 
 the assurance of the ability of the debtor to meet his obligations. 
 Therefore, the investments of the creditor class would be increased in 
 the matter of stability and certainty of payment of interest and 
 principal. 
 
 ON THE SUBMERGED THIRD 
 
 The effect of the new system would be to put an end to unwilling 
 unemployment and to furnish the opportunity to all who are able and 
 willing to work to make a reasonable living by their own efforts, and 
 put an end to the tragic conditions where one-third of the people are 
 underfed, underclothed, and undersheltered and compelled to rely 
 upon public or private relief to avoid starvation and destructive 
 exposure of health. 
 
 ON THE WEALTHY CLASS 
 
 The 2 percent of the people who might be classified as very wealthy 
 would have the advantage of stability in their incomes and a very 
 substantial lowering of taxes, for the simple reason that higher 
 taxes would be unnecessary. The danger to the disturbance of the 
 social order by a growing class of unemployed and unhappy people 
 would cease. The crime which is engendered by extreme poverty and 
 suffering and which often threatens the rich and their property would 
 be abated and would probably almost entirely cease to exist. The 
 growth of political organizations seeking violent remedies for the 
 existing distress of the country would cease, and the danger from 
 such sources would be ended by a better understanding and better 
 conditions of life. The real estate and securities of the wealthy class 
 would increase in value. 
 
 One of the objectives of modern monetary science is not to take 
 from those who have and give to those who have not, but to create 
 conditions under which those who have not shall be able to create 
 for themselves the things which they need for the comforts and con- 
 veniences of life, and the opportunity to enjoy the products and serv- 
 ices which they themselves create. The great objective is to facilitate 
 the creation of abundant wealth for all the people to enjoy. 
 
 Chapter XXI 
 
 THE CAPITALIST SYSTEM 
 
 The capitalist system is based upon the sound theory that those 
 who create wealth by labor, inventive genius, organization, and thrift 
 should be entitled to enjoy fully the proceeds of their labor, sacrifice, 
 and talents. 
 
 This theory is based upon merit and reason, and yet it is also true 
 that the capital acquired in this way is the offspring and directly 
 derived from labor itself and that labor, which creates capital should 
 
80 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 not be oppressed and exploited, or reduced to severe poverty by the 
 processes of organized capital, which is itself the offspring of labor. 
 
 It has been the failure to recognize this truth which has resulted in 
 the enormous disturbances of the world. When the capitalist system 
 in Russia, under and because of the Romanoffs, had rendered life 
 unendurable to those who labored in the fields and factories, it resulted 
 in the violent revolution of Lenin and the complete overthrow of the 
 capitalist system, for the time being, throughout Russia, involving 
 nearly 165.000,000 people. This policy has been extended to some 
 extent into China. 
 
 In our own country communism has been advocated by groups of 
 people who see no better remedy. 
 
 Modern monetary science points out with precision a method by 
 which the benefits of intelligent capitalism can be conserved, and at 
 the same time abate the harm which comes from an imperfect system 
 that permits excessive abuses of monopoly that have resulted from 
 an imperfect credit and banking structure in the United States. 
 
 It is unwise and unjust to broadly indict the motives of other people 
 that may arise from self-interest and which probably are without any 
 inimical or unjust purpose toward others. 
 
 Under the knowledge acquired in recent years, modern monetary 
 science can now clearly point the way to a means of doubling the 
 national production of wealth by creating enough money to give food, 
 clothing, permanent family homes, the comforts and conveniences, 
 and even the luxuries of life, to all of the people who are willing to 
 do their full part in the creation and distribution of the wealth created. 
 Modern monetary science points the way by which the Government, 
 representing all of the people, shall prevent either inflation (which is 
 the indefensible expansion of credit or money) or the corresponding 
 undue and indefensible contraction of credit through which the people 
 have suffered. 
 
 Modern monetary science proposes a plan which the Supreme Court 
 of the United States has justified in its opinion in the Legal Tender 
 cases. The plan is constitutional. It is based upon the exclusive right 
 of the Government to create money and the explicit duty "to regulate 
 the value thereof. " It does not propose to take away from the rich 
 that which they have acquired by law, but to enable the unemployed 
 millions to be employed and to create the wealth needed for feeding, 
 clothing, and sheltering themselves out of the proceeds of their own 
 labor. The plan proposes to end the suffering of one-third of the 
 American people because of undeserved poverty. The plan is founded 
 upon benevolence, justice, and righteousness. It is based on reason, 
 on thoroughly well-established facts, and on sound precedents that 
 cannot be disputed by intelhgent men of good will and honest purpose. 
 
 Chapter XXII 
 
 INTERNATIONAL STABILIZATION IMPRACTICABLE 
 
 In 1934 the United States established a stabilization fund of 
 $2,000,000,000 in gold. This fund was placed within the discretion 
 of the Secretary of the Treasury as a means of stabilizing the American 
 dollar in relation to the pound sterling, the French franc, and other 
 foreign currencies. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM g\ 
 
 Great Britain had a similar fund for the purpose of protecting the 
 pound from speculative changes. France had a similar fund. 
 
 The idea was advocated in the United States that the stabilization 
 fund should be employed to stablize the pound sterling and French 
 franc and keep them in a constant relationship to each other. This 
 conception proceeded upon the theory that a fixed relationship 
 between the pound, the franc, and the dollar would stabilize the 
 pound and the franc domestically, when, as a matter of fact, nobody 
 but the French people could stabilize the French franc, or the English 
 people the pound. 
 
 The French people could, of course, repeat what they did during 
 the World War; reduce the franc to one-fifth of its pre-war purchasing 
 power. They expanded the franc in volume five times and diminished 
 its purchasing power to one-fifth of what it had been. 
 
 After the United States had changed the value of gold to $35 an 
 ounce, the franc went up above 6 cents but is now worth only 2.8 
 cents in terms of the dollar, less than half its dollar value previously. 
 The pound sterling, however, under a managed currency for the 6 
 years since 1932 has had an index comparatively stable but rising 
 substantially to correspond in some degree with the increase in 
 industrial production. 
 
 Germany has stabilized its own currency and has had no change 
 in the domestic purchasing power of the mark during the last 2 years. 
 
 None but the British people can regulate the value of the pound 
 sterling, and nobody but the people of the United States can regulate 
 the value of the dollar. 
 
 Notwithstanding the diminished amount of gold in the American 
 dollar (59 percent of its previous amount), the purchasing power of 
 the American dollar in its domestic markets has increased above the 
 standard for 1926. 
 
 Any country can destroy the value of its currency by violent 
 inflation and can double the purchasing power of its currency by 
 contracting credit and currency to one-half of what it had been.^ 
 
 When the United States restores its dollar to the normal, pre- 
 depression price level of 1926 and maintains its purchasing power at 
 that point, and provides for its expansion to correspond with the 
 expansion of industrial production, it will have established a dollar of 
 uniform, debt-paying, purchasing power from one generation to 
 another. When this shall have been accomplished, an ounce of gold, 
 which is 35 times the stabilized dollar value, will have a stable inter- 
 national exchange value and other nations may use such stabilized 
 ounce of gold by fixing the value of gold in terms of their own currency, 
 which they wish to maintain at a standard stabilized value. 
 
 France, for instance, could fix the franc at 2.8 cents, by declaring 
 an ounce of gold worth in francs the quotient of $35 divided by 2.8 
 cents. 
 
 Thus there would be established a temporary international stabilized 
 currency between France and the United States. 
 
 But the continuance of the arbitrary price of $35 an ounce for gold 
 is subject to change by will of the Congress of the United States. It 
 might be changed if all other nations demonetized gold internationally. 
 It might be changed by modern processes of gold extraction and the 
 discovery of new and large deposits of gold which would cheapen 
 
82 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 gold and make it impossible for America to maintain its international 
 value at $35 an ounce. 
 
 These considerations make it perfectly clear that there is no such 
 thing as a dependable international stabilization of gold at the present 
 stage of the world's history. 
 
 THE INADEQUACY OF THE FORMER GOLD STANDARD 
 
 For a long period of time the gold standard was regarded as giving 
 to money stability in purchasing power, on the theory that gold in its 
 volume was not capable of rapid changes and the world could adjust 
 itself to the slight variations of the annual production of gold not 
 required in the commodity markets but employed for monetary pur- 
 poses. 
 
 For that theoretical reason, on March 14, 1900, the United States 
 established the gold standard, declaring the dollar of the United States 
 to consist of 25.85 grains troy weight of gold, nine tenths fine. The 
 law provided for unlimited coinage of gold on this basis. It was 
 supposed that this was a dependable safe standard; that it comprised 
 honest money; and that nothing else was really money except gold, or 
 promises to pay in dollars redeemable in gold. This was the folklore 
 of the students and teachers of political economy, with a few very 
 important exceptions. It was the orthodox traditional belief that 
 gold and nothing else is money except gold, or paper money as a promise 
 to pay in gold dollars. 
 
 The orthodox students of monetary science had not yet discovered 
 that this gold dollar was pegged to the American dollar used as 
 currency and as check money, and that the purchasing power of the 
 gold dollar went up and went down with the American dollar; and 
 that, therefore, the whole world currency which dependend on the 
 purchasing power of gold was really depending upon the purchasing, 
 debt-paying, power of the American dollar. 
 
 The orthodox traditional theory did not contemplate the rise and 
 fall of the purchasing power of the dollar due to contraction or expan- 
 sion, or due to the expansion or contraction of commodities. 
 
 In May 1913 the dollar index, representing the gold dollar, had an 
 index of purchasing power of 145. Under the expansion of credit due 
 to the World War, and the relative contraction of commodities follow- 
 ing the war, the index of the purchasing power of the gold dollar fell to 
 60 in 1920. It rose to 167 in February 1933. Since all of the nations 
 whose currencies are based on the gold standard were violently affected 
 by this change in the purchasing power of gold, they were all compelled 
 to go off the gold standard in their domestic circulation. This violent 
 increase in the purchasing power of gold simply meant that the curren- 
 cies based on gold suddenly had an increased purchasing power in 
 terms of commodities (the products of labor) and property, resulting 
 in bankruptcies in many nations and interfering with the power of 
 nations to liquidate their bonded indebtedness, at home as well as 
 abroad. 
 
 This change in the purchasing power of gold was due directly to the 
 expansion of credit in 1920 and the contraction of credit in 1921 and 
 1933. It thus has been demonstrated to the whole world that gold, 
 as a monetary unit, had no stability whatever but slavishly followed 
 the American dollar, and when the United States arbitrarily fixed the 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 83 
 
 price of gold at $35 an ounce, the' world followed and accepted inter- 
 nationally the price fixed upon gold. 
 
 All countries are now off the domestic gold standard. 
 
 THE MODERN USE OF GOLD AND ITS POSSIBILITIES 
 
 In the vast exchange of commodities from nation to nation through 
 exports and imports, it should be taken as a fixed principle that in the 
 long run the exports and services of a nation, which establish credits 
 abroad, are paid for by imports and services from such nations, the 
 credits so established being usually employed in the purchase of goods 
 and services from the importing nation. If such be not fully em- 
 ployed in the purchases of commodities and services then the trade 
 balances must be liquidated either by the shipment of securities or the 
 shipment of gold. Gold has been abandoned as a circulating medium 
 of exchange in the domestic business of nations, although it is still 
 actively employed as a means of liquidating trade balances. For this 
 purpose gold continues to be useful. 
 
 The United States has now accumulated oyer $14,000,000,000 of 
 gold in the liquidation of trade balances, financial balances, and trans- 
 fers of capital. 
 
 There is another very important use to which gold may be put, as a 
 means of promoting the stability of money in other nations of the 
 world. 
 
 When the American dollar shall have become stable, it would stabi- 
 lize the purchasing power in the United States of an ounce of gold, 
 which by statute is worth 35 times $1. 
 
 When an ounce of gold has a stable purchasing power in the United 
 States, other nations throughout the world, by regulating the volume 
 of currency in their domestic circulation in relation to the volume of 
 their industrial production, could employ the ounce of gold for the 
 purpose of stabilizing their domestic currency internationally. 
 
 It should be remembered that the American people do not use the 
 money of any other country in their domestic circulation. The only 
 use they have for such money is to pay in those countries for amounts 
 due, for goods imported, for investments, or for the payment of 
 traveling expenses. 
 
 There will always be, of necessity, daily fluctuations in the value 
 of the currency of the various countries in terms of American money, 
 because of the fluctuating daily needs for such foreign currency for 
 the purposes cited. This would be true even if all nations attempted 
 to stabilize the purchasing power of their domestic currency. 
 
 Nevertheless, the United States would greatly serve the welfare of 
 international commerce if it stabilized the American dollar first by 
 regulating the volume and value of money in relation to the American 
 industrial production. In that event, the gold ounce would have 
 stability of purchasing power in the United States, and other nations 
 who had in similar manner stabilized their domestic currency could, 
 by the use of gold, have a comparatively stable international exchange 
 without the violent fluctuations which have taken place in the world 
 heretofore. 
 
 It should be obvious that the American people alone can stabilize 
 the purchasing power of their own money. It should be obvious 
 that the French people alone can stabilize the purchasing power of 
 their own money. 
 
84 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 If another World War should take place, the world would neces- 
 sarily see again the governments engaged expanding their currency 
 because of the exigencies of war, and therefore subjecting their cur- 
 rency to violent changes through such expansion. 
 
 Such a contingency makes it the more manifest that the United 
 States cannot, through a gold stabilization fund, or by any other 
 means, regulate the value of any foreign currency. 
 
 FOREIGN EXCHANGE 
 
 The value of the American dollar in its relation to the British pound 
 sterling or the French franc depends upon the relative supply and 
 demand of the American dollar in London and Paris. In normal times 
 the demand for dollars in London or in Paris depends upon trade 
 balances and the shifting from one country to another of capital or 
 money. 
 
 The trade balances between the United States and Great Britain 
 depend upon the volume of British purchases in the United States 
 and American purchases in Great Britain. When these purchases are 
 balanced, there is comparative stability unless money or capital is 
 transferred from one country to another. The factors which enter 
 into this trade balance are imports and exports of commodities, and 
 also the services rendered by citizens of one country to citizens of 
 another country. Great Britain receives large credits from marine 
 insurance and from marine freight on commodities transported 
 throughout the world in British ships. In addition there are large 
 expenditures by United States citizens in Great Britain which are in 
 excess of the expenditures of British citizens traveling in America. 
 
 These factors affect the trade balances. 
 
 When such trade balances are in favor of the United States an 
 equilibrium is brought about by the shipment of gold to the United 
 States as international money. 
 
 But in addition to these factors there exists a very large amount 
 of liquid money or liquid capital which for speculative purposes 
 may be transferred from Europe to the United States, as during the 
 inflationary boom preceding the stock-market collapse of 1929 when 
 it was found that approximately $3,000,000,000 of foreign money was 
 loaned in the security exchanges of the United States. In addition, 
 durincr the boom there was still larger investments in American 
 securities on the rising market, which were sold out in substantial 
 part immediately before the collapse of October 1929. 
 
 It was because of this huge volume of liquid money, controlled by 
 international bankers, that Great Britain and France were compelled 
 to establish stabilization funds in order to offset and neutralize the 
 daily instability produced by speculative transfer of this international 
 fund from one country to another. It was this international liquid 
 fund of money, which could be transferred from one country to 
 another, that caused the United States to establish the $2,000,000,000 
 stabilization fund, so that the speculations could be offset by the power 
 of stabilization funds established in the United States, Great Britain, 
 and France. 
 
 When, however, France stabilizes its own money in a domestic 
 sense by regulating the flow of money in relation to the production 
 of commodities and services in France, and when Great Britain 
 stabilizes its currency by the public control of credit or money through 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 85 
 
 regulating the flow of money in relation to the production in Great 
 Britain, and when the United States regulates, through congressional 
 action, the money supply in relation to the national production and 
 stabilizes the purchasing power of the dollar, it may then become 
 possible to establish the possibility of a fixed relationship between the 
 dollar, the pound sterling, and the franc. 
 
 But the continuance of such stability between these three currencies 
 will at last depend upon the domestic action of the three Governments. 
 The first step toward the possibility of international stabilization is 
 the stabilization of the dollar, the pound sterling, and the franc 
 domestically, and the continuance of such domestic stabilization in 
 the three countries. Domestic stabilization will diminish the op- 
 portunities of speculation by the liquid capital of international bankers 
 who have in the past speculated by transferring money from one 
 country to another, rendering money more abundant in the one and 
 less abundant in the other, through winch process profit can be made. 
 This international speculation can be and should be abated by law 
 as a practice harmful to all nations who are the victims of such 
 process. 
 
 The regulation of the value of money in Great Britain has been 
 accomplished by the consent and cooperation of the clearing-house 
 banks that control the flow of credit in conjunction with the Bank of 
 England. The Bank of England receives its direction from the 
 Chancellor of the Exchequer, as for example: 
 
 Those for whom I speak welcome the freedom which we have in comparison 
 with those in many other markets, but we wish to u>e that freedom in the only 
 proper way it can be used, and that is in harmony with the Government's policy. 
 I assure the Ministers that if they will make known through the appropriate 
 channels what they wish us to do in the furtherance of their policies, they will 
 at all times find us willing with good will and loyalty to do whnt they direct as 
 though we were under legal comouhion. (Governor of Bank of England. October 
 1936.) 
 
 We must look very largely to the- Chancellor of the Exchequer, and we assure 
 him that in all matters his requests govern the conduct of our affairs. We would 
 prefer, however, that he made his requests as such rather than in the form of 
 legislation. Legislation is too foreign a method. (Governor of the Bank of 
 England a year later.) 
 
 And Germany and Italy also. 
 
 In present-day German}- banks are unobtrusively given instruction from high 
 above and they know better than to question the advisability of a policy thus 
 recommended to them. In Italy also banks are told by the 'Government what 
 their policy is to be and they implicitly obey orders. (Dr. Otto Rosenberg in an 
 address before the Society for Stabilitv in Monev and Banking, Inc., in Minne- 
 apolis, Minn., October 13, 1938.) 
 
 Chapter XXIII 
 
 STORM SIGNALS 
 
 The destruction of the property values of millions of small-business 
 men and millions of citizens throughout the country because of the 
 contraction of the money supply has given rise to demands for the 
 expansion of consumers' buying power through pensions of $200 a 
 month to persons of 60 years or more under the so-called Townsend 
 plan. Hundreds of thousands of people have actively espoused this 
 pension plan. 
 
86 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 It was the contraction of the money supply and the suffering of 
 one-third of the people for lack of food, clothing, and shelter that 
 caused the strenuous campaign urged by Senator Long, of Louisiana. 
 
 It was the contraction of the money supply of the people and the 
 suffering caused that led to the initiative petition in California, signed 
 by over 800,000 citizens, demanding a pension of $30 every Thursday 
 for every unemployed person over 50 years of age. This latter plan 
 proposed the issuance of scrip money by the State in disregard of the 
 principle of the exclusive issuance of the money by the Congress of 
 the United States. 
 
 These are storm signals indicating serious public discontent with 
 the contraction of the money supply and its consequences. Attention 
 has been called to the demand of the representatives of the American 
 Federation of Labor, the National Farmers Union, the National 
 Grange, the American Federation of Farm Bureaus, and the Coopera- 
 tive Council (representing thousands of farm organizations and 
 1,200,000 dues-paying members) for a correction of the evil and the 
 restoration of the purchasing power of the dollar to a normal pre- 
 depression level and the maintenance thereof. 
 
 Attention is called to the various bills, heretofore referred to, now 
 in Congress demanding by the congressional regulation of the value 
 of money a correction of the evils complained of. 
 
 It will be remembered that during the depression of 1929-32 the 
 people manufactured millions of dollars of scrip money for their own 
 convenience and safety because of the negligence of the Government 
 in providing the country with an adequate supply of credit and 
 currency. 
 
 Attention is called again to the party platforms promising relief, 
 and yet there is still a strong campaign going on in the United States 
 opposing Government control of the regulation of money on the 
 ground that the Congress of the United States cannot be trusted in 
 such matters. 
 
 There is need, and great need, of an informed public opinion based 
 upon realities, facts, reason, and sound principles which have been 
 demonstrated by experience. 
 
 Other storm signals that are manifesting themselves in the United 
 States are organizations favoring communism, nazi-ism, facism, etc. 
 All of these organizations spring from the unmerited suffering of people 
 through undeserved poverty. When undeserved poverty is ended 
 by intelligent governmental action, there will be no reason, or excuse, 
 for those who advocate extreme or un-American measures. 
 
 The intelligent democracies of the world and, particularly the 
 most intelligent democracy in the world, are now charged with the 
 responsibility of ending poverty in the world. When poverty is 
 abolished, as it can be under the principles of modern monetary 
 science, the entire human race will have an example set, through the 
 cooperation of the people, that they can create and distribute for 
 their own use all of the comforts, conveniences, and luxuries they 
 desire. 
 
 America is charged with the duty of protecting the greatest and 
 oldest democracy in the world from the subversive influences which 
 have arisen from a destructive monetary system in this country and 
 throughout the world. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 87 
 
 PUBLIC OPINION AND CONGRESSIONAL CONTROL 
 
 For many years the people of the United States have been actively 
 seeking a solution for the establishment of a dollar that shall have a 
 stable purchasing power. 
 
 The panic of 1907 was followed by the Vreeland-Aldrich bill (passed 
 in 1908) authorizing asset money based on sound bank assets. This 
 act established the National Monetary Commission which studied 
 the questions involved for 4 years, brought in a report of 32 volumes 
 describing the banking systems of other commercial nations, and 
 submitting a library on the subject matter of 2,500 volumes. 
 
 The National Monetary Commission proposed a bill establishing a 
 central bank governed by the member banks. 
 
 In 1913 the administration of President Woodrow Wilson brought 
 in the Federal Reserve Act, approved December 23, 1913, establish- 
 ing 12 Federal Reserve banks, concentrating the reserves of the 
 member banks, and estabhshing a system supervised by the Federal 
 Reserve Board, which represented the United States Government. 
 
 The Federal Reserve System financed the World War, raising 
 $40,000,000,000, and reduced bank failures to zero in 1918. 
 
 This act gave great powers to the Federal Reserve Board and the 
 Federal Reserve banks. The power was used in 1921 to contract 
 credit, resulting in the depression of 1921. This contraction was 
 corrected under the Coolidge Administration and a great expansion 
 in stocks and credit took place in the securities exchanges. This 
 resulted in a stock market boom and crash in October 1929. This 
 caused a most serious depression. 
 
 In 1932 the Banking and Currency Committee of the House of 
 Representatives held hearings on bills to stabilize money, and passed 
 a short bill, called the Goldsborough bill, which provided for the 
 declaration of a national monetary policy to restore and maintain 
 the purchasing power of money, as ascertained by the Depart- 
 ment of Labor for the average of the years 1921 to 1929, inclusive. 
 This bill directed the Secretary of the Treasury, the Federal Reserve 
 Board, and the Federal Reserve banks to make effective this policy. 
 
 There appeared before the committee a number of men informed 
 in modern monetary science who supported this bill. Representatives 
 of all the great agricultural organizations appeared in support of this 
 policy; the National Grange, National Farmers Educational and Co- 
 operative Union, the American Federation of Farm Bureaus, and the 
 National Cooperative Council (representing 4,000 farm organizations 
 and 1,200,000 dues-paying members). The representatives of the 
 American Federation of Labor also approved this policy. Mr. Henry 
 A. Wallace, now Secretary o* Agriculture, appeared and approved this 
 policy. 
 
 The committee reported the bill favorably. The House, after 2 
 days' debate, passed it by 289 to 60, 117 Republicans voting for it, 
 along with 172 Democrats and Farm-Laborites. 
 
 This bill failed to pass the Senate, the Senate substituting a measure 
 to expand the national-bank currency. 
 
 The national platforms of the Democratic Party, Republican Party, 
 Farm-Labor Party, and of the Progressive Party have heretofore been 
 cited with their approval of sound money under constitutional public 
 control. 
 
gg NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 There is the strongest reason to believe that a substantial majority 
 of the Members of the House of the Seventy-fifth Congress were in 
 favor of congressional control and regulation of the volume and value 
 of moiu'y. The matter is being debated on the hustings throughout 
 the United States. A large number of speeches were made on the 
 floor of the House urging this reform. Study clubs throughout the 
 country are giving attention to tins matter. 
 
 So there is need for an informed public opinion upon this question. 
 
 Twelve hundred thousand young men and young women arrive at 
 age annually whose future is clouded by the existence of 10 or 12 
 million unemployed people, arising from a failure of the Congress to 
 discharge its constitutional duty to create and regulate the value of 
 money. 
 
 The facts and principles set forth in the preceding pages are intended 
 to aid the young men and women of America to understand this ques- 
 tion and to guide future public opinion. The responsibility is upon 
 them in part to perform this patriotic service. The time has come to 
 end the underserved poverty of one-third of the American people. The 
 time has come to raise the national production to a maximum sufficient 
 to give all of the people of the United States an abundance of food, 
 clothing, shelter, leisure, and education, and permanent comfortable 
 family homes. 
 
 To this task this book summons the youth of the country for their 
 own sake, and for the sake of the future of America. 
 
APPENDIX 
 
 Glossary 
 
 Booms. — Where property prices rise above normal by the inde- 
 fensible expansion of credit and currency. 
 
 Creditor. — One who holds the bonds or obligations of another pay- 
 able in dollars; a bondholder; a holder of bills receivable; a bank 
 depositor; whether a government, corporation, or individual. 
 
 Debits. — Are charges against a demand deposit and represent the 
 volume of dollars employed by the people of the country through 
 checks drawn and paid in the transaction of the national business. 
 The volume of such checks debited in the standard year 1926 was 
 $845,000,000,000. 
 
 Debtor. — One who owes a bond or bills payable, or obligation of debt 
 to a creditor in whatever form, secured by mortgages, collaterals, or 
 unsecured; whether government, corporation, or individual. 
 
 Deflation. — The defensible contraction of the inflated credit and 
 currency of a previous inflation. The indefensible contraction of 
 credit and currency cannot be called deflation with propriety. Defla- 
 tion is defensible contraction, not indefensible contraction. 
 
 Depressions. — Where property prices fall below normal due to the 
 indefensible contraction of credit and currency. 
 
 Extrinsic. — It is the exchange value for a legal-tender currency note, 
 as, the paper and ink on which it is printed having no intrinsic value. 
 
 Hoarded money. — Consists of demand deposits held as reserves, or 
 for future investment purposes and which are not employed as a 
 medium of exchange, but can be so employed at the option of the 
 owner. Hoarded demand deposits have the effect of contracting the 
 money supply available as a medium of exchange. Currency hoarded 
 likewise is a contraction of the money available as a medium of 
 exchange and can result in compelling the people to manufacture 
 their own money in the form of scrip money, as in 1932. 
 
 In circulation. — Demand bank deposits in circulation are those 
 actively employed in the daily transaction of business. A demand 
 deposit under one account may, to a high percentage, be a demand 
 deposit representing reserves and money held for future investment 
 while only 10 percent of such demand deposits may be actively 
 employed in the daily transaction of business. The ledgers of a bank 
 do not differentiate between a demand deposit which is 90 percent in 
 storage and 10 percent active. Therefore the amount of money in 
 circulation must be ascertained by the volume of checks debited 
 against the demand deposit and otherwise may be ascertained by the 
 volume of money required to buy the commodities listed by the 
 Department of Labor m ascertaining the price level. 
 
 89 
 
90 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 Indefensible contraction. — Where the contraction of credit and cur- 
 rency deprives the people of a sufficient quantity of money to exchange 
 the maximum products and services of the people. 
 
 Indefensible expansion. — The expansion of credit and currency above 
 the quantity required for the convenient exchange of the products and 
 services of the people. 
 
 Index numbers. — These are employed for purposes of comparing one 
 year, month, or week with another. Usually the index is put at 100 
 so that the mind can quickly grasp an increase or decrease from the 
 normal standard by percentages; such as the index of the price level, 
 the purchasing power of money, the indexes of car loadings, factory 
 production, factory pay rolls, factory wages, etc. 
 
 Inflation. — An indefensible expansion of credit and currency. An 
 expansion of credit and currency beyond the requirements for the 
 exchange of the maximum products and services of the people. It does 
 not mean defensible expansion where the money supply is subnormal, 
 or below the amount required for the maximum exchange of products 
 and services by the people. 
 
 Intrinsic. — It means a value in the commodity itself, as the gold in 
 a gold coin, or silver in a silver coin. A $10 gold piece has a certain 
 amount of intrinsic value besides the monetary value which at one 
 time was granted by law. A legal tender $10 bill has no intrinsic 
 value but an extrinsic value of $10. 
 
 legislative mandate. — A declaration by the legislative power of a 
 policy or instruction. 
 
 Maximum employment. — The employment of the greatest number of 
 persons able and willing to work employed in the activities of a 
 country. 
 
 Maximum production. — The highest volume of products of which a 
 country is capable through manpower and machinery. 
 
 Money. — Anything by conventional use employed as a medium of 
 exchange and measure of value, whether currency, bank checks, or 
 bank deposits in circulation. Savings accounts comprise money in 
 storage but are not money employed as a medium of exchange. 
 
 Monetary policy. — The national policy governing the flow and value 
 of money and/or the means for accomplishing such objectives. 
 
 Orthodox economist. — One who believes in the tradition of the gold 
 standard as the only sound currency. 
 
 Paper money. — It is legal tender in the United States, issued by the 
 Government of the United States exclusively. It is receivable for all 
 debts, public and private, and superior to gold, which is not legal 
 tender in the United States. Its exchange value depends upon the 
 necessity for its use in the payment of taxes, fixed charges, and the 
 transaction of business. 
 
 Products and services. — This term is used to indicate the amount of 
 products and services of labor exchanged by the people with each other 
 annually. 
 
 Purchasing power. — "Purchasing power" means the ability of the 
 consumers to buy and pay for desired goods and services. 
 
 Scrip money. — An obligation to pay issued by a corporation or 
 individual and redeemable by the issuer. Scrip issued by cities 
 receivable for taxes. Scrip issued by stores redeemable in mer- 
 chandise, etc. 
 
 Sound currency. — Legal-tender currency of uniform, permanent, 
 debt-paying power. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 Stability— It means stability in. the value of property and money, 
 which measures the value of property. The stability of money is the 
 only basis upon which stability of property can be secured. 
 
 Turn-over. — The turn-over of money in circulation is the number 
 of times it turns over per annum. The turn-over of demand deposits 
 employed in actual circulation is the number of times such deposits 
 are employed per annum by transfer from one to another, as in 1929 
 when the total volume of demand deposits was estimated to have 
 had a turn-over of 50 times per annum. 
 
 Lincoln's Monetary Policy 
 
 Money is the creature of law and the creation of the original issue of money 
 should be maintained as an exclusive monopoly of National Government. 
 
 Money possesses no value to the State other than given to it by circulation. 
 
 Capital has its proper place and is entitled to every protection. The wages of 
 men should be recognized in the structure of and in the social order as more im- 
 portant than the wages of money. 
 
 No duty is more imperative on the Government than the duty it owes the people 
 to furnish them with a sound and uniform currency, and of regulating the circula- 
 tion of the medium of exchange so that labor will be protected from a vicious cur- 
 rency, and commerce will be facilitated by cheap and safe exchanges. 
 
 The available supply of gold and silver being wholly inadequate to permit the 
 issuance of coins of intrinsic value or paper currency convertible into coin in the 
 volume required to serve the needs of the people, some other basis for the issue of 
 currency must be developed, and some means other than that of convertibility 
 into coin must be developed to prevent undue fluctuations in the value of paper 
 currency or an}' other substitute for money of intrinsic value that may come into 
 use. 
 
 The monetary needs of increasing numbers of people advancing toward higher 
 standards of living can and should be met by the Government. Such needs can be 
 served by the issue of national currency and credit through the operation of a 
 national banking system. The circulation of a medium of exchange issued and 
 backed by the Government can be properly regulated and redundancy of issue 
 avoided by withdrawing from circulation such amounts as may be necessary by 
 taxation, redeposit, and otherwise. Government has the power to regulate the 
 currency and credit of the Nation. 
 
 Government should stand behind its currency and credit and the bank deposits 
 of the Nation. Xo individual should suffer a loss of money through depreciated 
 or inflated currency or bank bankruptcy 7 . 
 
 Government possessing the power to create and issue currency and credit aa 
 money and enjoying the right to withdraw both currency and credit from circula- 
 tion by taxation and otherwise, need not and should not borrow capital at interest 
 as the means of financing governmental work and public enterprise. The Govern- 
 ment should create, issue, and circulate all the currency and credit needed to satis- 
 fy the spending power of the Government and the buying power of consumers. 
 The privi'ege of creating and issuing money is not only the supreme prerogative 
 of Government, but it is the Government's greatest creative opportunity. 
 
 By the adoption of these principles, the long-felt want for a uniform medium 
 will be satisfied. The taxpayers will be saved immense sums in interest, dis- 
 counts, and exchanges. The financing of all public enterprise, the maintenance 
 of stable government and ordered progress, and the conduct of the Treasury will 
 become matters of practical administration. The people can and will be fur- 
 nished with a currency as safe as their own Government. Money will cease to be 
 master and become the servant of humanity. Democracy will rise superior to 
 the money power. 
 
 (The above is an abstract of Lincoln's monetary policy from Mayor 
 McGeer's Conquest of Poverty and has been certified as correct by 
 the Legislative Reference Service of the Library of Congress at the 
 instance of Hon. Kent Keller, Member of the House of Representa- 
 tives.) 
 
 U3.;::S— 39 7 
 
92 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 1924 
 
 29, 348 
 7. 1 
 31.5 
 13.6 
 42. 1 
 
 CO 
 
 "1< 
 
 94.9 
 1.054 
 81.3 
 2.3 
 97 
 94 
 
 20, 615 
 4.6 
 3.6 
 
 04.3 
 50.4 
 4.0 
 0.8 
 
 
 oo oo -v co co 
 
 
 cot^ocflo^roocioo 
 . sr. . . S oc — . . 
 
 c o cn 
 
 CO 
 CN 
 52 
 
 — cd d cd d 
 
 CO — < CO 
 
 
 ~ ~ cr. -~ — i-<f n 
 -d'* oo" 
 
 t£ cs *t — ; 
 
 OS >o 
 
 
 CO 
 
 
 
 
 oo ... . 
 co to r- cn eg 
 
 8 
 
 ^ O 00 00 o 
 
 00 "O C4 35 N 
 
 CO OS O 00 00 
 CN . . . . 
 O) f C 1^ o 
 » CN CN 
 
 CO CO O CO CO 
 S ■*' 00 CO cn 
 
 CN lO I>» 00 00 
 
 O ■* id "5 oo 
 
 ig CO «0 ' 
 
 ts. id id ( 
 
 CO CO 
 
 - oo "O 
 
 CO 00 O Tf I 
 
 .co . . : 
 cosrt 
 
 OS 00 00 »H 
 O CO CO 
 
 TJ«-<-.OC>>3SCCCNiOiO 
 
 . r- . . t>. io «o . . 
 
 KCOrf CO CN 
 
 . CO . 
 
 O "3 CO 
 
 . r>- . 
 OS r-- o 
 CN . O 
 
 °CN^ 
 8»8 
 
 CVS 
 o . -J< 
 
 a 
 
 •<? co — i oi as 
 
 ■M ~ O 
 
 00 . . 
 — CO ro 
 
 CO lO TP 
 8? id fN 
 
 — CO . 
 
 00 O — CN 
 
 CN -j" f" — * 
 OS «0 
 
 CO t- CO 
 
 r- - cd co cd 
 
 OS lO CN lO 
 CO TT id CN 
 
 CN S3 CO 
 O OS CO' iH 
 
 O "0 rH CO 
 
 id — " o 
 
 3» $ OS 
 
 — = — 
 
 r ST 
 
 CO lO t- 
 
 d d © 
 
 oo t» 
 
 ci oo d 
 
 ~ e .2 8 S 
 2 2 "3 a 8 
 
 ?i cd «d cd 
 
 IE 
 
 3 »- 
 
 t-^ oo' os d — *' cn cd tt i id cd t- oc < 
 
 — ' CN 
 
 — cp a* 
 
 ■2 "2 
 4. 3' 
 
 « 2 
 
 ^ M O 
 
 Is § 
 
 i? £ 
 
 „ E- 1 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 93 
 
94 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 The following table was prepared by the Bureau of Research of the 
 Board of Governors of the Federal Reserve System and shows the 
 important relationship between the volume of money, as indicated 
 by bank debits in 141 centers, and the factors listed, particularly 
 factory employment. Since the figures are given by months, it will 
 be seen how closely employment and production follow the expansion 
 and contraction of money. The bank debits also indicate the amount 
 of demand deposits in actual circulation, because these checks are 
 debited onty against demand deposits in circulation, not upon demand 
 deposits which are hoarded and frozen. 
 
 The relationship of the money supply and the circulation of money 
 by checks has been dealt with in detail throughout the book, so that 
 it is not necessary to repeat the argument, although this table em- 
 phasizes and makes clear the validity of the argument that national 
 employment and production depend strictly upon the volume of 
 money in circulation. 
 
 Selected series on business activity 
 [Data without seasonal adjustment unless otherwise specified] 
 
 Year and month 
 
 Industrial produc- 
 tion i (1923-25 = 100) 
 
 Factory employment 1 
 (1923-25=100) 
 
 Wholesale commodity 
 prices (1926=100) 
 
 Security prices 
 
 Capital issues 
 (millions of dollars) 
 
 Bank debits, 141 cen- 
 ters (millions of 
 dollars) 
 
 Purchasing power of 
 the dollar at whole- 
 sale (1926 = $1.00) 
 
 U. S. Govern- 
 ment bonds 
 
 60 corporate 
 bonds 
 
 420 common 
 stocks (1926 
 = 100) 
 
 Total 
 
 New 
 
 Refunding 
 
 1926 
 
 108 
 
 101.7 
 
 100.0 
 
 105. 
 
 
 
 97.6 
 
 100. 
 
 
 
 7, 359 
 
 6,314 
 
 1,044 
 
 607, 956 
 
 $1. 000 
 
 1927 
 
 106 
 
 99.5 
 
 95.4 
 
 108. 
 
 2 
 
 100. 7 
 
 118. 
 
 3 
 
 9. 774 
 
 7, 555 
 
 2, 218 
 
 673, 861 
 
 1.048 
 
 1928 
 
 111 
 
 99.7 
 
 96.7 
 
 106. 
 
 4 
 
 100.8 
 
 149. 
 
 9 
 
 9, 898 
 
 8,040 
 
 1,858 
 
 806, 405 
 
 1.034 
 
 1929 
 
 119 
 
 106.0 
 
 95.3 
 
 102. 
 
 
 
 98.0 
 
 190. 
 
 3 
 
 11, 513 
 
 10,091 
 
 1,422 
 
 935, 027 
 
 1. 049 
 
 1930 
 
 96 
 
 92.4 
 
 86.4 
 
 105. 
 
 7 
 
 99.3 
 
 149. 
 
 8 
 
 7,619 
 
 6, 909 
 
 709 
 
 661, 956 
 
 1. 157 
 
 1931 
 
 81 
 
 78.1 
 
 73.0 
 
 103. 
 
 6 
 
 90.9 
 
 94. 
 
 7 
 
 4, 038 
 
 3,089 
 
 949 
 
 481,357 
 
 1. 370 
 
 1932 
 
 64 
 
 66.3 
 
 64.8 
 
 98. 
 
 5 
 
 69.5 
 
 48. 
 
 6 
 
 1,751 
 
 1,194 
 
 557 
 
 322. 366 
 
 1.543 
 
 1933 
 
 76 
 
 73.4 
 
 65.9 
 
 102. 
 
 5 
 
 73.4 
 
 63. 
 
 
 
 1,063 
 
 720 
 
 343 
 
 2282,706 
 
 1. 517 
 
 1934 
 
 79 
 
 85.7 
 
 74.9 
 
 103. 
 
 5 
 
 84.5 
 
 72. 
 
 4 
 
 2,160 
 
 1,386 
 
 774 
 
 331, 505 
 
 1.335 
 
 1935 
 
 90 
 
 91.3 
 
 80.0 
 
 106. 
 
 1 
 
 88.6 
 
 78. 
 
 3 
 
 4, 699 
 
 1,457 
 
 3, 242 
 
 374, 171 
 
 1.250 
 
 1936 
 
 105 
 
 97.8 
 
 80.8 
 
 107. 
 
 
 
 97.5 
 
 111. 
 
 
 
 6, 214 
 
 1,972 
 
 4,242 
 
 428, 006 
 
 1.238 
 
 1937 
 
 110 
 
 105.8 
 
 86.3 
 
 104. 
 
 4 
 
 93.4 
 
 111. 
 
 7 
 
 3, 878 
 
 2, 080 
 
 1,798 
 
 433, 042 
 
 1. 159 
 
 1926 
 
 106 
 
 
 
 
 
 
 
 
 728 
 
 
 82 
 
 54, 145 
 
 
 January... 
 
 102.7 
 
 103.2 
 
 105. 
 
 1 
 
 96.0 
 
 101. 
 
 8 
 
 646 
 
 .969 
 
 February 
 
 105 
 
 102.4 
 
 102.0 
 
 106. 
 
 
 
 96.6 
 
 101. 
 
 8 
 
 639 
 
 569 
 
 70 
 
 44, 915 
 
 .980 
 
 March 
 
 106 
 
 102.0 
 
 100.6 
 
 106. 
 
 
 
 96.3 
 
 95. 
 
 8 
 
 651 
 
 606 
 
 45 
 
 56, 464 
 
 .994 
 
 April. 
 
 107 
 
 101.7 
 
 100.3 
 
 104. 
 
 3 
 
 97.4 
 
 92. 
 
 9 
 
 655 
 
 539 
 
 116 
 
 51, 837 
 
 .997 
 
 May 
 
 106 
 
 101. 1 
 
 100.5 
 
 104. 
 
 7 
 
 98. 1 
 
 93. 
 
 o 
 
 662 
 
 648 
 
 14 
 
 48, 020 
 
 .995 
 
 June 
 
 108 
 
 101.3 
 
 100.4 
 
 104. 
 
 7 
 
 98.2 
 
 97. 
 
 2 
 
 714 
 
 571 
 
 143 
 
 50, 662 
 
 .996 
 
 July- - 
 
 108 
 
 101.0 
 
 99.5 
 
 104. 
 
 6 
 
 97.7 
 
 100. 
 
 
 
 584 
 
 524 
 
 60 
 
 50, 959 
 
 1.005 
 
 Aueust 
 
 110 
 
 101.5 
 
 99. 1 
 
 104. 
 
 2 
 
 97.5 
 
 102. 
 
 9 
 
 343 
 
 284 
 
 59 
 
 47, 011 
 
 1.009 
 
 September 
 
 111 
 
 102.0 
 
 99. 7 
 
 104. 
 
 3 
 
 97.7 
 
 104. 
 
 3 
 
 489 
 
 446 
 
 43 
 
 46, 954 
 
 1.003 
 
 October- 
 
 111 
 
 102.0 
 
 99.4 
 
 104. 
 
 5 
 
 97.5 
 
 101. 
 
 6 
 
 572 
 
 508 
 
 64 
 
 52, 535 
 
 1,006 
 
 November. 
 
 110 
 
 101.4 
 
 98.4 
 
 105. 
 
 4 
 
 98.6 
 
 103. 
 
 1 
 
 700 
 
 433 
 
 267 
 
 47, 384 
 
 1,016 
 
 December 
 
 107 
 
 101. 
 
 97.9 
 
 106. 
 
 2 
 
 99.0 
 
 105. 
 
 4 
 
 622 
 
 541 
 
 81 
 
 57, 070 
 
 1.021 
 
 1927 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 January 
 
 107 
 
 100.4 
 
 96.5 
 
 106. 
 
 9 
 
 99.7 
 
 105. 
 
 6 
 
 951 
 
 817 
 
 134 
 
 54, 714 
 
 1.036 
 
 February 
 
 108 
 
 100.8 
 
 95.8 
 
 107. 
 
 3 
 
 99.6 
 
 107. 
 
 9 
 
 941 
 
 685 
 
 256 
 
 48, 220 
 
 1.044 
 
 March 
 
 110 
 
 100.4 
 
 94.7 
 
 108. 
 
 9 
 
 100.1 
 
 109. 
 
 1 
 
 662 
 
 559 
 
 103 
 
 58, 518 
 
 1.056 
 
 April 
 
 108 
 
 100.2 
 
 94. 1 
 
 109. 
 
 1 
 
 100.5 
 
 111. 
 
 1 
 
 885 
 
 651 
 
 234 
 
 55, 583 
 
 1.063 
 
 May__ 
 
 109 
 
 100.1 
 
 94.2 
 
 109. 
 
 7 
 
 100.6 
 
 114. 
 
 2 
 
 960 
 
 685 
 
 275 
 
 54, 143 
 
 1.062 
 
 June... 
 
 107 
 
 100.1 
 
 94.1 
 
 109. 
 
 2 
 
 100.0 
 
 115. 
 
 4 
 
 942 
 
 743 
 
 199 
 
 56, 820 
 
 1.063 
 
 July. 
 
 106 
 
 99.7 
 
 94.3 
 
 106. 
 
 8 
 
 100. 
 
 117. 
 
 2 
 
 456 
 
 432 
 
 24 
 
 53. 682 
 
 1.060 
 
 August 
 
 106 
 
 99.6 
 
 95.2 
 
 107. 
 
 3 
 
 100.9 
 
 122. 
 
 6 
 
 608 
 
 440 
 
 16S 
 
 53, 702 
 
 1.050 
 
 September 
 
 104 
 
 99.1 
 
 96.3 
 
 107. 
 
 5 
 
 101.3 
 
 127. 
 
 7 
 
 597 
 
 486 
 
 111 
 
 56, 750 
 
 1. 038 
 
 October 
 
 102 
 
 98.4 
 
 96.6 
 
 107. 
 
 7 
 
 101. 7 
 
 126. 
 
 7 
 
 1,011 
 
 842 
 
 169 
 
 59, 201 
 
 1. 035 
 
 November 
 
 101 
 
 97.9 
 
 96.3 
 
 108. 
 
 5 
 
 101.9 
 
 129. 
 
 6 
 
 733 
 
 464 
 
 269 
 
 57. 085 
 
 1.038 
 
 December 
 
 102 
 
 97.4 
 
 96.4 
 
 109. 
 
 3 
 
 102.2 
 
 133. 
 
 1 
 
 1,028 
 
 750 
 
 278 
 
 65, 441 
 
 1.037 
 
 1928 
 
 January.. 
 
 107 
 
 97.3 
 
 96.4 
 
 109. 
 
 1 
 
 102.2 
 
 134. 
 
 4 
 
 762 
 
 561 
 
 201 
 
 62, 885 
 
 1.037 
 
 February _ 
 
 109 
 
 97.8 
 
 95.8 
 
 J08. 
 
 9 
 
 102.2 
 
 132. 
 
 3 
 
 853 
 
 60C 
 
 253 
 
 54. 493 
 
 1.044 
 
 March 
 
 108 
 
 97.9 
 
 95.5 
 
 109. 
 
 3 
 
 102. 1 
 
 137. 
 
 9 
 
 960 
 
 595 
 
 365 
 
 70, 634 
 
 1.04? 
 
 April. 
 
 108 
 
 97.7 
 
 96.6 
 
 108. 
 
 8 
 
 102. 1 
 
 145. 
 
 9 
 
 1,038 
 
 699 
 
 139 
 
 67, 003 
 
 1.035- 
 
 i Adjusted for seasonal variation. 
 
 » March excluded; complete data not available on account of bank holidays. 
 
NATIONAL ECONOMY AXD THE BANKING SYSTEM 95 
 
 Selected series on business activity — Continued 
 
 
 iroduc- 
 = 100) 
 
 a 
 
 2 
 
 l§ 
 
 >. 
 
 cS 
 
 Security prices 
 
 Capital issues 
 (millions of dollars) 
 
 41 cen- 
 ns of 
 
 wer of 
 whole- 
 .00) 
 
 Year and month 
 
 Industrial p 
 tion (1928-26- 
 
 Factory emplo 
 (1923-25=11 
 
 Wholesale comi 
 prices (1926 = 
 
 U. S. Govern- 
 ment bonds 
 
 60 ■ corporate 
 bonds 
 
 420 common 
 stocks (1926 
 = 100) 
 
 Total 
 
 New 
 
 Refunding 
 
 Bank dobits, 1 
 ters (millio 
 dollars) 
 
 Purchasing po 
 the dollar at 
 sale (1926= $1 
 
 1928 
 
 
 
 
 
 
 
 
 
 
 
 
 
 10fl 
 1U3 
 
 98 2 
 
 Q7 
 
 »l. O 
 
 ma 9 
 
 101 6 
 
 1 52 1 
 
 1, uzu 
 
 846 
 
 174 
 
 71 A1 A 
 / 1, DID 
 
 Si. 026 
 
 June 
 
 108 
 
 8B.7 
 
 96.7 
 
 107. 4 
 
 100^3 
 
 145! 3 
 
 I, 023 
 
 795 
 
 228 
 
 72, 485 
 
 1.034 
 
 July 
 
 1C9 
 
 99. 3 
 
 97. 4 
 
 105. 7 
 
 99. 8 
 
 144. 2 
 
 439 
 
 399 
 
 40 
 
 58. 981 
 
 1.027 
 
 August-.. 
 
 no 
 
 100. 4 
 
 97. 6 
 
 1.03. 5 
 
 99. 4 
 
 148. 3 
 
 271 
 
 251 
 
 20 
 
 58. 504 
 
 L 025 
 
 September 
 
 113 
 
 100. 9 
 
 98. 6 
 
 103. b 
 
 99. 9 
 
 156. 6 
 
 543 
 
 488 
 
 55 
 
 63, 176 
 
 1.014 
 
 October 
 
 115 
 
 101. 7 
 
 90. 7 
 
 103. 7 
 
 100. 
 
 159. 1 
 
 769 
 
 702 
 
 67 
 
 72. S94 
 
 L 034 
 
 November 
 
 117 
 
 102. 7 
 
 95. 8 
 
 104. 8 
 
 100. 4 
 
 171. 1 
 
 999 
 
 912 
 
 57 
 
 71, 349 
 
 1.044 
 
 December 
 
 118 
 
 103. 3 
 
 95. 8 
 
 103. 9 
 
 99. 7 
 
 171. 4 
 
 1.221 
 
 1, 162 
 
 59 
 
 82, 386 
 
 1.044 
 
 1929 
 
 
 
 
 
 
 
 
 
 
 
 
 
 119 
 
 104.2 
 
 95.9 
 
 103. 
 
 99.7 
 
 185.2 
 
 I, 062 
 
 913 
 
 149 
 
 82, 814 
 
 1.043 
 
 
 11S 
 
 105.0 
 
 95.4 
 
 101.8 
 
 99. 2 
 
 186. 5 
 
 1,043 
 
 915 
 
 128 
 
 70. 777 
 
 1.048 
 
 March 
 
 118 
 
 105.3 
 
 95. 1 
 
 100. 2 
 
 98. 5 
 
 1 89. 1 
 
 1,016 
 
 956 
 
 60 
 
 83, 524 
 
 1. 041 
 
 April. - . 
 
 121 
 
 106.4 
 
 95.5 
 
 ioi. e 
 
 98.7 
 
 180. 6 
 
 810 
 
 675 
 
 135 
 
 74, 750 
 
 1.047 
 
 
 122 
 
 106.0 
 
 9i. 7 
 
 101.5 
 
 98.3 
 
 187.8 
 
 1.529 
 
 1, 137 
 
 392 
 
 76. 535 
 
 1. 056 
 
 
 125 
 
 107.0 
 
 95. 2 
 
 100. 9 
 
 97. 5 
 
 190. 7 
 
 748 
 
 731 
 
 17 
 
 69, 666 
 
 1.050 
 
 July... 
 
 124 
 
 108. 1 
 
 96. 5 
 
 101. 5 
 
 97. 5 
 
 207. 3 
 
 954 
 
 894 
 
 60 
 
 77, 631 
 
 1.036 
 
 August. 
 
 121 
 
 108. 4 
 
 96. 3 
 
 100. 8 
 
 97. 1 
 
 218. 1 
 
 888 
 
 863 
 
 25 
 
 77. 34-4 
 
 1.038 
 
 September 
 
 121 
 
 107. 3 
 
 96. 1 
 
 101. 
 
 96. 6 
 
 225. 2 
 
 1, 622 
 
 1, 314 
 
 308 
 
 77, 617 
 
 1. 041 
 
 October.. 
 
 n8 
 
 106. 6 
 
 95. 1 
 
 102. 
 
 97. 5 
 
 201. 7 
 
 870 
 
 836 
 
 34 
 
 95, 527 
 
 1.052 
 
 November 
 
 110 
 
 104. 4 
 
 93. 5 
 
 105. 
 
 97. 4 
 
 151. 1 
 
 298 
 
 280 
 
 18 
 
 82, 090 
 
 1. 070 
 
 December. 
 
 103 
 
 101. 9 
 
 93. 3 
 
 104. 8 
 
 98. 6 
 
 153. 8 
 
 676 
 
 579 
 
 97 
 
 66, 752 
 
 1. 072 
 
 1930 
 
 106 
 
 100.6 
 
 92.5 
 
 104.0 
 
 98.7 
 
 156.3 
 
 849 
 
 781 
 
 68 
 
 60, 423 
 
 1.081 
 
 
 107 
 
 99.0 
 
 91.4 
 
 104.2 
 
 98.7 
 
 165. 5 
 
 602 
 
 566 
 
 36 
 
 52, 625 
 
 1.094 
 
 March 
 
 1C3 
 
 97.7 
 
 90.2 
 
 105. 7 
 
 99.7 
 
 172. 4 
 
 841 
 
 769 
 
 72 
 
 65, 723 
 
 1 109 
 
 April 
 
 104 
 
 97.0 
 
 90.0 
 
 104.8 
 
 99.7 
 
 18J.0 
 
 934 
 
 882 
 
 52 
 
 62, 9ir 
 
 1. Ill 
 
 
 102 
 
 95. 7 
 
 88.8 
 
 105.5 
 
 iOO.O 
 
 170.5 
 
 1,184 
 
 1,089 
 
 95 
 
 61,81i 
 
 1.126 
 
 
 98 
 
 93. 9 
 
 86.8 
 
 106. 2 
 
 99. 9 
 
 152.8 
 
 772 
 
 711 
 
 61 
 
 62, 3^2 
 
 1. 152 
 
 July 
 
 93 
 
 91. 2 
 
 84. 4 
 
 106. 2 
 
 100. 2 
 
 149. 3 
 
 o85 
 
 553 
 
 32 
 
 52, 744 
 
 L 185 
 
 August 
 
 90 
 
 89. 
 
 84. 3 
 
 106. 
 
 100. 8 
 
 147. 6 
 
 269 
 
 183 
 
 86 
 
 45, 993 
 
 1. 186 
 
 September 
 
 90 
 
 87. 7 
 
 84. 4 
 
 106. 2 
 
 101. 6 
 
 148. 8 
 
 494 
 
 380 
 
 114 
 
 48, 036 
 
 I. 185 
 
 October 
 
 88 
 
 86. 7 
 
 S3. 
 
 106. 5 
 
 99. 8 
 
 127. 6 
 
 435 
 
 364 
 
 71 
 
 54, 460 
 
 1. 205 
 
 November 
 
 86 
 
 85. 3 
 
 81. 3 
 
 106. 8 
 
 98. 1 
 
 116. 7 
 
 260 
 
 248 
 
 12 
 
 42, 176 
 
 1.230 
 
 December i.... 
 
 84 
 
 83. 8 
 
 79. 6 
 
 106. 4 
 
 94. 8 
 
 109. 4 
 
 395 
 
 383 
 
 12 
 
 52, 107 
 
 1.256 
 
 1931 
 
 
 
 
 
 
 
 
 
 
 
 
 
 83 
 
 82.4 
 
 78.2 
 
 106.6 
 
 97.8 
 
 111.3 
 
 613 
 
 431 
 
 182 
 
 46, 253 
 
 1. 279 
 
 
 86 
 
 81.4 
 
 76.8 
 
 105. 5 
 
 97.8 
 
 119. 8 
 
 225 
 
 206 
 
 19 
 
 38, 031 
 
 L. 302 
 
 March 
 
 87 
 
 81. 1 
 
 75. 
 
 105. 6 
 
 97.2 
 
 121. 6 
 
 702 
 
 560 
 
 142 
 
 47! 011 
 
 L. 3 16 
 
 A pril 
 
 88 
 
 8x.0 
 
 74.8 
 
 105. 1 
 
 95.2 
 
 111.6 
 
 616 
 
 413 
 
 203 
 
 46! 440 
 
 L337 
 
 May 
 
 87 
 
 80.7 
 
 73.2 
 
 106.2 
 
 94.8 
 
 98.3 
 
 473 
 
 349 
 
 124 
 
 43, 930 
 
 L 366 
 
 June. 
 
 83 
 
 79.2 
 
 72. 1 
 
 106.5 
 
 94.2 
 
 95. 1 
 
 404 
 
 260 
 
 144 
 
 45. 299 
 
 1.387 
 
 July 
 
 82 
 
 78. 7 
 
 72. 
 
 105. 4 
 
 95. 4 
 
 99. 1 
 
 270 
 
 225 
 
 45 
 
 39,451 
 
 1.389 
 
 August. 
 
 78 
 
 77. 5 
 
 72. 1 
 
 105. 2 
 
 92.9 
 
 95. 3 
 
 127 
 
 120 
 
 7 
 
 34, 027 
 
 I. 387 
 
 September 
 
 76 
 
 76.0 
 
 71.2 
 
 104.0 
 
 88.4 
 
 85.4 
 
 288 
 
 245 
 
 43 
 
 30. 700 
 
 1.404 
 
 October 
 
 73 
 
 73. 9 
 
 70.3 
 
 98.8 
 
 82.0 
 
 69.2 
 
 46 
 
 45 
 
 1 
 
 38. S< )2 
 
 1.422 
 
 November 
 
 73 
 
 72. 6 
 
 70. 2 
 
 99.0 
 
 82. 4 
 
 71. 7 
 
 133 
 
 112 
 
 21 
 
 Z9. 069 
 
 1.425 
 
 December.. 
 
 74 
 
 72. 4 
 
 68. 6 
 
 95.3 
 
 73 1 
 
 58 4 
 
 144 
 
 123 
 
 21 
 
 36, 345 
 
 1.458 
 
 1032 
 
 
 
 
 
 
 
 
 
 
 
 
 January 
 
 72 
 
 71.8 
 
 67. 3 
 
 91. 3 
 
 75. 1 
 
 57. 5 
 
 199 
 
 185 
 
 14 
 
 "ifiQ 
 00. ut'y 
 
 1 486 
 
 
 69 
 
 71. 4 
 
 66. 3 
 
 93. 6 
 
 74. 9 
 
 56. 5 
 
 
 /I 
 
 01 
 
 £1 
 
 27 251 
 
 I. 508 
 
 March 
 
 67 
 
 69 9 
 
 66. 
 
 95. 9 
 
 75. 9 
 
 57. 8 
 
 1 Q1 
 
 iyi 
 
 1 AO 
 10^ 
 
 OO 
 
 ^y 
 
 OQ fiCO 
 
 ^y, ooy 
 
 1. 515 
 
 April 
 
 63 
 
 67.6 
 
 65.' 5 
 
 98 3 
 
 67. 9 
 
 45'. 7 
 
 143 
 
 71 
 
 72 
 
 29, 923 
 
 I. 527 
 
 May 
 
 60 
 
 65.3 
 
 64.4 
 
 97.7 
 
 62.2 
 
 39.8 
 
 125 
 
 91 
 
 34 
 
 25.411 
 
 1.553 
 
 June 
 
 59 
 
 63.6 
 
 63.9 
 
 97.6 
 
 60.6 
 
 34.3 
 
 154 
 
 84 
 
 70 
 
 27, 103 
 
 1.565 
 
 July . 
 
 58 
 
 61.9 
 
 64.5 
 
 99. 7 
 
 62. 1 
 
 35. 2 
 
 155 
 
 105 
 
 50 
 
 25. 239 
 
 1. 550 
 
 August 
 
 60 
 
 62.4 
 
 65.2 
 
 101.3 
 
 72.4 
 
 52.1 
 
 174 
 
 63 
 
 111 
 
 25. 215 
 
 1.534 
 
 September 
 
 66 
 
 64.4 
 
 65.3 
 
 101.6 
 
 74.6 
 
 58.4 
 
 142 
 
 83 
 
 59 
 
 25, 931 
 
 L 531 
 
 October 
 
 67 
 
 65.8 
 
 64.4 
 
 101.5 
 
 70.8 
 
 51.4 
 
 137 
 
 109 
 
 28 
 
 25, 298 
 
 L 553 
 
 November 
 
 65 
 
 66.2 
 
 63.9 
 
 101.4 
 
 69.2 
 
 47.9 
 
 77 
 160 
 
 45 
 
 32 
 
 20, 750 
 
 1.565 
 
 December 
 
 66 
 
 65.5 
 
 62.6 
 
 102.3 
 
 67. 7 
 
 47. 1 
 
 125 
 
 35 
 
 26, 787 
 
 1.597 
 
 1933 
 
 
 
 
 
 
 
 
 
 
 
 
 
 65 
 
 64.9 
 
 61.0 
 
 103.6 
 
 70.7 
 
 49.1 
 
 110 
 
 65 
 
 45 
 
 24, 466 
 
 1.639 
 
 faKiti ?*rv 
 
 63 
 
 65.0 
 
 59.8 
 
 102.5 
 
 68.5 
 
 44.9 
 
 57 
 
 20 
 
 37 
 3 
 
 22, 437 
 
 1.672 
 
 March 
 
 59 
 66 
 
 62.2 
 
 60.2 
 
 101. 1 
 
 66.0 
 
 43.3 
 
 20 
 
 17 
 
 
 
 April 
 
 63.8 
 
 60.4 
 
 101.3 
 
 64.8 
 
 46.5 
 
 45 
 
 26 
 
 19 
 
 22, 628 
 
 1.661 
 
 1.656 
 
 May 
 
 78 
 
 67.1 
 
 62.7 
 
 102.7 
 
 72.4 
 
 61.5 
 
 67 
 
 44 
 
 23 
 
 25,486 
 
 L 595 
 
 June 
 
 91 
 
 72.2 
 
 65.0 
 
 103.7 
 
 77.7 
 
 72.8 
 
 224 
 
 116 
 
 108 
 
 29,711 
 
 1.538 
 
 July 
 
 100 
 
 77.4 
 
 68.9 
 
 103.9 
 
 81.5 
 
 79.8 
 
 167 
 
 122 
 
 45 
 
 31.232 
 
 1.451 
 
 August 
 
 91 
 
 81.0 
 
 69.5 
 
 103.7 
 
 80.7 
 
 74.4 
 
 56 
 
 46 
 
 10 
 
 25, 451 
 
 1.439 
 
 September 
 
 84 
 
 82.8 
 
 70.8 
 
 103.8 
 
 77.5 
 
 75.5 
 
 95 
 
 64 
 
 31 
 
 24, 555 
 
 1.412 
 
 October 
 
 76 
 
 82.9 
 
 71.2 
 
 103.5 
 
 75.3 
 
 69.5 
 
 59 
 89 
 
 58 
 
 1 
 
 26, 307 
 
 1.404 
 
 November 
 
 72 
 
 81.2 
 
 71.1 
 
 100.6 
 
 72.1 
 
 68.8 
 
 87 
 
 2 
 
 24, 131 
 
 1.406 
 
 December 
 
 75 
 
 80.1 
 
 70.8 
 
 99.9 
 
 73.6 
 
 70.4 
 
 76 
 
 57 
 
 19 
 
 26, 301 
 
 1.412 
 
96 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 Selected series on business activity — Continued 
 
 
 
 
 >> 
 
 
 
 
 
 
 
 
 
 
 produ 
 = 100) 
 
 a 
 o 
 a 
 
 || 
 
 Security prices 
 
 Capital issues 
 (millions of dollars) 
 
 CO 
 
 5 
 o 
 
 — i to 
 rt 
 
 i 
 
 Year and month 
 
 Industrial ] 
 tion (1923-25 
 
 a ii 
 §7 
 
 c3 
 
 Wholesale com 
 prices (1926 = 
 
 TJ. S. Govern 
 merit bonds 
 
 60 corporate 
 bonds 
 
 420 common 
 stocks (1926 
 = 100) 
 
 Total 
 
 
 Refunding 
 
 Bank debits, 1< 
 ters (attUioi 
 dollars) 
 
 Purchasing po> 
 the dollar at 
 sate (1926 = $1. 
 
 1934 
 
 
 
 
 
 
 
 
 
 
 
 
 January 
 
 78 
 
 80 7 
 
 72.2 
 
 100.2 
 
 78.5 
 
 74.6 
 
 91 
 
 48 
 
 43 
 8 
 
 27, 221 
 
 $1, 385 
 
 February 
 
 81 
 
 83. 9 
 
 73.6 
 
 102. 1 
 
 84.0 
 
 80.9 
 
 89 
 
 81 
 99 
 
 25,015 
 
 I 359 
 
 March 
 
 84 
 86 
 
 86^9 
 
 73.7 
 
 103. 1 
 
 84.8 
 
 77.2 
 
 149 
 
 
 l! 357 
 
 April 
 
 88.3 
 
 73.3 
 
 103. 7 
 
 87.0 
 
 79.6 
 
 242 
 
 141 
 
 50 
 101 
 
 29, 685 
 
 
 
 00 
 
 89. 
 
 73. 7 
 
 104 7 
 
 86. 1 
 
 71. 8 
 
 144 
 
 100 
 
 44 
 
 31,231 
 28, 757 
 
 M64 
 1,357 
 
 June 
 
 84 
 
 OO. G 
 
 74. 6 
 
 104.9 
 
 86. 3 
 
 73. 1 
 
 308 
 
 119 
 
 189 
 
 30 142 
 
 1 340 
 
 Julv 
 
 76 
 
 87 3 
 
 74.8 
 
 105. 6 
 
 86. 1 
 
 71.4 
 
 376 
 
 214 
 
 162 
 
 27) 752 
 
 I, 337 
 
 August 
 
 73 
 
 86 4 
 
 76.4 
 
 104.3 
 
 83.9 
 
 67. 5 
 
 209 
 
 180 
 
 29 
 
 25, 706 
 
 l! 309 
 
 September 
 
 71 
 
 81. 3 
 
 77.6 
 
 102. 3 
 
 83.0 
 
 67.4 
 
 71 
 
 39 
 
 32 
 
 23, 894 
 
 1, 289 
 
 October 
 
 74 
 
 84 4 
 
 76.5 
 
 103.4 
 
 84. 1 
 
 67.6 
 
 157 
 
 122 
 
 35 
 
 26, 627 
 
 l! 307 
 
 November 
 
 75 
 
 84 6 
 
 76.5 
 
 103.7 
 
 84.3 
 
 68.3 
 
 137 
 
 104 
 
 33 
 
 24, 662 
 
 1, 307 
 
 December 
 
 86 
 
 86 4 
 
 76.9 
 
 1(14. 1 
 
 85.8 
 
 69.6 
 
 187 
 
 139 
 
 48 
 
 30,811 
 
 1, 300 
 
 1935 
 
 
 
 
 
 
 
 
 
 
 
 
 January 
 
 90 
 
 88. 8 
 
 78.8 
 
 105. 4 
 
 87.6 
 
 70. 1 
 
 141 
 
 92 
 
 49 
 
 29, 980 
 
 1,269 
 
 February 
 
 90 
 
 90. 
 
 79.5 
 
 106.4 
 
 87.4 
 
 68.0 
 
 96 
 
 50 
 
 46 
 
 25, 059 
 
 1,258 
 
 March.. . 
 
 88 
 
 90~7 
 
 79.4 
 
 106. 2 
 
 84.5 
 
 64.6 
 
 290 
 
 105 
 
 185 
 
 31, 649 
 
 1, 259 
 
 April. 
 
 86 
 
 90.8 
 
 80. 1 
 
 106.8 
 
 85.5 
 
 67.5 
 
 508 
 
 90 
 
 418 
 
 31. 550 
 
 L248- 
 
 
 
 90. 1 
 
 80. 2 
 
 106. 8 
 
 87. 
 
 73. 1 
 
 474 
 
 83 
 
 391 
 
 30, 108 
 
 1,247 
 
 June 
 
 87 
 
 89 2 
 
 79.8 
 
 107. 
 
 88.3 
 
 75.5 
 
 512 
 
 55 
 
 457 
 
 31, 475 
 
 I, 253 
 
 July 
 
 86 
 
 90 1 
 
 79.4 
 
 107. 3 
 
 89.2 
 
 78.8 
 
 640 
 
 127 
 
 513 
 
 33, 287 
 
 I, 259 
 
 August 
 
 88 
 
 91. 1 
 
 80.5 
 
 106.5 
 
 89.9 
 
 83.0 
 
 425 
 
 194 
 
 231 
 
 30, 268 
 
 1, 242 
 
 September 
 
 91 
 
 91 8 
 
 80.7 
 
 104.7 
 
 90 4 
 
 85.0 
 
 438 
 
 173 
 
 265 
 
 29, 031 
 
 I, 239 
 
 October 
 
 95 
 
 93 
 
 80.5 
 
 104.9 
 
 89.8 
 
 85.2 
 
 368 
 
 148 
 
 220 
 
 32, 577 
 
 1, 242 
 
 November 
 
 96 
 
 94 1 
 
 80.6 
 
 105.3 
 
 91.1 
 
 93.3 
 
 384 
 
 118 
 
 266 
 
 32, 227 
 
 1, 241 
 
 December 
 
 101 
 
 94 5 
 
 80.9 
 
 105.2 
 
 92.4 
 
 95.3 
 
 422 
 
 221 
 
 201 
 
 36, 360 
 
 1. 236 
 
 1936 
 
 
 
 
 
 
 
 
 
 
 
 
 January 
 
 97 
 
 94. 3 
 
 80.6 
 
 105. 8 
 
 95.3 
 
 100.1 
 
 402 
 
 123 
 
 279 
 
 35, 424 
 
 1,241 
 
 
 94 
 
 yz. o 
 
 80.6 
 
 106. 3 
 
 97.2 
 
 106. 1 
 
 303 
 
 107 
 
 196 
 
 31, 572 
 
 1,241 
 
 March 
 
 93 
 
 93.0 
 
 79.6 
 
 106.8 
 
 96.6 
 
 108.7 
 
 763 
 
 128 
 
 635 
 
 37, 496 
 
 1,256 
 
 April 
 
 101 
 
 94.3 
 
 79.7 
 
 107.0 
 
 95.9 
 
 109.0 
 
 986 
 
 176 
 
 810 
 
 34, 783 
 
 1,255 
 
 
 mi 
 
 yo. / 
 
 78. 6 
 
 107. 1 
 
 95. 5 
 
 101. 
 
 420 
 
 112 
 
 308 
 
 33, 225 
 
 1, 272 
 
 June 
 
 104 
 
 96 7 
 
 79.2 
 
 106.9 
 
 96. 2 
 
 105.6 
 
 734 
 
 218 
 
 516 
 
 37, 503 
 
 1,263 
 
 Julv 
 
 108 
 
 98 4 
 
 80.5 
 
 106.6 
 
 97.1 
 
 109.2 
 
 340 
 
 104 
 
 236 
 
 34, 816 
 
 1,242 
 
 August 
 
 108 
 
 99 3 
 
 81.6 
 
 107.2 
 
 97.7 
 
 113.0 
 
 297 
 
 217 
 
 80 
 
 31,4C9 
 
 1, 225 
 
 RpiYtoml^Ar 
 
 109 
 
 99 9 
 
 81.6 
 
 107. 2 
 
 98.6 
 
 114. 1 
 
 409 
 
 178 
 
 231 
 
 33, 242 
 
 1, 225 
 
 
 110 
 
 IUU. o 
 
 81.5 
 
 106.9 
 
 99.6 
 
 118.7 
 
 464 
 
 186 
 
 278 
 
 37,313 
 
 1,227 
 
 
 114 
 
 102 8 
 
 82.4 
 
 108.2 
 
 99.8 
 
 124.2 
 
 372 
 
 158 
 
 214 
 
 35, 869 
 
 1,214 
 
 T") P O C* TTl Vior 
 
 121 
 
 1 OA 
 
 ivi. y 
 
 84.2 
 
 107.9 
 
 99.9 
 
 122.8 
 
 725 
 
 266 
 
 459 
 
 45, 896 
 
 1,188 
 
 1937 
 
 
 
 
 
 
 
 
 
 
 
 
 Tflnnarv 
 
 114 
 
 10^ 9 
 J.UO. z 
 
 85.9 
 
 107.3 
 
 100.3 
 
 126.0 
 
 603 
 
 244 
 
 359 
 
 39, 487 
 
 1. 164 
 
 
 116 
 
 lOft 
 
 86.3 
 
 107.2 
 
 100.0 
 
 129.5 
 
 527 
 
 190 
 
 337 
 
 34, 536 
 
 1.159 
 
 March 
 
 118 
 
 107.3 
 
 87.8 
 
 105. 2 
 
 98.5 
 
 129.9 
 
 384 
 
 187 
 
 197 
 
 42, 014 
 
 1. 139 
 
 ApriL.. 
 
 118 
 
 108.4 
 
 88.0 
 
 102.6 
 
 96.6 
 
 124.5 
 
 303 
 
 159 
 
 144 
 
 37, 144 
 
 1. 136 
 
 AT q v 
 
 118 
 
 109. 1 
 
 87.4 
 
 103.3 
 
 96.2 
 
 116.3 
 
 265 
 
 149 
 
 116 
 
 34, 416 
 
 1. 144 
 
 
 114 
 
 1 OSi A 
 11/3. 1 
 
 87.2 
 
 103.5 
 
 95.0 
 
 113. 6 
 
 560 
 
 360 
 
 200 
 
 36, 464 
 
 1. 147 
 
 July 
 
 114 
 
 1 OO *3 
 
 87.9 
 
 104.0 
 
 95.3 
 
 117.8 
 
 341 
 
 248 
 
 93 
 
 36, 914 
 
 1. 138 
 
 
 117 
 
 1 OS ft 
 
 87.5 
 
 104.0 
 
 94.8 
 
 120. 5 
 
 188 
 
 79 
 
 109 
 
 31, 896 
 
 1. 143 
 
 
 111 
 
 1 07 O 
 1U7. £ 
 
 87.4 
 
 103.3 
 
 91.3 
 
 106.4 
 
 221 
 
 154 
 
 67 
 
 33, 370 
 
 1. 144 
 
 
 102 
 
 105. 1 
 
 85.4 
 
 103.5 
 
 86.4 
 
 91.4 
 
 204 
 
 96 
 
 108 
 
 36, 085 
 
 1.171 
 
 November 
 
 88 
 
 100. 6 
 
 83.3 
 
 104.0 
 
 83 3 
 
 82.9 
 
 137 
 
 95 
 
 42 
 
 31, 603 
 
 1.200 
 
 December 
 
 84 
 
 yo. l 
 
 81.7 
 
 104.7 
 
 82.7 
 
 82.2 
 
 165 
 
 123 
 
 42 
 
 39, 114 
 
 1.224 
 
 1938 
 
 
 
 
 
 
 
 
 
 
 
 
 January 
 
 80 
 
 90 
 
 80.9 
 
 105.3 
 
 80.6 
 
 81.6 
 
 122 
 
 93 
 
 29 
 
 32, 084 
 
 1.236 
 
 February 
 
 79 
 
 88.9 
 
 79.8 
 
 105.4 
 
 79.3 
 
 80.7 
 
 199 
 
 82 
 
 117 
 
 25, 54S 
 
 1. 253 
 
 March 
 
 79 
 
 87.4 
 
 79. 7 
 
 105.0 
 
 76.0 
 
 77.9 
 
 245 
 
 126 
 
 119 
 
 32, 119 
 
 1. 255 
 
 April 
 
 77 
 
 85.4 
 
 78.7 
 
 104.8 
 
 73.8 
 
 70.7 
 
 352 
 
 197 
 
 155 
 
 31, 169 
 
 1.271 
 
 May 
 
 76 
 
 83. 7 
 
 78.1 
 
 106. 1 
 
 76.5 
 
 73.9 
 
 217 
 
 157 
 
 60 
 
 28, 841 
 
 1. 280 
 
 June 
 
 77 
 
 82.4 
 
 78.3 
 
 106.0 
 
 75.3 
 
 73. 1 
 
 511 
 
 347 
 
 164 
 
 32, 797 
 
 1. 277 
 
 July.. 
 
 83 
 
 82.9 
 
 78.8 
 
 105.7 
 
 80.8 
 
 88.0 
 
 466 
 
 390 
 
 75 
 
 30, 505 
 
 1.269 
 
 August 
 
 88 
 
 85.1 
 
 78. 1 
 
 105.9 
 
 81.3 
 
 89.5 
 
 415 
 
 180 
 
 235 
 
 28, 270 
 
 1. 280 
 
 September 
 
 
 
 78.3 
 
 104.8 
 
 78.7 
 
 86.0 
 
 
 
 
 29, 525 
 
 1.277 
 
 
 
 
 
 
 
 
 Sources: Industrial production, Board of Governors of the Federal Reserve System; factory employment, 
 Board of Governors of the Federal Reserve System; wholesale commodity prices, Bureau of Labor Statis- 
 tics. Security prices: U. S. Government bonds. Board of Governors of the Federal Reserve System; cor- 
 porate bonds, Standard Statistics Co.; common stocks, Standard Statistics Co.; capital issues, Commercial 
 and Financial Chronicle and U. S. Department of Commerce; bank debits, Board of Governors of the Fed- 
 eral Reserve System; purchasing power of the dollar, Bureau of Labor Statistics. 
 
\ \ CIONAL ECONOMY AND THE BANKING SYSTEM 
 
 97 
 
 SOME IMPROVEMENTS THAT HAVE BEEN ACCOMPLISHED AND SOME THAT 
 ARE NEEDED IN OUR MONETARY SYSTEM 
 
 It will interest students to know that the Seventy-third and 
 Seventy-fourth Congresses since March 1933 have taken various 
 steps to improve the monetary structure, the more important of 
 which are as follows: 
 
 Made all money legal tender. 
 
 Abolished the national-bank note. 
 
 Removed gold from domestic circulation. 
 
 Stopped the minting of gold and put it in bars in the vaults to be 
 used exclusively as a commodity, or in the payment of international 
 balances upon permit of the Secretary of the Treasury. 
 
 Outlawed all future dollar contracts payable in gold by weight. 
 
 Made all existing dollar contracts payable by gold in weight subject 
 to payment by lawful money or legal tender. 
 
 Established a guaranty of bank deposits up to $5,000, etc. 
 
 Authorized the expansion of the currency through $1 silver certifi- 
 cates, and actually increased such currency by about a billion dollars. 
 
 Authorized gold to be sold for commodity uses and for payment of 
 foreign balances, and gold has been made salable at the price of $35 
 an ounce for such uses by the Secretary of the Treasury. 
 
 Authorized the purchase of silver until the silver held b} 7 the 
 United States shall equal one-fourth of the gold so held. 
 
 Passed laws to regulate the security market and provided safe- 
 guards to prevent run-away speculation in securities b} 7 inflated 
 credit. 
 
 Removed the auxiliary corporations through which banks specu- 
 lated in securities. 
 
 Authorized the expansion of credit through the sale of Government 
 bonds to the banks in providing public works and public relief to 
 people in distress. 
 
 Passed a new Banking Act of 1935, establishing the Federal Reserve 
 Board of Governors, of seven members, giving them control over the 
 expansion and contraction of credit and currency. 
 
 Given the Federal Reserve Board power to veto the election of the 
 president of any Federal Reserve bank. 
 
 Given the Federal Reserve Board absolute control of the interest 
 and discount rate of the Federal Reserve banks. 
 
 Given the Board the right to raise the reserves of member banks 
 100 percent. 
 
 Given the Board the power, through an open-market committee, 
 to require the Federal Reserve banks to buy and sell bonds as a 
 means of expanding and contracting credit. 
 
 Expanded the power of member banks to lend money on real estate. 
 
 Expanded the power of the Reserve banks to discount bankable 
 assets of member banks. 
 
 Used the public credit on a colossal scale to relieve the most acute 
 effects of the existing depression. 
 
 Greatly improved the value of Government bonds and lowered the 
 rates of interest on the public debt. 
 
 Its polices have resulted, hy the sale of bonds to the banks, in 
 increasing the demand bank deposits, the money supply of the 
 country, until in volume they are steadily approaching normal; 
 
98 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 $11,000,000,000 of demand deposits, nevertheless, are inactive as 
 money being held as corporate reserves. 
 
 e The question of monetary reform has been actively under discus- 
 sion in the Seventy-fifth Congress without any final action being 
 taken, but it is confidently expected by advocates of monetary reform 
 that the Seventy-sixth Congress will act in perfecting the national 
 monetary system. 
 
 The pending bills propose the Government taking over the stock 
 of the Federal Reserve banks, the declaration of a congressional 
 monetary policy, the expansion of the powers of the Board of Gov- 
 ernors of the Federal Reserve System, eliminating the open market 
 committee and the Federal Reserve Advisory Council, establishing a 
 dollar of uniform, permanent, debt-paying, purchasing power by 
 regulating the volume of money. There will be considered probably 
 the more equitable distribution of money by States, the establishment 
 of one form of currency, the coordination of agencies affecting mone- 
 tary control, such as the Federal Deposit Insurance Corporation, the 
 Comptroller of the Currency, the Secretary of the Treasury; and 
 making all banks members of the Federal Reserve System. 
 
 Over a thousand pages of testimony was taken by the Banking and 
 Currency Committee of the House during 1938. (Advanced students 
 will find the congressional hearings of interest.) 
 
 The Committee on Banking and Currency of the United States 
 Senate proposed a careful examination of the public control and regula- 
 tion of the value of money before the meeting of the Seventy-sixth 
 Congress. 
 
 The subject matter will also be considered by the Temporary 
 National Economic Committee, as directed by wSenate Joint Resolu- 
 tion No. 300. 
 
 Modified bills by Congressmen T. Alan Goldsborough, Wright 
 Patman, and Charles G. Binderup are expected to be under con- 
 sideration in January 1939. 
 
 A FEW QUOTATIONS OF NOTABLE LEADERS 
 
 Benjamin Franklin, on being asked in Great Britain how he 
 accounted for the prosperous condition of the Colonies, said: 
 
 That is simple. It is only because in the Colonies we issue our own money. 
 It is called colonial scrip, and we issue it in the proper proportion to the demand of 
 trade and industry. 
 
 It was not very long until this information was brought to the 
 Rothschilds' bank, and they saw that here was a nation that was ready 
 to be exploited; here was a nation that had been setting up an exam- 
 ple that they could issue their own money in place of the money com- 
 ing through the banks. So the Rothschild Bank caused a bill to be 
 introduced in the English Parliament which provided that no colony 
 of England could issue their own money. They had to use English 
 money. Consequently the Colonies were compelled to discard their 
 scrip and mortgage themselves to the Bank of England in order to get 
 money. For the first time in the history of the United States our 
 money began to be based on debt. 
 
 Benjamin Franklin stated that in 1 year from that date the streets 
 of the Colonies were filled with the unemployed, because when Eng- 
 land exchanged with them, she gave the Colonies only half as many 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 99 
 
 units of payment in borrowed money from the Rothschild Bank as 
 they had in scrip. In other words, their circulating medium was 
 reduced 50 percent, and everyone became unemployed. The poor- 
 houses became rilled, according to Benjamin Franklin's own statement. 
 
 Mr. Franklin went further than that. He said that this was the 
 original cause of the Revolutionary War. In his own language: 
 
 The Colonies would gladly have borne the little tax on tea and other matters 
 had it not been that England took away from the Colonies their money, which 
 created unemployment and dissatisfaction. 
 
 (As narrated by Hon. C. G. Binderup in a speech on the floor of the 
 House of Representatives, 75th Cong.) 
 
 Permit me to issue and control the money of a nation, and I care not who makes 
 its laws * * * (Mayer Anselm Rothschild, 1790). 
 
 John Adams wrote to Thomas Jefferson in 1787: 
 
 All the perplexities, confusion, and distress in America arise, not from defects 
 in the Constitution or confederation, not from want of honor or virtue, so much 
 as from downright ignorance of the nature of coin, credit, and circulation. 
 
 Thomas Jefferson said: 
 
 I believe that banking institutions are more dangerous to our liberties than 
 standing armies. Already they have raised up a monied aristocracy that has set 
 the Government at defiance. The issuing power should be taken from the banks 
 and restored to the people to whom it properly belongs. 
 
 Ricardo says; 
 
 That commodities rise or fall in proportion to the increase or diminution of 
 money I assume as a fact that is incontrovertible. 
 
 Andrew Jackson said: 
 
 If Congress has the right under the Constitution to issue paper money, it was 
 given them to be used by themselves, not to be delegated to individuals or to 
 corporations. 
 
 Adam Smith, called the father of political economy, said: 
 
 Money measures things and things measure money. Each measures the oilier 
 by and according to its own abundance, by comparison. If you double the volume 
 of money in circulation, you double the price of everything. By doubling the price 
 you divide the debt because it takes only half as much labor or the products of 
 labor to pay the same debt. If you divide the amount of money in circulation, 
 you divide the price of everything. By dividing the price of everything, you 
 double your debts, for it will take twice as much labor or the products of labor to 
 pay the same debt. 
 
 John Stuart Mill tells us: 
 
 That an increase of the quantity of money raises prices and a diminution lowers 
 them, is the most elementary proposition in the theory of currency, and without 
 it we should have no key to any of the others. 
 
 The few who can understand the system (check money and credits) will either 
 be so interested in its profits, or so dependent on its favors, that there will be no 
 opposition from that class, while on the other hand, the great body of the people 
 mentally incapable of comprehending the tremendous advantage that capital 
 derives from the system, will bear its burdens without complaint, and perhaps 
 without even suspecting that the system is inimical to their interests. (From a 
 letter written by the Rothschild Bros, of London, England, to a New York firm 
 of bankers, June 25, 1863.) 
 
 From a letter written by the Rothschild Bros, of London, England, 
 to a New York firm of bankers, June 25, 1863: 
 
 The few who can understand the system (check money and credits) will cither 
 be so interested in its profits, or so dependent on its favors, that there will be 
 no opposition from that class, while on the other hand, the great body of the 
 
100 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 people mentally incapable of comprehending the tremendous advantage that 
 capital derives from the system, will bear its burdens without complaint, and 
 perhaps without even suspecting that the system is inimical to their interests. 
 
 Salmon P. Chase, Secretary of the Treasury, 1861-64, Chief 
 Justice, United States Supreme Court, 1864-73, said: 
 
 My agency in promoting the passage of the National Bank Act was the greatest 
 financial mistake of my life. It has built up a monopoly which affects every 
 interes! in the country. It should be repealed; but before that can be accom- 
 plished, the people will be arrayed on one side and the banks on the other, in a 
 contest such as we have never seen before in this country. 
 
 In 1872 Horace Greeley wrote his opinion of the National Banking 
 Act. in part as follows: 
 
 While boasting of our noble deeds, we are careful to conceal the ugly fact that 
 by our iniquitous money system we have nationalized a system of oppression, 
 which, though more refined, is not less cruel than the old system of chattel 
 slavery. 
 
 James G. Blaine, former candidate for the Presidency who, on the 
 floor of the House on February 10, 1876, said: 
 
 * * * the money question should be approached in no spirit of partisan 
 bitterness * * *. Firmly attached to one political party myself, firmly 
 believing that parties in free government are as healthful as they are inevitable, 
 T still think there are questions about which parties should agree never to dis- 
 agree, and of these are the essential nature and value of the circulating medium. 
 
 James A. Garfield stated: 
 
 Whoever controls the volume of money in any country is absolute master of 
 all industry and commerce. 
 
 Benjamin Harrison said: 
 
 Tf there is one measure better calculated than another to produce that state 
 of things when the rich are getting richer and the poor are daily getting poorer 
 it is a metallic currency. 
 
 Woodrow Wilson, 1916, said: 
 
 A great industrial nation is controlled by its system of credit. Our system of 
 credit is concentrated. The growth of the Nation, therefore, and all our activities 
 are in the hands of a few men * * *. We have come to be one of the worst 
 ruled, one of the most completely controlled and dominated Governments in the 
 civilized world — no longer a Government by free opinion, no longer a Government 
 by conviction and the vote of the majority, but a Government by the opinion and 
 duress of small groups of dominant men. 
 
 President Wilson, in advocating the Federal Reserve Act, said: 
 
 We must have a currency, not rigid as now, but really elastic, responsive to 
 sound credit, the expanding and controlling credit of everyday transactions, the 
 normal ebb and flow of personal and corporate dealings. Our banking laws must 
 mobilize reserves; must not permit the contraction anywhere in a few hands of the 
 monetary resources of the country or their use for speculative purposes in such 
 volume as to hinder or impede or stand in the way of other legitimate more fruitful 
 uses. And the control of the system of banking and of issues which our new law 
 is to set up must be public, not private, must be vested in the government itself 
 so that banks may be instruments, not masters, of business and of the individual 
 enterprise and initiative. 
 
 The late Hon. Charles A. Lindbergh, Sr., in his book "The Eco- 
 nomic Pinch", page 95, writing of the panic of 1920, said: 
 
 Under the Federal Reserve Act panics are scientifically created; the present 
 panic is the first scientifically created one, worked out as we figure a mathematical 
 problem. 
 
 Thomas Edison said: 
 
 The only dynamite that works in this country is the dynamite of a sound idea. 
 I think we are getting a sound idea on the money question. The people have an 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 1Q1 
 
 instinct which tells them that something is wrong and that the wrong somehow 
 centers in money. 
 
 Don't allow them to confuse you with the cry of "paper money." The danger of 
 paper money is precisely the danger of gold — if you get too much it is no good. 
 There is just one rule for money and that is to have enough to carry all the legiti- 
 mate trade that is waiting to move. Too little and too much are both bad. But 
 enough to move trade, enough to prevent stagnation on the one hand, not enough 
 to permit speculation on the other hand, is the proper ratio. 
 
 If our Nation can issue a dollar bond it can issue a dollar bill. The clement 
 that makes the bond good makes the bill good also. The difference between the 
 bond and the bill is that the bond lets money brokers collect twice the amount of 
 the bond and an additional 20 percent interest, whereas the currency pays nobody 
 but those who contribute directly in some useful way. 
 
 It is absurd to say that our country can issue $30,000,000 in bonds and not 
 S30,000,000 in currency. Both are promises to pay; but one promise fatters the 
 usurer and the other helps the people. 
 
 It is the people who constitute the ba,sis of government credit. Why then can- 
 not the people have the benefit of their own gilt-edge credit by receiving non- 
 interest-bearing currency — instead of bankers receiving the benefit of the people's 
 credit in interest-bearing bonds? Tf the United States Government will adopt 
 this policy of increasing it^ national wealth without contributing to the interest 
 collector— for the whole national debt is made up of interest charges — then you 
 will see an era of progress and prosperity in this country such as could never have 
 come otherwise. 
 
 Henry Ford said: 
 
 The function of mone} 7 is not to make money but to move goods. Money is 
 only one part of our transportation system. It moves goods from man to man. 
 A dollar bill is like a postage stamp; it is no good unless it will move commodities 
 between persons. If a postage stamp will not carry a letter, or money will not 
 move goods, it is just the same as an engine that will not run. Someone will have 
 to get out and fix it. 
 
 In May 1928, 100 prominent British leaders connected with the 
 productive industries sent to Prime Minister Baldwin the following 
 statement: 
 
 We believe that a more stable system of currency credit and a means of sta- 
 bilizing the price level are prerequisite to the restoration of prosperity of the great 
 basis industries of this country. It would do far more than the expedients which 
 the Government has been compelled to adopt. (New York Times, May 27, 
 p. 20, column 3.) 
 
 Mr. F. W. Pethick-Lawrence, in 1929-31 financial secretary to the 
 British Treasury, stated: 
 
 I am convinced * * * that unemployment as it exists today is not an 
 economic but a monetary phenomenon; a stabilized price level with neither 
 inflation nor deflation is the only workable solution. 
 
 Frank A. Vanderlip, former Assistant Secretary of the Treasury, 
 in February 1935, said: 
 
 We have already tried borrowing and spending our way to recovery. We have 
 made numberless hopeful and well-meant experiments, aimed to bring us out of 
 the depression. Thus far we have not emerged, nor will we — until the fatal de- 
 fects of our money system have been corrected. To those defects, more than to 
 any other cause, I attribute the depression. 
 
 What is it we want of our currency? We want money in which we will have 
 unshaken confidence; confidence that it will be stable in its value. We want a 
 dollar that will, in the language of the President, "not change its purchasing and 
 debt-paying power during the succeeding generation." 
 
 And again: 
 
 Congress should fix a permanent standard of value, not a permanent gold 
 weight, for the dollar; so that the dollar shall always buy the same gross section 
 of commodities measured by the price index. 
 
 Then Congress should create an executive authority to carry out its intention. 
 Tt should provide a mechanism for the management of our currency. 
 
102 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 On October 22, 1933, President Roosevelt said to the people of the 
 United States: 
 
 When we have restored the price level, we shall seek to establish and maintain 
 a dollar which will not change its purchasing and debt-paying power during the 
 succeeding generation. I have said that in my message to the American dele- 
 gation last July, and I say it now once more. (The Public Papers and Addresses 
 of Franklin D. Roosevelt, vol. 2, p. 426.) 
 
 Marriner Eccles, chairman of the Board of the Federal Reserve 
 System, said in Collier's on June 8, 1935: 
 
 The banks can create and destroy money. Bank credit is money. It is the 
 money we do most of our business with, not with that currency which we usually 
 think of as money. 
 
 Maj. L. L. B. Angas, "Slump Ahead in Bonds": 
 
 The modern banking system manufactures "money" out of nothing; and the 
 process is perhaps the most astounding piece of "sleight of hand" that was ever 
 invented. Banks in fact are able to create (and cancel) modern "deposit money." 
 They can in fact inflate and deflate, mint and unmint, the modern "ledger-entry" 
 currency. 
 
 Robert H. Hemphill, former credit manager of the Federal Reserve 
 Bank of Atlanta: 
 
 If all bank loans were paid, no one would have a bank deposit, and there would 
 not be a dollar of currency or coin in circulation. This is a staggering thought. 
 We are completely dependent on the commercial banks. Someone has to borrow 
 every dollar we have in circulation, cash or credit. If the banks create ample 
 synthetic money, we are prosperous: if not, we starve. We are absolutely without 
 a permanent monetary system. When one gets a complete grasp upon the 
 picture, the tragic absurdity of our hopeless position is almost incredible — but 
 there it is. It (the banking problem) is the most important subject intelligent 
 persons can investigate and reflect upon. It is so important that our present 
 civilization may collapse unless it is widely understood and the defects remedied 
 very soon. 
 
 Ralph M. Hawtrey, assistant secretary of the British Treasury: 
 
 Banks lend by creating credit. They create the means of payment out of 
 nothing. 
 
 Irving Fisher, Professor Emeritus of Economics at Yale, says — 
 
 When a bank lends or invests, it extends credit, i. e., creates check-book money. 
 When it gets loans paid or sells investments, it contracts credit, i. e., destroys 
 check-book money. In normal times such creation and destruction of money 
 roughly balance. But when they do not balance the Nation's money is inflated 
 or deflated and causes a boom or a depression. 
 
 Sumner H. Slichter, Professor of Business Economics at Harvard, 
 says in his Modern Economic Society: 
 
 When banks grant credit by creating or adding to deposits subject to check * * * 
 new dollars are created. It is true that the new dollars are not stamped out of 
 gold; they are credit dollars and they are created by the stroke of the pen rather 
 than by dies and the stamping machines, but their purchasing power is not less 
 than that of the dollars coined at the Government mint. In other words, the 
 principal way in which dollars are created in modern economic society is by 
 borrowing. This means that the number of dollars in existence in any particular 
 time depends upon the willingness and ability of banks to lend. The volume of 
 purchasing power fluctuates with men's state of mind; the growth of pessimism 
 may suddenly throw millions of men out of work, or the growth of confidence 
 may create thousands of jobs overnight. 
 
 Viscount D'Abernon, formerly a prominent banker and after the 
 war the British Ambassador to Germany, states: 
 
 It is too much the custom to act as though prices were born and not made — 
 as though they were sent down by Providence independently of human action, 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM ] ()3 
 
 and as if they had to be accepted like the gentle rain from heaven. Such a view 
 is, in jny judgment, a profound mistake. The price level is determined in the 
 main by human action and by wise or unwise decisions. A stable price level is 
 an achievement of intelligence and not an accident of nature. 
 
 Lord Vernon, a prominent leader of the coal industry, states: 
 
 1. Movements to change wages and hours of labor up or down are the main 
 cause of industrial strife. 
 
 2. These movements are largely due to changes in the value of money, which 
 is expressed by the average level of prices. 
 
 3. Changes in the value of money further aggravate the trouble by opening 
 out a gap between wholesale prices and the cost of living. 
 
 4. For these reasons it is urgently necessary that the value of money should 
 be stabilized in the interests of industrial peace. 
 
 Sir Reginald McKenna, chairman of the board, London City Mid- 
 land, largest in the world, said: 
 
 History has shown that, apart perhaps from wars and religious intolerance, no 
 single factor has been more productive of misery and misfortune than the high 
 degree of variability in the general price level. This may sound like an extrava- 
 gant statement, but so far from bemg of the nature of a demogogic outburst it is 
 clearly demonstrable from the course of events in various countries ever since 
 money became an important element in the life of civilized communities. A 
 stable price level is a thing to be desired, second only to international and do- 
 mestic peace. 
 
 And again in the Midland Bank Monthly after the sterling pound 
 had been taken off gold, he says in part: 
 
 In the past 4 years the progress of ideas has been rapid. This is evident to 
 any reader of speeches on monetary policy delivered 10 years ago and today by 
 members of the governments in office. The maintenance or restoration of any 
 particular gold value for sterling — or, if the expression be preferred, of any par- 
 ticular sterling price of gold — is no longer regarded by both Government and 
 central bank as the dominant objective of monetary policy. In fact, the gold 
 value of sterling has dwindled by 40 percent — neither the Government nor the 
 bank does anything about it, and no one is in the slightest degree disturbed, 
 since the pound buys just as much goods and services as in 1931. 
 
 Every bank loan creates a deposit, and the repayment of that loan destroys 
 the deposit. Every bank purchase of securities creates a deposit, and the sale 
 of securities destroys the deposit. — (Reginald McKenna, chairman of the board, 
 London City Midland.) 
 
 * * * a State issued paper money of full face value, guaranteed by a fully 
 covered redemption fund composed of securities, issued automatically, retired 
 automatically, self-regulating, never redundant, never deficient, neutral in its 
 effect on prices but rising equal to any strain upon it; guaranteed against debase- 
 ment by the State which issues it,, and incapable of debasement by the community 
 which purchases and uses it. — (Description of an ideal paper money by Dr. Wil- 
 liam A. Shaw in his well-known work entitled "The Theory and~ Principles of 
 Central Banking.") 
 
 Never was a people so readily deceived nor so easily subdued as the British 
 public of the present period. All one has to do is to raise the cry "inflation," and 
 straightway all classes turn aside from the only road leading to safetv, plenty, 
 peace, and happiness. — (Arthur Kitson in The Bankers' Conspiracy.) 
 
 When it is remembered that kings and governments have, throughout the 
 ages, insisted with jealous care on their prerogative of issuing money and control- 
 ling currency within their jurisdiction, it is somewhat strange to find modern 
 states accepting as axiomatic, a limitation of their sovereignty in the sphere of 
 money, so far-reaching in its effects on their own powers and on the daily lives of 
 their citizens, as is involved in their agreeing to conform in all circumstances to a 
 standard of value over which they have no control. — (Planned Money, bv Sir 
 Basil Blackett.) 
 
 Money is a social instrument and morally belongs to the people. 
 Money is merely a title to wealth. 
 
 It is redeemed every time it is accepted by the public for goods and services and 
 needs no gold redemption. — (Arthur Kitson.) 
 
104 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 The youth who can solve the money question will do more for the world than 
 all the professional soldiers of history. — (Henry Ford, My Philosophy of Life.) 
 
 * * * the cheque alone is manufactured by the bankers without any limit 
 or restriction by law. By this interesting development the manufacture of cur- 
 rency, which for centuries has been in the hands of Governments has passed, in 
 regard to a very important part of it, into the hands of companies for the con- 
 venience of their customers and the profits of their shareholders. — (Hartley 
 Withers, Esq., Business of Finance.) 
 
 Banks create credit. It is a mistake to suppose that bank credit is created to 
 any important extent by the payment of money in the banks. — (Encyclopedia 
 Britannica.) 
 
 Now, curious as it may seem at first glance, it is substantially correct to say the 
 banks have the power to create money. — (Francis Williams, Esq., (Daily Herald) 
 Democracy and France.) 
 
 People often talk of money going abroad or of foreign money coming here, but 
 as a fact when gold is not in use money is incapable of migration. The title to 
 the money may change * * * but the change of ownership does not remove 
 the money, which necessarily remains and can only be expended where it was 
 created. No exchange transaction, no purchase or sale of securities, no import of 
 foreign goods or export of ®ur own can take money out of the country or bring it 
 here. Bank loans and their repayment, bank purchases and sales are in substance 
 the sole cause of variation in the amount of our money. — (Rt. Hon. Reginald 
 McKenna.) 
 
 The difference between actual production and possible production represents 
 the cost to the people of the United States of maintaining present financial 
 institutions. 
 
 It should, by now, be quite apparent that any restriction of production results 
 in an impoverishment of society — so long as the need for the restricted goods is 
 not universally satisfied. 
 
 A flow of buying power must be released which will be capable of commanding 
 the flow of desired goods and services. The limit should be set only by our 
 resources, manpower, equipment, and technology. 
 
 If production were released, the present conflict between labor and capital 
 would seem to be automatically resolved. In order to distribute the goods and 
 services listed in the Budget, workers would have to be paid the most possible in 
 contradistinction to present practice, which compels employers to pay in most 
 cases the least possible. 
 
 At present the United States habitually exports more than it imports. We 
 have become a creditor nation. Such a condition compels either a reduction of 
 our exports, a repudiation by foreign countries of their debts, or both. And both 
 are occurring. 
 
 Keeping in mind that wealth is made up of real things in the physical world and 
 is not a mere bookkeeping transaction, it becomes apparent that the period from 
 1923 to 1929, instead of being a time of extravagance, represented in fact an orgy 
 of saving. 
 
 Those who regret the older days with their half-solved problems often fail to 
 realize that there can be no going back * * *. Either man must adjust 
 himself to modern technology or he must prepare for chaos and destruction. — 
 (The Chart of Plenty, by Harold Loeb.) 
 
 Extracts From the Address of the Rt. Hon. Reginald McKenna, Chairman 
 op the Midland Bank, January 26, 1938, as Given in the London 
 Economist, January 29, 1938 
 
 My lords, ladies, and gentlemen: The year 1937 opened with a good prospect 
 of sustained business improvement. The industrial outlook was so promising , 
 indeed, that fears were expressed of a coming boom. There were signs of growing 
 speculations on the stock exchange and in raw materials; some commodities, 
 particularly metals, had made a disturbing jump. Speculation, however, was 
 speedily checked by a reduction in the quantity of money and a decline in prices 
 followed. The decline went so far as to causr^ some anxiety, and, although the 
 quantity of money was later restored, the closing months of the year that had 
 opened buoyantly were marked by a more subdued outlook. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 105 
 
 DEPRESSING AMERICAN INFLUENCES 
 
 Meanwhile depressing influences had been at work in the United States. In 
 April, President Roosevelt declared that some prices, particularly of the nonferrous 
 metals, were too high. At the same time the gold scare based largely on unjusti- 
 fied inferences from that statement, gave rise to fears of a restrictive monetary 
 policy and precipitated a general decline in stock-exchange quotations and 
 primary commodity prices. But what might have been no more than a temporary 
 break developed in the United States into a real business recession. The con- 
 fidence of industrialists, already disturbed by the policy of the Government, 
 became seriously shaken, and capital construction was arrested. Happily, no 
 similar obstacle to business enterprise is present in Great Britian, and there is no 
 indication here that the drop in stock-exchange quotations and commodity 
 prices will lead to a comparable decline in general trade. 
 
 It is natural that a setback first in prices and then in trade should be taken to 
 confirm the fears of people who are dubious about both the theory and practice of a 
 managed currency. Management has meant cheap and abundant money, and in 
 their view long-continued cheap money must lead to overexpansion of industry 
 and trade, which has its inevitable reaction in a slump. The alleged benefits of 
 cheap money, they tell us, have been exaggerated, while the danger of inflation 
 is always present. Now they see that a fall in prices and a drop in employment 
 have taken place while money is still cheap, and they regard this as definite con- 
 demnation of a managed currency. 
 
 * * * * * * 
 
 * * * Much had to be learnt and is being learnt, but, however difficult it 
 may be to put on one side the ideas to which long usage of the gold standard has 
 accustomed us, we find in practice that the system is working smoothly. In the 
 light of our present knowledge a managed currency can no longer be regarded as 
 a mere temporary makeshift while the gold standard is in abeyance. 
 
 ******* 
 
 * * * It will be remembered that the gold standard, having been suspended 
 on the outbreak of war, was brought into operation again in April 1925. It was 
 maintained for over 6 years until September 1931, when once again it was sus- 
 pended. For the first time we then set about controlling our currency without 
 any active effort to restore the gold standard. We started a true experiment in 
 management, and the experiment has now lasted for a period almost precisely as 
 long as the restored gold standard was in operation, that is for rather over 6 
 years from September 1931 to the present time. In answering the question, then, 
 how have we fared, we can compare our economic condition during two equal 
 periods, one on gold and the other under management. 
 
 ******* 
 
 * * * When the demands upon the Exchequer are as heavy as they are 
 today, both for national defence and social services, I cannot imagine any Chan- 
 cellor of the Exchequer closing his eyes to the immense economy in the service of 
 the debt that has been made as a result of monetary policy. 
 
 The relative degree of cheapness and abundance of money in the two periods 
 is indicated by a comparison of the Bank rate and the quantity of bank deposits. 
 From 1925 to 1931 the average Bank rate was approximately 4% G percent. On 
 the abandonment of the gold standard the rate was raised to 6 percent as a pre- 
 cautionary measure which was soon found to be unnecessary. It was lowered by 
 stages until at the end of June 1932 it stood at 2 percent, where it has remained 
 ever since. There were no less than 16 changes of Bank rate in the first period of 
 6 years, all of them consequent upon the obligation imposed on the Bank of Eng- 
 land to protect its meagre gold stock. The subsequent stability at 2 percent has 
 lasted over 5H years. No previous period of stability of so long duration can be 
 found in the last hundred years, a fact which suggests that the frequent descrip- 
 tion of present money rates as abnormal is hardly justified. It is difficult to draw 
 a line between the normal and the abnormal, but a rate which is now in its sixth 
 year and shows no likelihood of variation in the early future might perhaps put 
 in a claim to being no more abnormal than any other. The effect of freedom from 
 the restrictions imposed by the gold standard is no less apparent in the quantity 
 of money than in the rate paid for its use. Bank deposits, which were about 
 £1,800,000,000 on the average for 1931, rose to near £2,300,000,000 in 1937. 
 
106 
 
 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 TRADE AND EMPLOYMENT 
 
 The increase in purchasing power shown by this growth of deposits has been 
 as beneficial to industry and trade as to the Treasury. If we resume our com- 
 parison and consider our condition at the beginning and end of each of the 6-vear 
 periods, the conclusion is inescapable that, wiiatever other forces may have been 
 in operation, a managed currency is at least consistent with flourishing trade. 
 Let us look first at weekly wage rates, taking rates in 1924 as the basic figure of 
 100. In 1925 the corresponding figure was 102; by 1931 it had fallen below 97; 
 but by last year it had risen again above 103. Taking the same year as the basis, 
 profits, according to Sir Josiah Stamp's calculation, stood at 104 in 1925, dropped 
 to 77 in 1931, but rose again to 120 in 1936, the last year for which this index is 
 available. The figures of industrial production repeat the same story in another 
 form — a decline over the first 6 years and a rise in the second by perhaps 50 
 percent. Thus it is evident that, while business was on balance dropping away in 
 the earlier period, it was steadily improving in the later. 
 
 Wages and profits are a measure of the incomes of the mass of the population. 
 Production measures the degree in which our industrial capacity is being used; 
 it governs the total of employment and unemployment, the returns for which 
 make perhaps a more striking comparison than any others. Between 1925 and 
 1931 the total of our insured workers rose by 1,200,000, but the employed fell by 
 200,000 and the unemployed rose in consequence by 1,400,000. This was how 
 we stood at the end of the first 6-year period. In the second the insured workers 
 increased by a further 800,000, but the number of those employed grew by as 
 much as 2, 100,000, thus reducing the unemployed by well over a million. What 
 a contrast! a decline in employment of 200,000 in the first period; an increase 
 of 2,100,000 in the second. No figures could be more convincing; no figures could 
 exemplify more clearly the change in our economic condition in the two periods. 
 We have still some way to go before we shall be utilizing our full productive 
 capacity, but the experience of the past 6 years indicates that in currency and 
 credit policy we have not been led astray in using the opportunities for intelligent 
 management which the departure from gold presented. I have not suggested, 
 and I would not for a moment do so, that the pronounced improvement in our 
 position as between the two periods is due solely to the change in the monetary 
 system. But I do suggest that there is nothing in our present condition to indi- 
 cate that the change has been other than for the better or that it is fraught with, 
 unknown perils in the future. 
 
 Noted Members of the Stable Money Association 
 
 John E. Aldred, John E. Aldred & Co. 
 
 B. H. Beckhart, Columbia University. 
 
 Luther L. Blake, president, Standard Statistics Co., Inc. 
 
 Francis H. Brownell, vice president, American Smelting & Refining Co. 
 
 Stuart Chase, director, Labor Bureau, Inc. 
 
 Lawrence Chamberlain, trustee, American Institute of Banking. 
 John R. Commons, University of Wisconsin. 
 Lionel D. Edie, University of Chicago. 
 
 Jeremiah W. Jenks, president, Alexander Hamilton Institute. 
 
 Edwin W. Kemmerer, Princeton University. 
 
 Fred I. Kent, director, Bankers Trust Co., New York. 
 
 E. W. Kopf, Metropolitan Life Insurance Co. 
 
 W. I. King, New York University. 
 
 Harry W. Laidler, director, League for Industrial Democracy. 
 
 Arthur W. Loasby, president, Equitable Trust Co., New York. 
 
 Wesley Clair Mitchell, National Bureau of Economic Research. 
 
 John Moodv, president, Moody's Investors Service. 
 
 Warren M. Persons, economist, Goldman Sachs Trading Corporati >n. 
 
 William Cooper Procter, president, Procter & Gamble Co. 
 
 John E. Robenskv, vice chairman, Bank of America, New York. 
 
 Jules S. Bache, J. S. Bache & Co. 
 
 Luther L. Blake, Standard Statistics Co. 
 
 Percy M Chandler, Chandler & Co., Inc. 
 
NATIONAL ECONOMY AND THE BANKING SYSTEM 1Q7 
 
 Pierre S. du Pont, du Pont de Nemours & Co. 
 George Eastman, Eastman Kodak Co. 
 Michael Friedsam, Altman Foundation. 
 
 Simon Guggenheim, former United States Senator from Colorado. 
 
 Clarence H. Kelsey, banker. 
 
 Clarence H. Mackay, the Mackay Cos. 
 
 Edward E. MacCroYie, E. E. MacCronc & Co. 
 
 Samuel Mather, Pickands, Mather & Co. 
 
 George Depont Pratt, treasurer, National Council Boy Scouts of America. 
 James H. Rand, Jr., Remington-Rand. 
 John J. Raskob. 
 
 Alvan T. Simonds, Simonds Saw & Steel Co. 
 Alfred P. Sloan, General Motors. 
 Silas H. Strawn, Winston, Strawn & Shaw. 
 James Speyer, Speyer & Co. 
 
 Simon W. Straus, president, Straus National Bank & Trust Co., New York. 
 
 John G. Winant, former governor, New Hampshire. 
 
 John Hays Hammond, mining engineer. 
 
 David Starr Jordan, educator, author, naturalist. 
 
 Thomas I. Parkingson, president, American Association for Labor Legislation. 
 
 B. W. Kilgore, chairman, American Cotton Growers Exchange. 
 Charles H. Judd, chairman, American Council on Education. 
 
 H. E. Erdman, president, American Farm Economic Association. 
 
 E. B. Wilson, president, American Statistical Association. 
 
 A. E. Whitney, president, Brotherhood of Railroad Trainmen. 
 
 C. E. Huff, president, Farmers' Educational and Cooperative Union of America. 
 Edward J. Volz, president, International Photo-Engravers' Union. 
 
 E. D. Schumacher, president, Mortgage Bankers Association of America. 
 Frank D. Rock, president, National Association of Credit Men. 
 
 Milton W. Harrison, president, National Association of Owners of Railroad and 
 
 Public Utility Securities. 
 John R. Commons, president, National Consumers' League. 
 Uel W. Lamkin, president, National Education Association of the United States. 
 William C. Redfield, president, National Institute of Social Sciences. 
 Walter F. McDowell, president, United States League of Local Building and 
 
 Loan Associations. 
 Will F. Morrish, president, California Bankers Association. 
 W. R. Armstrong, president, Colorado Bankers Association. 
 George F. Kane, president, Connecticut Bankers Association. 
 Robert V. Fleming, president, District of Columbia Bankers Association. 
 Gordon L. Groover, president, Georgia Bankers Association. 
 T. J. Hetland, president, Idaho Bankers Association. 
 
 F. C. Dorsey, president, Kentucky Bankers Association. 
 W. P. O'Nela, president, Louisiana Bankers Association. 
 Heyward E. Boyce, president, Maryland Bankers Association. 
 W. L. Dunham, president, Michigan Bankers Association. 
 
 A. A. Speer, president, Missouri Bankers Association. 
 
 R. O. Kaufman, president, Montana Bankers Association. 
 
 William J. Couse, president, New Jersey Bankers Association. 
 
 Michael H. Cahill, president, New York State Bankers Association. 
 
 Philip A. Benson, president, Savings Bank Association of the State of New York 
 
 John F. Daly, president, Oregon Bankers Association. 
 
 C. J. Kirschner, president, Pennsylvania Bankers Association. 
 
 F. F. Beattie, president, South Carolina Bankers Association. 
 W. A. Williams, president, Texas Bankers Association. 
 
 G. H. Boyce, president, Vermont Bankers Association. 
 E. S. Shields, president, Virginia Bankers Association. 
 
 W. T. Triplett, president, Washington Bankers Association. 
 O. Jay Fleming, president, West Virginia Bankers Association. 
 M. E. Baumberger, president, Wisconsin Bankers Association. 
 Willis H. Booth, president, Merchants' Association of New York. 
 
 123338—39 8 
 
108 NATIONAL ECONOMY AND THE BANKING SYSTEM 
 
 COURT DECISIONS ON MONEY 
 
 The following is a list of decisions relating to the powers of Congress 
 over the issuance and regulation of the money of the United States (see 
 Annotated Constitution of the U. S.): 
 
 Griswold v. Hepburn, 63 Ky. 20 (18G5). 
 
 Legal Tender Cases, 12 Wall. 457, 545 (1871). 
 
 United States v. Marigold, 9 How. 500, 568 (1850). 
 
 Briscoe v. Bank of Kentucky, 11 Pet. 257 (1837). 
 
 Houston v. Moore, 5 Wheat. 1, 49 (1820). 
 
 Sturges v. Crowninshield, 4 Wheat. 122, 193 (1819). 
 
 Nortz v. United States, 294 U. S. 317, 328 (1935). 
 
 Civil Rights Cases, 109 U. S. 3, 18 (1883). 
 
 Baender v. Barnett, 255 U. S. 224 (1921). 
 
 Ling Su Fan v. United States, 218 U. S. 302 (1910). 
 
 Norman v. Baltimore & O. R. Co., 294 U. S. 240 (1935). 
 
 Perry v. United Slates, 294 U. S. 330 (1935). 
 
 McCulloch v. Maryland, 4 Wheat. 316, 404 (1819). 
 
 Juilliard v. Greenman, 110 U. S. 421, 438, 449 (1884). 
 
 Veazie Bank v. Fenno, 8 Wall. 533, 548 (1869). 
 
 Merchants Nat. Bank v. United States, 101, U. S. 1 (1880). 
 
 Osborn v. Bank, 9 Wheat. 738 (1824). 
 
 Bank of United States v. Bank of Georgia, 10 Wheat. 333 (1825^. 
 Ward v. Smith, 7 Wall. 447 (1869). 
 
 Farmers' & M. Nat. Bank v. Bearing, 91 U. S. 29, 33 (1875). 
 Legal Tender Case, 110 U. S. 445 (1884). 
 Dooley v. Smith, 13 Wall. 604 (1872). 
 
 Norwich & W. Railroad Co. v. Johnson, 15 Wall. 195 (1873). 
 Morrow v. Henneford, 182 Wash. 625 (1935). 
 Ogden v. Saunders, 12 Wheat, 213, 265 (1827). 
 
 TESTIMONY OF ROBERT L. OWEN BEFORE COMMITTEES OF THE HOUSE 
 
 AND SENATE 1 
 
 Goldsborough bill, H. R. 10517, Seventy-second Congress, first 
 session. 
 
 Gold Reserve Act of 1934, S. 2366, Seventy-third Congress, second 
 session. 
 
 Banking Act of 1935, H. R. 5357, Seventy-fourth Congress, first 
 session. 
 
 Goldsborough bill, H. R. 9216, Seventy-fourth Congress, second 
 session. 
 
 Hearings before the Committee on Agriculture and Forestry, 
 United States Senate, Seventy-fifth Congress, first session, on farm 
 commodity prices. 
 
 Thomas bill, S. 1990, Seventy-fifth Congress, first session. 
 
 Patman bill, H. R. 7230, Seventy-fifth Congress, third session. 
 
 i Mr. Owen is also the author of Sound. Safe, Sane Money, published in March 1933; and Stabilized Dol- 
 lars—Permanent Prosperity, published in January 1937. Both are now out of print. 
 
 O