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The Federal Reserve System, Its Purpose and Work

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The Federal Reserve System, Its Purpose and Work THE FEDERAL RESERVE SYSTEM—ITS PURPOSE AND WORK ®fje ^rotate V o lu m e XCIX J a n u a ry , 1922 Editor: CLYDE L. KING Assistant Editor: J. H. WILLITS Editorial Council: THOMAS CONWAY, Jr., C. H. CRENNAN, A. A. GIESECKE, A. R. HATTON, AMOS S. HERSHEY, E. M. HOPKINS, S. S. HUEBNER, CARL KELSEY, J. P. LICH- TENBERGER, ROSWELL C. McCREA, E . M. PATTERSON, L. S. ROWE, HENRY SUZZALO, T. W. VAN METRE, F. D. WATSON Editors in Charge of this Volume A. D. WELTON C. H. CRENNAN T h e American A cademy o f P olitical and S ocial Science 1 39th Street and W oodland Avenue P hiladelphia 1922 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Copyright, 1922, by T h e Am erican A cademy of P olitical an d Social S cience All rights reserved EUROPEAN AGENTS ENGLAND: P. S. King & Son, Ltd., 2 Great Smith Street, Westminster, London, S. W. FRANCE: L. Larose, Rue Soufflot, 22, Paris. GERMANY: Mayer & Muller, 2 Prinz Louis Ferdinandstrasse, Berlin, N. W. ITALY: Giornale Degli Economisti, via Monte Savello, Palazzo Orsini, Rome. SPAIN: E. Dossat, 9 Plaza de Santa Ana, Madrid Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis CONTENTS PAGE CONTRIBUTORS TO THIS VOLUME................................................................................... v FOREWORD—THE INTEGRITY OP THE FEDERAL RESERVE SYSTEM............... ix A. D. Welton and C. H. Crennan, Editors-in-Charge PART 1—BEFORE THE RESERVE ACT OUTLINE OF BANKING HISTORY FROM THE FIRST BANK OF THE UNITED STATES THROUGH THE PANIC OF 1907............................................................... 1 B. H. Beckhart, Columbia University THE STUDIES OF THE NATIONAL MONETARY COMMISSION............................... 17 N. A. Weston, University of Illinois THE NATIONAL CITIZENS’ LEAGUE: A MOVEMENT FOR A SOUND BANKING SYSTEM.............................................................................................................................. 26 Harry A. Wheeler, Vice-President, Union Trust Company of Chicago THE EDUCATIONAL CAMPAIGN FOR BANKING REFORM...................................... 29 A. D. Welton, Continental and Commercial National Bank of Chicago THE FEDERAL RESERVE ACT IN CONGRESS............................................................... 36 H. Parker Willis, Columbia University THE ALDRICH-VREELAND EMERGENCY CURRENCY.............................................. 49 Homer Joseph Dodge, Editor, The Federal Trade Information Service PART II—THE PURPOSES OF THE FEDERAL RESERVE ACT THE RESERVE ACT IN ITS IMPLICIT MEANING........................................................ 56 A. D. Welton, Continental and Commercial National Bank of Chicago THE PURPOSES OF THE FEDERAL RESERVE ACT AS SHOWN BY ITS EXPLICIT PROVISIONS....................................................................................................................... 62 E. W. Kemmerer, Princeton University PART III—OPERATION OF THE SYSTEM POLITICAL PRESSURE AND THE FUTURE OF THE FEDERAL RESERVE SYSTEM 70 Paul M. Warburg, Member of the Federal Reserve Board, 1914-1918 EARLY FUNCTIONING OF THE FEDERAL RESERVE SYSTEM............................... 74 Arthur Reynolds, President, Continental and Commercial National Bank of Chicago THE FEDERAL RESERVE SYSTEM, STATE BANKS AND PAR COLLECTIONS.. 79 Pierre Jay, Chairman and Federal Reserve Agent, Federal Reserve Bank of New York RELATIONS OF RESERVE BANKS TO MEMBER BANKS AND INTER-RELATIONS OF FEDERAL RESERVE BANKS................................................................................ 87 R. M. Gidney, Controller at Large, Federal Reserve Bank of New York THE EVOLUTION AND PRACTICAL OPERATION OF THE GOLD SETTLEMENT FUND................................................................................................................... .............. 95 George J. Seay, Governor of the Federal Reserve Bank of Richmond ELIGIBILITY FOR DISCOUNT............................................................................................... 105 Charles L. Powell, Counsel for Federal Reserve Bank of Chicago AMENDMENTS TO THE FEDERAL RESERVE ACT...................................................... 114 Walter S. Logan, General Counsel, Federal Reserve Board PREPARATION FOR WAR AND THE LIBERTY LOANS.............................................. 121 J. H. Case, Deputy Governor, Federal Reserve Bank of New York THE ASSUMPTION OF TREASURY FUNCTIONS BY THE FEDERAL RESERVE BANKS.................................................................................................................................. 129 Murray S. Wildman, Stanford University THE ESTABLISHMENT AND SCOPE OF BRANCHES OF FEDERAL RESERVE BANKS................................................................................................................................. 135 E. R. Fancher, Governor, Federal Reserve Bank of Cleveland iii Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis iv Contents CURVES OF EXPANSION AND CONTRACTION 1919-1921........................................... 142 A. C. Miller, Federal Reserve Board, Washington, D. C. EXPANSION AND CONTRACTION UNDER THE FEDERAL RESERVE SYSTEM 151 Ernest Minor Patterson, University of Pennsylvania EXPANSION AND CONTRACTION AS SEEN BY A BUSINESS MAN......................... 163 J. V. Farwell, President, John V. Farwell Company CURRENCY EXPANSION AND CONTRACTION.............................................................. 167 James B. Forgan, Chairman of the Board, the First National Bank of Chicago EXPANSION AND CONTRACTION FROM THE FEDERAL RESERVE STAND­ POINT........................... .*....................................................................................\ ............. 174 John H. Rich, Chairman and Federal Reserve Agent, Federal Reserve Bank of Minneapolis PRINCIPLES GOVERNING THE DISCOUNT RATE........................................................ 183 W. P. G. Harding, Governor of the Federal Reserve Board REDISCOUNT RATES, BANK RATES AND BUSINESS ACTIVITY.............................. 190 George M. Reynolds, Chairman of the Board, Continental and Commercial National Bank of Chicago THEORETICAL CONSIDERATIONS BEARING ON THE CONTROL OF BANK CREDIT UNDER THE OPERATION OF THE FEDERAL RESERVE SYSTEM 195 Chester A. Phillips, University of Iowa AGRICULTURAL AND COMMERCIAL LOANS................................................................... 199 J. B. McDougal, Governor, Federal Reserve Bank of Chicago POPULAR AND UNPOPULAR ACTIVITIES OF THE FEDERAL RESERVE BOARD AND THE FEDERAL RESERVE BANKS................................................................. 203 William A. Scott, University of Wisconsin THE DEVELOPMENT OF AN OPEN MARKET FOR COMMERCIAL PAPER.......... 209 E. E. Agger, Columbia University THE EFFICIENCY OF CREDIT............................................................................................. 218 O. M. W. Sprague, Harvard University BOOK DEPARTMENT................................................................................................................ 222 INDEX............................................................................................................................. 225 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis CONTRIBUTORS TO THIS VOLUME A gger, E. E.—Associate Professor of tional Bank of the Republic, Chicago, Economics, Columbia University. and Harris Safety Deposit Co., Chicago; Contributing editor to the Standard Director, Liverpool & London & Globe Daily Trade Service. Insurance Co.; President, First State For some time Assistant to President Pawners Society of Chicago. of the National City Bank, N. Y. Was President of the National Citizens Editor, American Edition of Clay’s League for the Promotion of a Sound Economics for the General Reader and Banking System. author of articles on banking subjects. F org an, J. B.—Chairman of the Board, B eckhart, B. H.—Lecturer in Banking, First National Bank of Chicago. School of Business, Columbia University, Was with Royal Bank of Scotland for 1921; Instructor in Economics and Social three years; later with Bank of British Institutions, Princeton University, 1920- North America, with assignments to 1921; employed at Federal Reserve Bank Montreal, New York and Halifax; In­ of New York, 1919-1920. spector of Agencies, Bank of Nova Scotia; C a se , J. H.—Deputy Governor, Federal Cashier and Manager, ^ Northwestern Reserve Bank of New York, 1917 to National Bank, Minneapolis 1888; Vice- date. President, First National Bank, Chicago, Was Vice-President, Farmers Loan 1892, President, 1900, Chairman of and Trust Co., New York City, Board since 1916. Member Board of also Secretary-Treasurer-Vice-President, Directors, Federal Reserve Bank, Chi­ Plainfield Trust Co., Plainfield, N. J. cago, 1914-1919; President, Advisory C r e n n a n , C. H.—Economist, Continental Council, Federal Reserve Board, 1914- and Commercial National Bank, Chicago; 1920; Vice-Chairman, Currency Commis­ formerly member of faculty, University sion, American Bankers Association, of Pennsylvania, Director, Research Bu­ 1907 to date. reau, Pennsylvania State Chamber of G id n e y , R. M.—Controller at Large, Fed­ Commerce, and Assistant Editor of The eral Reserve Bank of New York. Annals of the American Academy of Po­ For eight years engaged in banking at litical and Social Science. Santa Barbara and Bakersfield, Cali­ Editor-in-charge of several volumes fornia. August 1914, appointed secre­ of The Annals. tary to A. C. Miller, member
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