Newark evening star and Newark advertiser. [volume] (Newark, N.J.) 1909-1916, 1914-08-12
RESERVE BANK
SYSTEM IS HIT
BY {. C. STOKES
New Federal Act Will Not Be
Efficient, Former Governor
Claims.


communication to the Public Ledger
of this city. published today, Former
Governor Edward C. Stokes, Of New
Jersey, attacks the new Federal To-
serve banking plan. The .eommuni-
cation is dated at Trenton and
reads:
To the Editor of the Public Ledger:
Sir: ] read your editorial headed
Organization of Federal Reserve" N
this mornings issue. with consider
able misgivlng. This misgiving Is
emphasized because an editorial OF
similar tenor appeared in another
Philadelphia daily on Saturday last
II trust that you are right in your
expectations under the new Federal
reserve act, and I should only be
too glad, as a good American citi-
zen, to be convinced that am wrong
when I say that where you have
hopes I have the gravest fears, II
the new Federal reserve act is put
in operation under present condi-
lions.
'',rhat act provides for the piling
UP, In regional reserve banks, of
very large amount of the country
bank reserves, where 1t cannot be
loaned out to individuals and where
1t can only be loaned to banks on
commercial paper. issued against
values actually exchanged, or on lin
tied securities. like government
bonds stock exchange collateral be-
ing practically prohibited. In time
Of peace this act would take a vast
deal Of money out of current circu-
lation, and would require the utmost
care in the process of transfer. In
time Of strain like this. the transfer
of millions of dollars from Philadel-
phia banks to the regional reserve
banks would reduce the loanable
funds Of your institutions necessi-
tate the payment of loans of their
customers, and cause hardship and
failure to many Of them, when pay
ments cannot be made, and when
many other countries are suspending
payment of debts entirely. Philadel-
phia is only one illustration of what
would occur throughout the country.
Under present conditions. is 1t not
wise and patriotic to disturb our
financial machinery as little as pos
sibie, rather than attempt revolu-
ton in a time of crisisY / would not
attempt to predict what would hap
pen In this country il the Federal
reserve act was put in operation at
once, and the country banks began.
as they would be compelled to, to
withdraw their reserves from the city
institutions, decrease the deposits of
the latter, and thus entail a CORE
spending payment of loans. precipi-
| tating failures that would in turn be-
| get other failures, until panic ensued.
why not ask the government to
| delay the operation OF this act until
| after the crisis has passed? One fact
| Is better than a thousand theories.
I When the money stringency was
threatened a few days ago by the
declaration of war abroad, the whole
| country, regardless Of partisanship,
citizens and legislators alike went to
| one source for relief, the one source
which they, in a desire for safety,
| not in a spirit of partisanship or
prejudice. felt was the most available
source of relief. and the source TO
which they turned was WHAT Not
the Federal reserve act, with all of its
promised mobility. but the Aldrich-
| Vreeland emergency currency act,
| which Congress fastened to pass in
| a few hours, in a spirit of patriotism
| and deep conviction that II was the
| one necessary and available relief. Is
not this fact significant? Is not every
one convinced that it will afford the
necessary aid in these times? Why
| then not work under 1t until the cri-
sis passes? Why risk disaster with
a new, untried measure, that some
students of finance in this country
| think is fundamentally wrong, from
foundation up? You suggest in your
| editorial that the new Federal re-
serve act will enable us to stop the
| flow of gold. l have talked with some
of the best fnanciers and bankers OF
| this country, and / have yet to find
| one Of them who does not take ex-
actly the opposite view. The reasons
against your view are many, too
| many to state in a single letter. Let
me suggest just one: Suppose that
Europe, in order to get gold, makes
their discount rate s. 8 or 10 per cent.
Some one has said that an per
cent. rate would draw gold out of the
earth. What would a or 10 per
cent. rate do? Would not gold fly
instinctively abroad? Would not we
be powerless to prevent it under our
usury laws, which generally prevent
a rate of over per cent.
81 have always understood that IL
was generally accepted that this was
one great weakness of the Federal re-
serve act. although your editorial
takes the contrary view.
AT a recent banquet in New York,
addressed by representatives OF the
Bank of France. the Reischbank OF
Germany and the Bank of Liverpool,
every one of the speakers. eminent
world flnanciers, took the ground, as
/ understood them. that we would not
be able to prevent the fiow of gold out
of this country under the new Fed
eral reserve act.
~ understand full well that this
is the law of the land and must be
obeyed, but surely, in time like
this. its operations having been post
poned thus far can be postponed un-
til fife of peace and ease. when
its untriej and unknown burdens can
he better borne than in time of
world war, when every man has all
he can do to hold up his neighbor's
4.