New-York tribune., 1918-06-30
By E. M. Patterson

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" HERE is no doubt in the minds Of
careful observers that the first
great economic task before the
people Of the United States to-day
only the raising Of agricultural prod
vets, the extraction Of ores and the
processes of manufacture, but also the
transportation of men and materials to
our seaboard and to Europe. Our sec,
j. ond task is to save from our annual
production the amounts needed BY our
aiies and ourselves in the conduct of
the war. If we could increase our pro-
duction by this amount the saving
might be accomplished with no curtail-
ment of our ordinary expenditures and
With no lowering Of our standards Of
living. Since great part CT the
amount needed cannot be secured in
this manner. there must be reduced
standard or we shall not furnish to our
allies the promised assistance. TO
secure this saving with the maximum
Of fairness and in manner that will
not lessen our productivity is our sec
end task. The third is to devise the
most satisfactory method of trans
ferring to the government the owner
ship OF the wealth that we produce and
save. Congress has made unprecedent-
ed appropriations. tax legislation has
been enacted and huge bond issues
have heen authorized. A vast fiscal
programme has been evolved and its
machinery set in motion.
In the midst of these activities
stands our banking system, including
many varieties of banks. but especial
ly the Federal Reserve banks and their
members, which are for the most part
national banks. This structure performs
numerous functions, but three are of
particular concern in this discussion.
- The Federal Reserve banks are fis-
cal agents of our government, while
both Federal Reserve banks and mem
Der banks are depositaries of govern
ment funds. Through them government
bonds and certificates of indebtedness ss
are marketed. They are thus an i'm
portant part of the governments fiscal
machinery. (2) These banks issue
various kinds of money for use in the
community. From the national banks
come she national bank notes and from
the Federal Reserve banks the Federal
Reserve bank notes and the Federal Re-
serve notes. while on the deposit liza
biities of all Of them are drawn checks
and drafts-the most important part
of our currency. go These banks di-
rectly and indirectly make loans to
private individuals and corporations,
furnishing the financial aid required by
our business institutions.
Federal Reserve System
Essentially Commercial
This paper attempts to analyze the
influence of this banking system in per-
forming the three great economic tasks
mentioned. Primarily, the system is
concerned with assisting in the trans
fer to the government of the owner
ship of our wealth, but in doing this it
may exercise very important influ-
ence upon the other tasks in which we
are engaged--the production and saving
OF wealth. Although only device for
facilitating transfers of wealth, it may
greatly affect our whole national bud
get. A powerful banking machine will
either help us to mobilize effectively
our economic power, encourage produc-
ton, stimulate saving, and thus in
crease our wealth for war uses; or. i'm
properly utilized, will retard produc-
tion discourage saving, encourage ex-
tfavagance and prevent our acquiring
the funds we so much need.
The Federal Reserve System "a term
/ which may be used to include both Fed
era! Reserve banks and member banks)
exists primarily to aid commercial
banking as distinct from other fnsn-
seisi operations, particularly speculative
and investment banking. The national
banks have always been restricted in
their functions, not being allowed to
own or deal in stocks, to acquire real
estate Except for their own accommo-
cation in the transaction OF business), +,
nor, except to very limited extent,
70 lend on mortgage security. Even
bonds may be acquired by them only
because Of a somewhat technical inter-
pretation Of the national bank act, and
until 1918 savings accounts were not
legally authorized. National banks are
expected to specialize in commercial
banking. Their customers are, for the
most part the business men of the
community, who are concerned pri-
marily with transferring goods from
producers to consumers. Accordingly
'helr funds should not become imper-
iied in speculative operations, nor be
invested in transactions from which
shey cannot quickly be withdrawn. In
other words, the assets of any bank
must be safe, but those of CONNER
csai bank must also be liquid, i. e., cas-
w converted into cash.
The Tests in
kediscounting Paper
Under the national bank act there
was not the desired liquidity, and the
entire system lacked elasticity, To
,,emsdy these defects and others the