Newark post., 1919-03-12
The FEDERAL
RESERVE BANK
BY CARTER GLASS,
Secretary Of the Treasury.

must make the start, Just as IL was the
sure foundation against which the IT,
nancial storms ragged in vain during the
entire period of the great world-war.
For fifty years we clung 10 the
most unscientific banking and cur
rency system in the world. Five times
within the thirty years preceding the
passage of the Federal Reserve Act
financial catastrophe came upon us
in the very midst of apparent business
prosperity and contentment. These dis
asters enSued from two fundamenlai de-
fects of the old system, one an ineiastic
bond-secured currrncy and the other
an utterly fictitious bank reserve
Under the old system we proceed
ed upon the assumption that the coun-
try always needed a volume of cur
rency equal to its bonded indebted
ness, and never at any time required
less, whereas We frequently did not
need near as much as was outstanding
and just as often could have absorbed
vastly more than was available.
The business Of the country was
made TO suffer by this rigid currency
system in times of stirring develop
ment and enterprising activity. 1t
could not begin tn meet the CONNER
cial and industrial requirements of
rhe country. The total capitalization
of the national banks, under the old
system, easured their full capacity
to respond TO the currency require
ments of the country
Thus. in time of panic, such as
that which convulSed the country in
1907. these banks found it impossible
TO utilize their gilt-edge. short-time
commercial paper in exchange for cur
rency wherewith to respond to the
requirements of business. Practically
all the banks were in the same des-
perate plight. every one, with rare ex-
ceptions, looking out for itself. with
no other source of supply.
The Federal Reserve Act revolu-
tianized this wretched currency sys-
TEN. 1t substituted for a rigid bond
secured circulating medium, unreSpon-
sive at any time to the commercial re-
quirements of the nation, a perfectly
elastic currency, based on the sound,
liquid commercial assets Of the conn
try, responsive at all times and to
rhe fullest extent TO every reasonable
demand of legitimate enterprises.
1T is a currency which comes forth
when required and is Cancelled when
not needed. The amount is ample
when business is active and only
enough when business is lax. Every
dollar of it is based on a stable COM
mercial transaction, whether of a mer-
camille, industrial or agricultural ma
ture, fortified by a 40 per cent gold
reserve, ny the assets of a great bank
ing system, by the double liability of
member banks. and by the plighted
faith of a government Of hundred
million free citizens.
The Federal Reserve Act correct.
ed the old vicious bank reserve svs-
TEN by establishing regional reserve
banks and making them, instead of
private banks in the money centers,
the custodians of the reserve funds of
the United States: by making these
regional banks, instead Of private cor
respondent banks, the great rediscount
agencies of the country: by requiring
these regional banks to minister to
commerce and industry rather than TO
the schemes of speculative adventure.
Under the old regime we had been
taught 10 believe that the balance Of
the country was dependent on the
money centers. Under the new dis
pensation the fact was quickly re-
realed that the money centers are
dependent on the balance of the coun-
try. Under the old system the coun.
try banks were subservient TO rhe
money centerS, for only there could
they resort for rediscount favors. I'm
der the new system it is no longer
question of favor: ii is purely a ques-
tion of business.
"The whole startling contrast be-
tween the old system and the new
may be summed up in the single state
| ment that in 1907, under the old sys-
tenn, the failure of two banks in New
York city preciptated the greatest
financial panic that ever afflicted the
nation. Under the new system. the
greatest war of recorded history failed
| to create a ripple of alarm in the bank.
ing community of the United States,
In the panic of 1907 New York
could not let country bank have
500 of currency to meet the ortiin.
airy requirements of trade. In 1918
New York loaned two European ma.
tioLs s500.0O0,000 for the prosecution
of war,
To-day, the United States has
| bought back from foreign nations in
excess of S3.0OO.OOO,OOO of American
securities. has loaned foreign nations
s11,oo0,OoO,O00 for purposes of war,
has fioated on Government account
S1S,0OO,000.0 of Liberty Bonds and
| War Savings Certificates. not 10 mem
| tion the billions of dollars of Treasury
certificates of Indebtedness issued in
anticipation Of the Liberty Loans