The Mount Holly news. [volume] (Mount Holly, Burlington Co., N.J.) 1891-1942, 1919-03-18
THE FEDERAL
RESERVE BANK
BY CARTER GLASS,
Secretary of tina Treasury

Secretary of the Treasury.
+The Federal Reserve system today
e the firm base from which the read |
justment of after-war enterprises
must make the start, just as it was the
sure foundation against which the f.
nancial storms ragged in vain during the
entire period of the great world-war.
For fifty years we chung to 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
catastrophe came upon us
In the very midst Of apparent business
and contentment. These dis
asters ensued from two fundamental de-
fects of the old system, one an inelastic
currency 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 to meet the CONNER
cial and Industrial requirements Of
the country. The total capitalization
OF the national banks, under the old
system, measured 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-
tionized this wretched currency sys-
TEN. 1t substituted for 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 coun
try, responsive at all times and to
the fullest extent to every reasonable
demand of legitimate enterprises.
1T is 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, by the assets of a great bank
ing system, by the double liability of
member banks, and by the plighted
faith of government of a hundred
million free citizens.
1.-THE Federal Reserve Act correct
ed the old vicious bank reserve sys-
tenn 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 redlscount
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 to believe that the balance of
the country was dependent on the
money centers. Under the new dis
pensation the fact was quickly re-
vealed that the money centers are
dependent on the balance of the coun-
try. Under the old system the coun-
try banks were subservient to the
money centers, for only there could
they resort for rediscount favors. I'm
der the new system it is no longer a
question of favor; it is purely a ques-
ton 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 precipitated the greatest
financial panic that ever afflicted the
nation. Under the new system. the
pToa tacf xxor of ,.aoordad bie+o,xx eo,1z
to create ripple of alarm in the bank
ing community Of the United States
I'm the panic of 1907 New York
could not let a country bank have
$4,000 of currency to meet the ordin-
airy requirements Of trade. In 1915
New York loaned two European ma
lions $500,000,OOO for the prosecution
of wari
To-day, the United States has
bought back from foreign nations in
excess of $3,0OO,OOO,OOO of American
securities, has loaned foreign nations
$11,000,000,000 for purposes of war,
has fioated ON Government account
$4,000, 100000 of Liberty Bonds and
War Savings Certificates, not to men
ton the billions of dollars Of Treasury
certificates of Indebtedness issued in
anticipation of the Liberty Loans.
The twelve reserve banks alone
have engaged in commercial redis-
count operations approximating ST.
5O0,0O0,O00 and have made open mar
ket purchases amounting to $1,81S,OOO.-
900. The regional banks hold a gold
reserve of $2,1O0OOO,OOO, an increase
over last year Of $402, 100000. Not
withstanding the splendid provision
made for the tremendous military and
commercial needs of the country, the
system maintains today gold reserve
of GA per cent behind its notes and
OF 53.7 behind its combined note and
credit issues"
Are You a 6arometer7