The Pleasantville press. (Pleasantville, N.J.) 1912-1929, 1919-03-22
THE FEDERAL
RESERVE BANK
By CARTER GLASS,
Secretary of the Treasury.

JusllnenC OF affef-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 10 the
most unscientifc 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 fundamental de-
fects of the old system, one an inelastic
bond-secured 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.
1.-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 g~ilt-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.
1.-THE Federal Reserve Act revolu-
tionized this wretched currency sys-
tenn. 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 coun-
try, responsive at all times and to
the fullest extent to every reasonable
demand of legitimate enterprises.
at 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, by the assets of a great bank
ing system, by the double liability of
member banks, and by the plighted
faith of a government of a hundred
million free citizens.
'The Federal Reserve Act correct
ed the old vicious bank reserve sys-
fem 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 to believe that the balance of
the country was dependent on the
money centers. Under the new dis
p%ensation 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. In
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
greatest war of recorded history failed
to create a 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 1918
New York loaned two European ma
tions $4,000 900 for the prosecution
of war;
To-day, the United States has
bought back from foreign nations in
excess of $1,000, 100000 of American
securities, has loaned foreign nations
S11, 00O,OOO,000 for purposes of war.
has foated on Government aecount
| $4,000. 100000 of Liberty Bonds and
War Savings Certificates, not to men
tion the billions of dollars of Treasury
-.