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THE IEDERAL RESERVE SYSTEM."
By
Paul
M.
iWafrbuxg.
Chapter
XI. The
Redis t r i e tin g Interm ezzo."
Review.
,
By C. S. Hamlin,
September, 1930 .
(References, when
n o t
otherwise indicated,
a re to Mr .
Warburg's book.)
- I -
The e s s e n t i a l f a c t s i n t h e controversy, a s a l leged by Mr. Warburg,
were a s follows:
1. On
October
20., 1915, a
Redistricting Committee
was
appointed
by the
Federal Reserve Board.
2. On
November
12 , 1915 ,
this Committee filed
a
pre l iminary
repor t to the e f fec t tha t a reduction i n t h e number of
Federal reserve banks was imperatively demanded f o r t h e
bes t in te res t s
of the
Federal Reserve System
and of th e
country.
3 . I n
th is report
th e
Committee asked instructions from
the
Board whether i t should prep are a spec i f i c p lan o f r e -
duction.
4 .
This prel imi nary rep or t
wa s se t
down
by the
Board
f o r d i s -
cussion
on
November
13 th a nd
again
on
November
15, 1915,
b u t t h e
meetings were postponed because
of the
absence
of
Secretary McAdoo.
,
5. The Board f ina l ly s e t down November 2 2 , 1 9 15 f o r t h e d i s -
cussion
of the
meri ts
of the
repor t
and a
final vote
thereon,
.
6 . A t the meeting on November 22nd, discussion of the merits
was prevented b y reason of the de l ivery to the Board o f
an
opinion
of the
Attorney General advising
th e
Board
th a t
i t h a d n o
power under
th e
Federal Reserve
Act to
reduce
th e
number
of
Federa l reserve dis t r ic ts
o r
Federal
reserve banks.....
7. The opinion of the Attorney General was obtained by the Gov-
ernor
of the
Board without
th e
a u th o r i t y
o r
knowledge
o f
t h e
Board,
,
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I 1 7 5
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8. The opinion prevented a n y discussion of the meri ts of the
Committee rep or t, arid ne ce ss it at ed a n abandonment of
t h e
whole matter, although
a
major i ty
of the
Board
favored
t h e
Committee report
and
would have voted
accordingly ha d a vote been taken on the mer i t s .
1 - 427, 430, 436.
- I I -
M r. Warburg states a s h i s reason f o r wri tin g thi s Chapter, th at
after Senator Glass, i n 1923, and D r . H. P . W i l l i s , in 1926 , ha d l i f t -
ed a corner of the vei l regarding t h e controversy, i t hecame imperative
f o r h im to "break t h e s i l ence of th i r teen years a n d r a i s e t h e v e i l f u r -
ther so tha t t h e real facts might be known and the story freed from t h e
"hal f t ru ths
and
pervers ions"
b y
which
i t h a d
been clouded.
1 - 454.
- I l l -
M r. Warburg ' s l i f t ing of the ve i l r evea l s , - as he a l l eg es , - a
sinister combinat ion
o r
conspiracy
on the
p a r t
o f the
Pres ident
of the
United States, t h e Attorney General of the United States, th e Secretary
o f t h e Treasury, a n d t h e Governor o f the Federal Reserve Board, t o f o r e -
s t a l l d i scuss ion
on the
meri ts
of the
repor t
of the
Ee d i s t r i c t i n g Con>»
mit tee by means of an opinion of the Attorney General, obtained by the
Governor of the Federal Reserve Board, without authority from o r knowl-
edge o f the Board, advising th e Board that i t ha d no authori ty , under
t h e Federal Reserve A c t , t o reduce th e number of Federal reserve d is t r ic t s
o r
Federal reserve banks.
1 - 430.
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X-6715
- I V -
M r.
Warburg's charge
i s a
very grave
one , and to
avoid
a n y
poss ib i l i ty
of e r ro r , I shall quote h i s very words:
"Thus while
th e
Board
h ad
deferred
t h e
decis ion
out of
courtesy
to Mr .
McAdoo,
t h e
la t t e r , together wi th
t h e
Board's
Governor
a nd the
Pres iden t ,
h a d
combined, without
th e
knowledge
of the four appointive members of the Board, to f o r e s t a l l any
debate b y securing t h e opinion of the Attorney General."
1 - 430.
The
Pres ident
a nd the
Attorney General formed their judg-
ment Solely upon
t h e
evidence
6f the
Secre tary
of the
Treasury,
whose action was to be reviewed and who had Studiously avoided
hearing
t h e
views
of the
Committee,
and
upon
t h e
evidence
of the
Governor devoted
to Mr.
McAdoo
and
ac t ing
i n
accordance with
h i s
i n s t ru c t i o n s . "
1 - 43 0.
- V -
M r.
Warburg draws
a
sharp line
of
cleavage between
th e
sheep
and the
goats
i n
this controversy,
-
between those
who
favored red i s t r i c t ing ,
Called by h im the "Majori ty" , - and those who were opposed t o r e d i s t r i c t -
i n g , - t o
whom
h e
r e f e r s
a s t h e
"Minority."
He
charges that
t h e
Minority were guided solely
b y
p o l i t i c a l
considerations, while th e "Majority" acted a s non-par t isan t rus tees
of the country a t la rge .
The
following quotations from
t h e
Chapter bring
o u t
th i s l ine
of
cleavage dis t inc t ly :
I t wa s
cer ta i n , the refo re , tha t three
of the
Members
of
th e Board of seven would t r y t o block an y dras t ic readjus tment .
1 - 427.
The
remaining four,, however,
h a d
seen enough
o f th e
pe t ty
po in t
o f
view resulting from
a
twelve-headed system,
and of the
d i f f i c u l t i e s o f i t s admin is t ra t ion , t o convince them that with
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X-5715
I d
regard
t o
tanking standards
an d
e f f i c i e n c y
of
service
i t
would
c l e a r l y
be f o r the
b e n e f i t
of the
country
i f t h e
numbers
of the
reserve banks should
be
reduced."
1 - 427.
The
determined insis tence
on th e
crea t ion
and
preservat ion
of one
c rop" d i s t r i c t s
, . .
could hardly
b e
just if ied excfept
on
pol i t ica l grounds ." ( I ta l ics mine . )
1 - 429.
The
four
of us
considered ourselves
t h e
non-part isan
t ru s t e e s
of the
i n t e r e s t s
of the
country
a t
la rge ."
1 - 4 4 0 , 441 , .
The
other three dealt with
t h e
question from
t h e
point
of
view
of the
i n t e r e s t s
of
their Party." (I tal ics mine)
1 - 4 4 0 ,
441.
He even brings a similar charge against th e Pres ident o f t h e United
Sta tes :
I t wa s
nat ura l that
t h e
Pres iden t ,
on
this question, could
n o t dis regard t h e po l i t i ca l cons idera t ions ," ( I ta l i cs mine)
1 - 452 , 453.
M r.
Warburg then portrays
th e
ro l e
he
played
i n t h e
controversy:
I t w as my
duty
t o
approach
t h e
problem from
a
non-part isan
a n d non-po l i t i ca l po in t o f view, - with th e sole thought i n mind
of what t h e b e s t i n t e r e s t s of the country, a s a whole, required."
1 - 4 5 2 ,
453.
This calm, ju di ci al juxt apos it io n
of the
a t t i t u d e
of the
Pres ident ,
t h e Attorney General, th e Secre tary of the Treasury a nd the Governor of
th e
Board, as
e
a g a i n s t
th e
pure al truism
of Mr.
Warburg,
i s
ce r ta in ly
worthy
o f a
Shakespeare
- V I -
The writer proposes to " l i f t t h e v e i l " - to u se Mr. Warburg's
metaphor,
-
even further than
he ha s
done,
and to
show
how
grotesquely
absurd
a r e t h e
charges
of
conspiracy hurled against
th e
P re s id e n t ,
the
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5 X 6715
Attorney General*
t h e
Secretary
of the
Treasury,
a n d t h e
Governor
of the
Fede
r a l
Reserve Board.
- V I I -
M r. Warburg refers "briefly to the pre l iminary report of the Com-
mittee filed November
12, 1915, and of two
meetings held
on
November
1 3 t h
a n d November 15 th by th e Board t o discuss i t . He coht&iits himself with
t h e
hare statement that these
tw o
meetings were postponed until
Nov-
ember 22nd because of Mr. McAdoo's absence.
1 - 4 3 0 , 431,436#
He
further quotes
t h e
Redistricting Committee, which stated
i n i t s
repor t of December 2 , 191 5:
"Your Committee desires t o repeat that a t no time h a d there
been
a
discuss ion
of the
Committee's original report
of
November
1 3 t h , o r o f t h e
revised report
of
November
1 7 ,
1915."
1 - 430
From th e above one would naturally b e l e d t o be l ieve tha t , a t t he
above meetings,
t h e
Board
h a d
convened
b u t h a d
immediately adjourned
t o
November 22nd, because
of the
absence
of Mr.
McAdoo.
Why, i t may b e asked, does M r. Warburg thus gr ac ef u ll y gl i de over
t h e
meeting
of
November 15th?
Was
there
no
"discussion"
a t
that meeting,
o f the
pre l iminary
r e -
por t of November 12th?
The
f a c t
i s
t h a t
a t
that meeting
of
November
1 5 t h t h e
pre l iminary
repor t was discussed, br ief ly perhaps a s t o i t s mer i t s , b u t a t great
length a s to i t s demeri ts , and moreover i t was one of th e most earnest
a n d
vehement discussions ever held
i n t h e
Board.
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X-6715
k
1
'
The discussion occupied a whole da y , - "From morn t i l l noon, frcm
noon t i l l dewey
e v e , - t h e
Board sitting both
i n t h e
morning
and in the
af ternoon.
Ho f ina l vote was taken, however, because o f the absence of Secretary
McAdoo,
a n d
because
a t the end of the day
there
was no
r e p or t l e f t
to be
acted upon, - a s wil l appear later.
I t was
pointed
ou t by the
minority, during
th e
discussion, that
the
Committee report
i n
effect s tated that because
of the
weakness
of one-
ha l f
o f t h e
Federal reserve banks
th e
System would prove
a
f a i l u r e
and
tha t
a
reduction
of the
number
of
Federal reserve banks from twelve
t o
e igh t
o r
nine
was
imperative
f o r t h e
good
of t he
System
and of t h e
country
The minori ty fu rt he r st at ed th at such a startling conclusion would
cause uneasiness
a n d
lack
of
confidence
i n t h e
System throughout
the
country; that this conclusion should have been supported
b y a
statement
of the f a c t s an d f igures on which th e conclusion was based; t ha t no such
f a c t s
o r
figures were contained
i n t h e
report .
The
minority then requested
th e
Committee
t o
f i l e
a
supplemental
report giving these facts a n d f i g u re s a n d tha t one week be allowed the
minority
t o
study
t h e
report
a s
thus supplemented.
A
formal motion
o r
re so lu t ion
was
made
to
t h i s e f f e c t ,
but was
strongly opposed
b y t h e
Committee, which opposition
w as
later explained
b y t h e
Committee
i n i t s
report
of
December
2 , 191 5, as
follows:
The fac t tha t t h e request of two members of the Board
f o r
another prel iminary report
i n
writ ing
a s to the
reasons
f o r i t s
recommendations was opposed
by the
Committee,
w a s ,
a s explained b y t h e Committee, solely because i t des i red t o
have
th e
report discussed
on i t s
merits without delay
and a t
that time
l a y
before
th e
Board
a l l t h e
f a c t s
a nd
f igures
i t
h a d co ll ec te d. Such a course was in consonance with o ur usual
p ra c t i c e . "
1 - 435.
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: 180
7
X 6715
The writer knows of no such practice of the Federal Reserve Board a nd i s
very confident that t h e attempt of a Committee to withhold th e f a c t s a n d f i g -
ures on which i t s r epor t i s "based from t h e r e po r t i t s e l f , and to present them
only when
t h e
repor t
i s
before
t h e
main body
f o r
immediate vote, would
n o t be
sustained
by any
deliberative body known
t o
Anglo-saxon procedure.
The charge was freely made during th e discussion that th e minori ty was
-
t ry ing
to
obstruct
t h e
proceedings
and
delay
a
f ina l vote .
The
minori ty,
how-
ever, pointed
o u t
t ha t
a
delay
of one
week
i n
which
t o
study
t h e
f a c t s
and
f i gu res
on
which
t h e
repor t
was
based,
was not an
unreasonable request
i n
view
of the
radical changes
i n t h e
Federal Reserve
A c t
recommended
b y t h e
Committee.
The
motion that
t h e
Committee report
t h e
f a c t s
a n d
figures upon which
i t s
conclusions were based
and
that
one
week's time
b e
allowed
t h e
"minority"
t o
study t h e report thus supplemented, was f i n a l l y pu t t o t he vote and was de-
fea ted by a vote o f four to two.
3
Diary,
p . 102, 103, 107.
The wri t er bel ieves i t apparent from th e above that any lack of discus-
sion o f t he meri ts of the Committee's report a t this meeting was due not to
th e minority bu t t o t he act ion of the major i ty i n defeating this motion.
Fina l ly ,
a s a
climax
o f a
weary
day of
d i scuss ion ,
t h e
Committee itself
announced that
i t
would withdraw
i t s
repor t
an d
would later f i le another,
t o
which th e Board consented.
3 Diary, p . 112 , 113 .
At the next meeting of the Board, on November 17 , 1915, one of th e
"major i ty" s tated that he was s a t i s f i e d t h a t t h e preliminary report contained
statements which might give
a
false impression,
an d
tha t
t h e
c r i t i c i s m
of the
minori ty
was , to a
ce r t a in ex t en t , j u s t i f i ed .
3
Diary,
p . 112 .
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Evidently th e discussion held on November 15 th ha d made a decided im -
press ion
on the
Committee
On tha t da y , - November 17 , 1915 , the Committee prepared a supplementary
report eliminating some h u t n o t a l l o f t h e mat t e r s c r i t i c i sed b y t h e minority.
This report also, however,
was
s i l e n t
a s to the
e s s en t i a l f a c t s
and
f igures
upon which i t s conclusion was based.
The
Committee justified this omission
a s
follows;
The problem i s preeminently one f o r the exercise of general
judgment
as to
what will make
f o r t h e
most effect ive organizat ion
of the Federal Reserve Banking System, and your Committee does n o t ,
therefore , th ink i t necessary t o develop a t length o r i n de ta i l
t h e
reasons which have weighed with
i t s
individual members, each
of whom h a s reached h i s conclusion i n h i s own wa y . (I tal ics mine)
Would
i t n o t
have been fairer
t o t h e
minori ty
t o
have
t h e
Committee's
f a c t s and f igu res so t ha t they al so could reach th e i r conclusion i n thei r
own way?
1 - 771.
The
Committee report
of
November
17, 1915
cont inued; -
"Attent ion may, however, b e cal led t o some of the considerat ions
i n
favor
of a
reduct ion
i n t h e
number
of
d i s t r i c t s . "
1 - 771.
The Committee then enumerates t h e general considerat ions o f economy of
operation, embarrassment
i n
de aling with weak un i t s , si mp li ci ty
i n
check
c lear ing an d co l l e c t i o n an d g r ea t e r ab i l i t y to meet severe tests which may
come when the wa r i s over.
1 - 767.
I t i s very signif icant , however, a s above st a te d, tha t no mention i s
made
by Mr.
Warburg
of the
d iscuss ion
or of the
contents
of the
f i r s t
p r e -
liminary report which was discussed in the Board, a s above stated, on
November 15, 1915.
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The supplemental report of Nov. 17, 1915, is r e f e r r e d to by him '
merely i n a foot note on page 440 although i t i s p r in t ed i n f u l l i n
appendix 2 9 a t page 767 .
Throughout
th e
chapter, ignoring
th e
pre l iminary repor t s ,
e x -
cept ing
as to the
foot note above mentioned,
Mr.
Warburg quotes
as a
j u s t i f i c a t i o n of th e Committee's position t h e Committee report made
on Dec. 2 , 1915 , long af te r th e r ed i s t r i c t i ng d i spu t e h ad been d i s -
posed of by the Board. A copy of t h i s l a t t e r r epor t i s p r in t ed on
page
43 1 . •
- V I I I -
One r e s u l t of the discussion i n t h e Board on November 1 5 t h , n o t
here tofore poin ted o u t , should here be mentioned.
I t
w i l l
b e
remembered that
i n i t s
prel iminary report ,
the Com-
mit tee h ad i n effect expressed th e conviction that one ye ar 's operati on
of the System h a d convinced i t tha t a reduct ion in t h e number of Fed-
eral reserve hanks was imperat ive, and tha t i f n o t reduced, th e System
might prove to be a f a i l u r e . -
I n rendering t h e f ina l repor t of December 2 , 1915 , however, the
Committee reversed itself and s ta ted tha t t h e System h ad already
brought immeasurable benefits t o t h e country, an d . . . . . whether with
twelve hanks o r eight banks will prove of ines t imable va lue ." ( I t a l i cs
mine)
1 — 434 .
—IX—
Before considering th e final meeting of the Board held on
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November
22 , 1915 , a t
which
t h e
Governor presented
t h e
l e t t e r
of the
Pres id en t
and the
opinion
of the
Attorney General,
i t may no t be out
of p lace to r e f e r b r i e f l y t o c e r t a i n i n t e r e s t i n g a nd s ign i f ican t even ts
which transpired Just before that meeting.
-X~
I n i t s
f in a l r ep o r t
of
December
2 , 1915 , t he
Committee stated
th a t
i t
d e lay ed f i l in g
i t s
p re l iminary rep or t ,
-
which
w as
discussed,
a s
above shown
on
November
1 5 t h , - i n
order
t o
give
Mr.
Harding
a n
opportunity to show i t t o Secretary McAdoo t o obtain any suggestions
h e might care t o make, b u t that as Mr. Harding could n o t confer with
h i m ,
because
of
i l l n e s s ,
th e
Committee finally filed
i t s
prel iminary
rep o r t
on
Saturday, November
13 , a nd i t w a s s e t
down
f o r
discussion
by t he Board on November 15, 1915.
1 - 435, 436.
Although Mr. Harding d i d n o t have a personal interview with
Secretary McAdoo,
h e d i d
communicate with
him
through
M r.
Williams,
a s will later appear*
L e t u s
" l i f t
t h e
v e i l "
a
l i t t l e fu r th e r
a nd s e e
what
I s
disclosed*
M r. Williams, t h e Comptroller of the Currency, and an ex -o f f i c io
member of the Board, told th e wr i t er tha t on Friday, November 1 2 t h ,
Mr.
Harding called
on him and had a
talk with
h i m ,
later reduced
t o
wri t in g
and
approved
by Mr.
Harding; that
Mr,
Harding told
him
that
t h e
Committee would report
i n
favor
of
r e d i s t r i c t i n g
and
desired
thei r repor t
t o be
sent
to the
P res id en t ,
and
that unless
t h e
President
personal ly requested t h e Committee t o withhold i t s r e p o r t , t h e Committee
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would, vote t o p u t i t through, but tha t i f t h e Pres ident d i d s o request ,
t h e
Committee would
l a y i t o n t h e
table
f o r t h e
present .
3 Diairy, p . 95 .
This was c e r t a i n l y a somewhat extraordinary ultimatum t o deliver
t o the
Pres ident
of the
United States
I
The wr i t e r h a s a lso a copy of a l e t t e r f rom Mr. Williams t o
Secretary McAdoo enclosing
th e
memorandum, above referred
t o , o f h i s
conversation with M r. Harding, which memorandum, Mr. Williams said
was
duly examined
a n d
approved
by Mr.
Harding.
3
Diary,
p . 96 .
I n t h i s l e t t e r , M r. Williams told Secretary McAdoo that M r. Harding
asked
him to s ay
t h a t
on the
occasion
o f h i s
ca l l
on the
Secre tary
two or
three evenings before,
h e
carried with
him a
copy
of the
Committee
r e -
port together with
a map
showing
t h e
proposed redis t r ic t ing, wi th
p e r -
mission from
t h e
Committee
to
leave
i t
with
h im , -
Secretary McAdoo
-
f o r h i s information; that he , - Mr . Harding, - says he now ha s i t on
h i s
desk,
a nd
wi l l send
i t t o
Secretary McAdoo should
h e
care
t o s e e
i t
before
i t i s
submitted
to the
Board next week.
Mr. Williams also told th e writer that Governor Harding told him
tha t
t h e
plan
and map
r e f e r r e d
t o i n t h e
memorandum, abolished
the Fe d-
eral Eeserve District o f Boston, merging i t with t h e Federal Reserve
D i s t r i c t
of New
York.
3 Diary, p . 121 , 139 .
The
above statement
i s
confirmed
by Dr .
Wi l l i s
who
to ld
th e
writer
t h a t , a t M r . Warburg's request, he had delimited t h e d i s t r i c t s in a
d r a f t
o f
report given
him by Mr.
Warburg,
and
that this draft merged
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X-6715
l g
Boston with
New
York.
3
Diary,
p . 1&7%
Mr* Williams al so said l a t e r t hat Mr. Harding told h i m h e h a d r e -
por ted h i s talk with h im to the Committee and that none of them ha d
dissen ted . Later , Mr. Harding repeated this t o t h e Board.
3 Diary, p . 108, 138, 139.
The above statements of Mr. Harding seem completely inconsistent
with what Mr. Warburg states i n h i s book, - tha t th e Committee agreed
tha t no plan should be considered which might increase t h e power of the
Federal Reserve Bank
of Hew
York,
a nd h i s
further statement that
no
s p ec i f i c p l an
o f
reduct ion
was
formulated
by any
Committee.
1 - 427, 438.
These l a t t e r s tatements of Mr. Warburg a r e p l a i n an d unequivocal,
y e t i t i s i n t e r e s t i n g t o note that on December 15, 1915, in response
t o a request o f the Board, t h e Committee filed a memorandum giving a
general review
o f i t s
work,
and
annexed
to
t h i s memorandum
o r
produced
a t t h e
same time with
i t ,
several plans
and
maps,
one of
which
c o n -
so l ida ted th e Boston with the Hew York S i s t r i c t
The Committee stated, i n t h e memorandum, that while t h e plan which
merged Boston with Hew York was t he most advisable, y e t i n view of the
sentiment of the country i t d i d n o t contemplate merging Boston and Hew
York,
an d
expressed
th e
hope that Boston
may
succeed
i n
proving
i t s
a b i l i t y to a c t a s a n independent and se l f -su ppor t ing cen t re .
3 Diary, p. 154-A (Loose leaf.)
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- 13 ~ X-6715 1 8 6
Clearly everyone today will admit that Boston h a s proved i t s ab i l i t y
t o a c t a s a Federal reserve centre,, h u t that i s n o t t h e reason f o r quoting
t h e above. The reason i s that although M r. Warburg, a s above quoted, said
t h e Committee h a d agreed no t to increase fur ther th e power of New York,
ye t i t ha d one
plan before
i t
which would ma te ri al ly inc rea se
i t s
power
a nd , a s
shown
by Mr.
Williams,
a s
quoted above,
Mr.
Harding admitted
tha t th e plan which he was holding f o r Secretary McAdoo's inspection a s
th e p lan of the Committee - ( I ta l ics mine) - was the plan which abolished
Boston a s a Federal reserve d is t r ic t and Federal reserve bank, an d merged
i t with Hew York
I t i s evident that such a merger would have enormously increased
t h e power of the Federal Reserve Bank of New York.
I t should also b e remembered that Mr. Harding told Mr. Williams
tha t
he had
repor ted
t o h i s
colleagues
on the
Committee
h i s
conversation
with
Mr.
Williams
i n
which
h e
s ta ted that
th e
Committee's plan
i n
fact
merged t h e Federal Reserve District of Boston i n that of New York. .
3 Diary, p . 108, 121, 139 '
While
i t may
well
be
that
th e
Committee
h a d n o t
formally voted
a t
this
time
to
adopt
th e
plan abolishing Boston,
y e t t h e
fact that
M r.
Harding
to ld M r. Williams that th e Committee plan d id abolish Boston would c e r -
tainly warrant anxiety and apprehension a t even t h e p o s s i b i l i t y t h at New
York's power might
be
increased ,
i n
s p i t e
of Mr.
Warburg's statement
t o
th e
contrary, above quoted.
- X I -
The wri ter furthermore was informed by Dr . W i l l i s , th e then Secretary
of the Board, that Mr. Harding, on Saturday, November 20 , 191 5, - two
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- 14 -
X-6715
days before t h e final meeting of the Board on November 22 , 1915 , came
to him and
asked
h im to a c t a s a n
intermediary between
th e
Committee
and
Secretary McAdoo, telling
h i m , ,
from
man t o man,
tha t
he was
w i l l -
i n g t o compromise a s follows: - The Committee to l a y on the t ab le the
r e d i s t r i c t i n g r e p o r t
a n d
Secretary McAdoo
to
y ie ld
on
certain disputed
questions a s to open market powers a n d c lear ings ; th e Secretary further
t o
direct Comptroller Williams
t o
remove
Mr.
Starek,
th e
National Bank
Examiner
a t New
York,
an d
also
t o
order
him to
fu rn is h, hence fo rt h,
copies
of the
"yellow sheets" attached
t o t h e
Bank Examiner's reports
t o t h e
Federal Reserve Agents, which
th e
Comptroller
up to
this time
h a d
declined
t o
fu rn i sh ,
3 Diary, 106 , 116 .
D r . Wil li s rep ort ed thi s conversation t o Secretary McAdoo immediate-
l y , a n d h e agreed t o meet Governor Harding on Sunday th e following day#
3 Diary, p . 116 .
Pr ior t o this meeting, Secretary McAdoo told th e wr i t e r h e should
never agree
t o
compromise
on
those
or any
other l ines ,
an d
l a t e r ,
on
Sunday, after
th e
interview, told
t h e
wri te r tha t
Mr.
Harding
d i d n o t
a sk h im to
compromise,
b u t
to ld
him
unequivocal ly th at
he
should vote
t o
dismiss
t h e
whole matter
a t t h e
meeting
o f the
Board
on
Monday,
- a s
will la ter appear.
3
Diary,
116, 117,
Whether
or not Mr .
Warburg knew
of
t hi s conv ersat ion between
Mr.
Harding,
D r .
Wi l l i s
an d
Secretary McAdoo,
i n
which
a
compromise
was
suggested,
th e
writer does
n o t
claim
to be
informed,
b u t i f h o
knew
o f
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- 15 - X-6715 | g g
t h e ultimatum to the President, above mentioned, or of the suggest ion of
M r. Harding, o r e i t h e r of them, i t cer ta in ly p laced h im , - t he non-
p a r t i s an t r u s t ee o f the country
l
s i n t e r e s t s , " a s he f e l i c i tous ly ca l l ed
h imse l f , - in a deci dedl y anomalous po s it io n. Perha ps, however, he may
have reached th e conclusion that th e o ther ma tt er s, quoted above, r e p -
r esen ted t h e "greater good" an d jus t i f ied dropping t h e r e d i s t r i e t i n g
p lan
- X I I -
We can now
take
u p t h e
question
of the
submission
t o t h e
Board
by
t h e Governor o f the opinion of th e Attorney General, which M r. Warburg
charges was brought about b y a combination to fo res t a l l deba te , oi> th e
p a r t of the P res iden t of the United States, t h e Secretary o f the Treasury,
t h e Attorney General, a nd the Governor o f the Federal Reserve Board.
The events leading up to t he request b y t h e Governor f o r t h e
Attorney General
1
s opinion were a s follows:
Jus t p r io r t o t h e meeting of November 15 , 1915 , the Governor heard
i n d i r ec t l y t h a t t h e Committee was consulting with J . P . Cotton, E s q . , -
who had acted i n several matters a s special Counsel o f the Board, - as
t o t h e Board's power. I n t h e d iscuss ion o f the prel iminary repor t , a s
t h e wr i t e r r e ca l l s , t h e Committee made some reference to this fact*
3 Diary, p . 89 , 92 .
On November 1 5 t h , ju s t p r i o r t o t h e meeting, th e Governor prepared
a formal resolution asking th e Committee whether i t h a d sought a n
opinion from any one other than from M r. E l l i o t t , th e General Counsel
of the
Board, with relat ion
t o i t s
power
t o
reduce
t h e
number
of the
Federal reserve banks.
3 Diary, p . 100 , 101 .
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- 16 - X-6715
On November 16 , 19 15, Mr . Williams wrote t o t h e Committee asking
i t t o produce Mr. Cotton's opinion.
3 Diary, p . 109 .
Late on Saturday afternoon, November 20 , 191 5 , the Committee gave
t h e wr i t e r a copy of Mr. Cotton's opinion, dated November 19 , 1 915 , i n
which h e advised t h e Committee that th e Board h a d power t o reduce the
number
of the
Federal reserve banks.
M r.
E l l i o t t ,
i t
should
be
remembered,
h ad
previously advised
the
Board that i t ha d no such power.
According t o t h e wr i t e r ' s r e co l l e c t i o n , no authori ty from t h e
Board h a d been obtained by the Committee t o secure this opinion from
M r.
Cotton.
In any
event ,
t h e
fact remained that
a t t h e
meeting
o f the
Board
s e t f o r November 2 2 , Monday, - only a few hours d is ta n t , - when i t
was expected that a final vote would b e taken , th er e would have been
befo re th e Board tw o rad ica l ly c onf l ic t ing opin ions a s to the power
of the Board, - tha t of Mr. E l l i o t t , th e General Counsel, a n d that of
M r.
Cotton,
t h e
special Counsel,
Such confl ict
of
opinion,
i t
must
be
evident, would have plunged
t h e Board into hopeless confusion, and an opinion from th e Attorney
General
was
abso lu te ly necessary
to
s e t t l e
th e
question
of
power once
f o r a l l .
The Governor would have called a special meeting of the Board to
obtain a formal vote requesting such an opinion, bu t i t was l a t e
Saturday afternoon a nd the Board members had separated s o t h a t a
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1 9 0
- 17 - X-6715
meeting on Sunday would n o t have been p rac t icab le . The Governor f e l t
t h a t i t w a s t h e i n t e n t i o n of what M r. Warburg describes a s t h e major i ty"
t o f o r c e a vo te on Monday, a n d i t th er ef or e , seemed impera t ive t o
a s k
t h e Attorney General f o r a n opinion.
Ord inar i ly , under t h e p r a c t i c e o f t h e Board, a reques t o f three
members
f o r a n
op in ion
o f t h e
Attorney General upon
a n y
impo rtan t ques-
tion would b e acted upon favorably b y t h e Board almost a s a mat te r o f
course , without quest ion. Had th e Board voted adversely upon such a
r e q u e s t , t h e S e c re t a ry o f t h e Treasury, a s Chairman o f t h e Federa l R e -
serve Board, under exis t ing law and p r ac t i ce , cou ld have , of h i s own
v o l i t i o n , c a l l e d u po n t h e Attorney General f o r a n opinion; or any
member o f t h e Board could a t a n y time request t h e P re s id e n t t o c a l l
f o r
such
a n
opinion.
Under those circumstances, t h e Governor, late on that Saturday
evening explained t h e s i t u a t io n o v e r t h e te lephone t o S e c re t a ry Mc~
Adoo,
who
t o l d
h im
t h a t
he had a
copy
of Mr.
Cotton 's opinion
and
f u r t h e r , - what h e d i d n o t know before, - t h a t t h e Attorney General
* %
h a d
been engaged
i n
s tudying
t h e
ques t ion
o f t h e
Board's power
f o r
some time, a t h i s re qu es t. Se cr et ar y McAdoo f ur t h er sa id th at t h e
President wished t h e Governor t o w r i t e h im a l e t t e r r e q ue s t in g h im to
o b ta in an d forward a n opinion o f t h e Attorney General.
The Governor acc or din gl y, a ddres sed a l e t t e r t o t h e Pres iden t
s t a t i n g th a t , b o th i n h i s c a p a c i t y a s Governor and as a member of the
Board, h e would b e g re a t ly h e lp e d i f a n opinion o f t h e At to rney G e n -
eral could b e secured.
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191
- 18 - X-6715
The l e t t e r w as s e a t t o t h e P re s id e n t on Sunday, November 21 , 1915 ,
and on Monday, November 2 ind , j u s t "before t h e Board meeting, a l e t t e r
from t h e P re s id e n t was rece ived by th e Governor, together with a copy
o f t h e Attorney General 's opinion, which t h e Governor a t once laid b e -
f o r e
t h e
Board.
This opinion negatived
a n y
power
i n t h e
Board
a n d
t h u s s e t t l e d
t h e
conf l ic t be tween
t h e
opinions
o f t h e
General
a n d
special Counsel
of the
Board.
To sum u p : - The Board h a d secured a n opinion from i t s General
Counsel;
t h e
Redis tr ic t ing Committee , without
a n y
au thor i ty f rom
the
Board, h a d secured a n opinion from t h e Special Counsel; a n d t h e S e c -
r e t a r y o f t h e Treasury , of h is own v o l i t i o n , h a d c a l l e d f o r a n opinion
from
t h e
Attorney General .
The two
former confl ic t ing opinions would
have been before t h e Board a t i t s meeting of November 22nd. I t w a s
a b so lu t e ly n e c e s sa ry
f o r t h e
Board
t o
have also
t h e
opinion
of the
Attorney General upon
t h e
same subject, asked
f o r
i n fo rma l ly
b y t h e
S e c r e t a r y o f t h e Treasury, a n d i n asking f o r th i s op in ion , a t t h e s u g -
g e s t i o n o f t h e P r e s i d e n t , on Sunday, t h e 2 1 s t o f November, t h e G o v -
ernor mere ly an t ic ipa ted
by one day
what
t h e
Board
a s a
matter
o f
course , o r t h e S e c r e t a r y of the Treasury in h i s own r i gh t , would
have done
o n t h e
nex t
d a y .
T hi s a n t i c i p a to ry a c t i o n
of the
Governor,
moreover,
a s i t
tu rned
o u t ,
made
i t
p o s s i b l e
f o r t h e
Board
t o
have
t h e
Attorney General ' s opinion before
i t
when
i t m e t t h e
next
day
a n d
thus saved
t h e
n e c e s s i t y
of
fu r t he r postponement
of the
meeting
t o awai t i t s r e c e i p t .
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The Redistricting Committee seemed t o f e e l tha t the re shou ld have
"been
a
formal hear ing
a t
which each sid e could have pr es en te d
i t s
case
b e f o r e t h e At torney General . Ho such op po rtu nit y, however, was a f f o r ded
t h e
Minority when
t h e
Committee asked
f o r M r .
Cot ton 's opinion.
1 - 436 .
The Committee, however, forgot that t h e only question "before t h e
Attorney General was one of law, and t h a t t h e l a t t e r h a d b e f o r e h im
t h e
opinion
of Mr.
E l l i o t t ,
a n d
a l so tha t
of Mr .
Cotton,
-
presumably
sent with t h e other papers by Mr. E l l i o t t .
5 Diary, p . 1 4 6 .
The Committee stated that i f t h e At torney General h a d known that
branches would have been subs t i tuted f o r a l l Federal reserve banks
abo l i s hed ,
h i s
opinion might have been di f ferent ,
b u t t h e
w r i t e r
r e -
c a l l s no r e f e r e n c e i n M r . Cot ton 's opinion o r i n t h e pre l iminary repor t
o f t h e Committee t o this argument . I f i t was i n Mr . Cotton's mind, h e
ev i den t l y a t t ached
n o
importance
t o i t .
M r. Warburg, however, i n ef fec t c l a ims tha t t h e a d d i t i o n t o t h e
B o a r d ' s f i l e s
o f t h e
At torney Gen era l ' s opinion bes ide those
o f the
General a n d Sp ec ia l Counsel o f the Board , cons t i tu ted a combination o r
conspi racy t o suppress d i scuss ion As well might one claim that a d e -
c i s i o n
o f the
Supreme Court
o f the
Uni ted States that
a
claimant
h a d
in law no cause o f act ion should b e c h a r a c t e r i z e d a s a combination o r
conspi racy o f the J u s t i c e s o f that Court t o f o r e s t a l l d i s c u s s i o n
Th e wr i t e r be l i ev es t ha t t h e above statement o f facts wil l effect**
ua l l y d i s pos e of Mr. Warburg's charges of combination o r conspi racy t o
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- 20 *
X-6715
suppress d i scuss ion a n d th at t hi s myth wi l l vanish int o th in a i r .
- x n i -
As a ma t t e r of fact , however , t h e whole question o f r e d i s t r i c t i n g
h a d i n e f fec t been d isposed o f p r i o r t o t h e r e c e i p t o f t h e Attorney
General 's opinioi i .
M r. Warburg, over a n d over aga in , s ta tes tha t a m a j o r i t y of four
members
o f t h e
Board favored cutting down
t h e
number
o f
Federal reserve
banks , a n d p l a i n l y s eeks t o have i t imp lie d t ha t th ey would have so
voted
b u t f o r t h e
Attorney General 's opinion.
1 - 438.
This s ta tement may have been true a t o n e t ime , b u t i t w a s n o t t rue
o n t h e morning of November 22nd, t h e da te o f t h e f ina l meet ing .
On Sunday, November 2 l s t , a s above stated, Secretary McAdoo told
t h e
w r i t e r t h a t
M r.
Harding
h a d
t o l d
h im
e a r l i e r
i n t h e d a y
t h a t
h e
h a d become sa t i s f ied tha t a n y a t tempt t o c u t down t h e number of Federal
reserve banks would b e r e s i s t e d i n t h e cou r t s a n d l ead t o long drawn
o u t l i t iga t ion which would b e mos t in jur ious t o t h e Federal Deserve
System, an d t h a t h e h a d determined t o vo t e t o d i smiss t h e '-hole matter.
3
Diary',
p . 1 1 7 ,
Senator Hoke Smith h a d p rev iou s ly t o ld t h e w r i t e r o f a s imi l a r
conversa t ion wi th
M r.
Harding.
3 Diary , p . M 5 .
Thus Mr, Warburg ' s major i ty o f four h a d dwindled t o a mino r i t y o f
t h r ee .
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- 33, - X-6715
The
w r i t e r
w as
f ar ther informed,
o n t h e
very "best au th or i t y, tha t
one
other member
of Mr*
Warburg
* s
"Major i ty"
h a d
reached
t h e
same
c o n -
c l us i on .
Perhaps these members h a d l ea r ned o f the informal ac t i on o f the Federal
Adrisory Council
i n
unanimous opposit ion
t o a n y
cutting down
o f
Federal
reserve "banks a t t h e present t ime.
3
Diary ,
p . 1 1 4 .
Thus, i f a f in a l , vote h a d "been taken on November 22nd, - wholly
apar t f rom t h e At torney General
1
s opin ion , - t h e Committee report
would have been defeated
by a
vote
of
f i v e
to two and the
whole
m a t -
t e r would have pa sse d in to o bl iv io n.
- X I V -
I t
s hou l d f u r t he r
b e
p o i n t e d
o u t
that al though
M r.
Warburg,
i n
h i s book, over a n d over again expresses h i s convic t ion tha t t h e
number
of
Federal reserve banks should
b e
reduced
f o r t h e
good
o f t he
System and o f th e count ry , y e t h e took a v e r y d i f f e r e n t p o s i t i o n i n
addresses made
b y h i m a t
about that time
and
l a t e r ,
a s t h e
fol lowing
quotations wil l show:
In an
address de l ivered
a t
Char lot te , Nor th Carol ina,
on
November
23 , 1915 , - only one day a f t e r t h e f i n a l d i s p o s i t i o n b y t h e Board o f
t h e
r e d i s t r i c t i n g r e p o r t ,
i n
reviewing
t h e
f i r s t y e a r ' s o p e r a t i o n
o f
t h e
Federal Reserve System,
Mr.
Warburg said:
I am looking back upon t h e f i r s t year wi th f u l l
s a t i s f a c t i o n . " ( I t a l i c s mine )
Again, i n t h e same address h e s a i d : .
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I t was a
d i f f i c u l t p r o b l e m
t o
wr i t e
so
i n t r i c a t e
a
l aw as the
Federal Eeserve Act*
I t i s a
very remarkable
achievement t o have p u t upon t h e books a statute which
h a s brought in to l i fe a system which h a s proved i t se l f
ent i re ly workable a n d succes s fu l*" ( I ta l i cs mine)
2 - 35 0 , 35 1 .
As one of the Committee, h e a l so repor ted t o t h e Board on
December 2 , 1 9 1 5 , t h a t t h e Fe der al Reserve System whether wi th
twelve "banks o r e ig h t "banks w i l l prov e of inest imable value."
( I ta l ics mine)
1 - 434 .
I t h a s
also been claimed that
Mr.
Warburg's demand
f o r
reducing
t h e number of Federal reserve banks i s incons is ten t wi th h i s o f t r e -
peated recommendation that a p o r t i o n of t he p a i d - i n c a p i t a l b e r e -
tu rned
b y t h e
Federal reserve banks
t o t h e
member bank stockholders*
.
I f strong enough t o b e ab le t o r e tu rn pa r t of t h e i r pa id - in ca p i t a l ,
surely they were strong enough t o exis t without t h e n e c e s s i t y o f
merging some
o f
them with re l a t iv el y s t rong er banks.
M r. Warburg makes t h i s recommendation un eq ui vo ca ll y i n h i s a d -
dress a t S t . Paul, Minn. , on October 2 2 , 1 9 1 5 , - j u s t one month b e -
fo re
t h e
Board meeting
o f
November
22, 1915
(2-310) ;
an d
a l so
i n
h i s address a t At lan t ic Ci ty on June 9 , 1916 (2 - 4 32 ) .
I n a l e t t e r t o Senator Glass, however, dated February 2 9 , 1 9 1 5 ,
h e qualified this recommendation, favoring a temporary return of t he
p a i d - i n c a p i t a l o f some o f t h e Federal reserve banks.
This recommendation was based on the f ea r t ha t f a i l u r e t o p a y
dividends might hurt
t h e
p r e s t i g e
o f t h e
Federal reserve banks,
and
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196
2 3
X 6715
acco rd in g ly
h e
favored paying back
a
p a r t
of the
pai d - i n ca p i ta l , thus
reducing th e n e c e s s i t y f o r earn ings .
I n connection with t h e above le t ter t o Senator Glass, i t i s s i g -
n i f i c a n t t o p o i n t o u t t h a t , up t o June 30 , 1916 , t he only hanks which
h a d declared dividends were t h e Federal Reserve Banks of At l an t a , Dal las ,
a n d Richmond, - fol lowed by Kansas Cit y i n Ju ly - while t h e r e l a t i v e l y
strong banks, excepting only Chicago, d i d n o t begin t o declare dividends
u n t i l much l a t e r , almost
a t t he e nd o f t he
year
1916 .
Thus
t h e
p r e s t i g e
o f t he
Fed er al Reser ve System which
Mr.
Warburg
was
t ry in g
t o
p r o t e c t
b y
re tu rn ing par t
o f t he
p a i d - i n c a p i t a l
of the
Federal reserve banks,
w as
being
i n
fact maintained
b y
some
o f t h e
relatively weak banks which Mr. Warburg wished t o e l imin a te .
Another in teres t ing fac t t o note i s th a t t h e Federal Advisory
Council, on ITovember 18 , 1915, - t h e day a f t e r t h e d i scu ss io n i n t h e
Board on the Committee 's prel iminary report , - voted i n favor o f r e -
tu rn ing two- th i rds o f t he p a i d - i n c a p i t a l o f a l l o f t h e Federal r e -
serve banks t o t he member bank stockholders.
3 Diary , p . 110 .
The Federal Advisory Council consists of bankers representing
t h e twe lv e Fed era l r e se rv e d i s t r i c t s , a nd t he above vote was an
impress ive t r ibu te
t o t h e
soundness
a n d
successfu l opera t ion
o f
th e twelve Federal reserve banks, an d u t t e r ly in co n s i s t en t w ith
M r. Warburg
1
s claim that t h e number o f Federal reserve banks should
be reduced.
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X-6715
To cap the c l imax, t h e Federal Advisory Council, o n t h e same
d a t e ,
-
November
1 6 , 1 9 1 5 ,
in for mal ly cons idered
t h e
ques t ion
o f r e -
ducing
t h e
number
o f
Federal reserve "banks,
a n d
while many thought
i t could wis ely b e done, y e t i t unanimously was o f t he opinion that
i t
should
n o t b e
undertaken
a t t h e
present t ime.
3 Diary, p . 1 1 4 .
-XV-
M r.
Warburg goes
o u t o f h i s w ay t o
drag
i n t h e
quest ion
of
r o t a t i o n
o f t h e
o f f i c e
o f
Governor.
He
charges
t h e
then Governor
with subserviency
t o
Secretary McAdoo,
a n d
s t a t e s t h a t
t h e
independ-
ence
a n d
p r e s t i g e
o f t h e
Board make
i t
impera t ive tha t
one of the
other four appointive members should b e t h e next Governor.
1 - 445 .
Apparent ly
t h e
bare suspicion that
t h e
Governor
was in
harmony
wi th t h e views o f t h e P re s iden t o f t h e Uni ted S ta tes a n d t h e Secre ta ry
o f t h e
Treasury
was a
s u f f i c i e n t b a s i s
f o r t h e
demand that
h e
should
be
d i sp l aced
a n d h i s
pl a c e f i l l e d
by one of the
"Major i ty . "
The
fac t a l so tha t
a n y
member
o f t h e
Board should
b e
e i t h e r
a
p r e s e n t
o r
fo rmer o f f i ce r
o f t h e
United States, seems
t o
have almost
i n f u r i a t e d M r. Warburg; a n d y e t , n o t long before , i n o u t l i n i n g t h e
p r i n c i p l e s
o f a
modified Central Bank
o f
I s s u e ,
h e
favored
a
cen t ra l
body
a t
Washington (corresponding
t o t h e
Federal Reserve Board)
t o
c o n s i s t ,
i n
p a r t ,
o f t h e
Sec re t a ry
o f t h e
Treasury,
t h e
Comptroller
o f t h e Currency, t h e Treasurer o f t h e Uni ted S ta tes , a n d ( i t a l i c s
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1 9 8
- 25 -
X-6715
w o
mine)
s i x
members
o f
Congress1
2 - 7 7 .
M r. Warburg outlines t h e e f f o r t s h e made t o f o r c e t h e P re s iden t
t o
provide
f o r
r o t a t i o n
i n t h e
o f f i c e
o f
Governor,
a n d
e v i d e n t l y
b e -
l i e v e s
i t w a s
through
h i s
i n s i s t e n c y t h a t
t h e
then Governor
w a s n o t
redesignated, a l though reappointed
f o r a
ten-year term.
The
wr i t e r t akes
a
languid in te res t on ly
i n
this mat ter*
b u t
would present
t h e
fol lo wing br ie f s ta tement
o f t h e
f a c t s .
M r.
Warburg states that
tw o
appointive members
o f t h e
Board
h a d
a n in te rv iew wi th t h e P re s iden t a n d s t rongly urged t h e n e c e s s i t y o f
r o t a t i o n i n t h e o f f i c e o f Governor.
1 - 445 .
This meeting took place during
t h e
week prior
t o
June
1 9 , 1 9 1 6 .
3
Diary,
p . 2 3 3 .
M r. Warburg al so s t at es th at h e interviewed Secretary McAdoo
a n d gave h im a memorandum o n t h e same subject on August 3 , 191 6 ,
1 — 4 4 5 .
The
w r i t e r w i l l
n o t
under take
t o
express
a n y
opinion
a s t o t h e
e f f e c t on the P r e s i d e n t a n d Secretary McAdoo of Mr . Warburg's attempt
t o
f o r c e r o t a t i o n
i n t h e
o f f i c e
o f
Governor,
b u t
wil l merely point
o u t o n e re as o n, s u f f i c i e n t a t l e a s t f o r h i m s e l f , w hy h e wa s n o t r e -
des igna t ed a s Governor, v i z . - t h a t on Monday, June 1 9 t h , a n d again
on June 30th, h e informed Secretary McAdoo that while h e would b e glad
t o b e reappoin ted fo r a new ten-year term, h e p e r s o n a l l y had no des i re
t o b e
r edes igna t ed
a s
Governor,
a n d
begged
h i m n o t t o
h e s i t a t e
t o
drop
h i s
name
i n
that connect ion,
a n d
even suggested another member
f o r
Governor,
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1 9 9
2 6
X 6715
i n response to Mr . McA&oo's question.
3 Diary, p . 2 3 5 , 2 4 0 .
On
Ju ly
2 1 , 1 9 1 6 , t h e
writer informed
one
member
o f th e
Committee
who had
seen
t h e
P re s iden t ,
of
this conclusion, adding that
he was now
merely a d i s i n t e r e s t e d s p e c t a t o r a n d would loyally support whomsoever
t h e President might designate*
3 Diary, p . 2 4 6 .
Some light
on
this mat ter
may
a l so
be
thrown
b y a
quotation from
a
l e t t e r se nt
t o t h e
w r i t e r
b y
President Wilson
on
August
10 , 1916 ;
. . . I c a n n o t
send
you a
note
a t
t h i s pa r t i cu l a r
time without expressing my g r a t i t u d e a n d apprec ia -
t i on
f o r t h e
generous
a n d
p u b l i c - s p i r i t e d a t t i t u d e
you have taken i n t h e mat ter o f the Governorship
of the
Federal Reserve Board,
a s
repor ted
to me
by Mr.
McAdoo...."
(S igned) Woodrow Wilson .
M r. Warburg makes another interesting statement, - tha t Mr. Delano
was no t
redes igna ted
a s
Vice Governor
b u t w a s
s a c r i f i c e d
i n
order
t o
save appearances f o r t h e Governor."
1 - 4 53 .
That
t h e
w r i t e r
d i d n o t
consider "appearances saved"
f o r
himself
b y t h e
f a i l u r e
t o
redes igna te
M r.
Delano
a s
Vice Governor would seem
t o
appear from
t h e
fac t tha t
on
June
19 , 1916 (3
Diary,
p . 2 3 5 ) , o n
June
30 ,
1916 (3
Diary,
p . 2 4 0 ) , a n d
even
a s
l a t e
a s
August
9 , 1916 (3
Diary,
p .
270 ) he suggested t o Secretary McAdoo t h e a d v i s a b i l i t y of des igna t ing Mr.
Delano a s Governor o f t h e Board
As to why Mr. Warburg was designated a s Vice Governor i n p l ace o f
Mr.
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mm 7
: 200
X 6715
Delano,
t h e
w r i t e r
has no
reco l lec t ion , tou t
h e i s
s a t i s f i e d t h a t
the
des igna t ion of Mr. Warburg a s Vice Governor sprang from no d e s i r e t o
"save appearances" f o r t h e wr i t e r .
• - XVI -
I n summing u p th i s unfor tuna te cont roversy , t h e writer would
p o i n t
o u t
t ha t
t h e
three members referred
to toy Mr.
Warburg
as th e
"Minori ty" h a d a l l h a d much to do with th e p r e p a r a t i o n a n d f i n a l
d r a f t of t he Federal Reserve A c t , - t h e writer having "been charged '
toy Secretary McAdoo with t h e duty o f examining c r i t i ca l ly a l l changes
i n t h e "bill a s passed toy the House, suggested toy the Senate Committee.
Naturally these three members of t he Board would require cogent reasons
f o r
such
a
radical change
i n t h e
Federal Reserve
Act as was
demanded
toy the Redistricting Committee o f t h e Board , espec ia l ly a f te r the
experience
of
only
one
yea r ' s opera t ion
of t he
System.
These three members were perfectly familiar with Mr. Warburg
1
s
determined b u t f r u i t l e s s e f f o r t s , w hi le the Ac t was pending i n Congress,
t o l i m i t th e number of Federal reserve banks t o f o u r , o r t o s i x a s a
maximum. They c o r d i a l l y acc ept ed t h e w i l l of Congress i n f i x i n g the
number a t between eight a n d twe lve . While t h e writer would have p r e -
ferred beginning with a smaller number than twelve, Federal reserve
banks,
h e
loya l ly accepted
t h e
dec i s ion
of t he
Reserve Bank Organization
Committee, consisting of t he Sec re t a ry of t he Treasury, th e Comptroller
o f t h e Currency, a n d t h e Secre ta ry o f Agr i cu l tu r e , Mr. Houston, i n
f i x i n g th e number a t twelve. The th ree of us were firm i n t h e
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2 8
; 201
X 6715
conviction, however, that
110
reduct ion
i n t h e
number should
b e
made,
- even assuming t h e Board h a d t h e necessary power, - un l e s s a n d u n t i l
t h e
r e s u l t
o f
exper ience
i n t h e
workings
o f t he
System clearly
dem-
ons t r a t ed t ha t a r educ t i on i n number was absolu te ly necessary f o r t h e
good
o f t he
System
and of the
count ry. They f e l t th at
t h e
r e p o r t
o f
t h e
Redistrict ing Committee revealed
n o
such ne ce ss it y. They f e l t
t h a t a n y at tempt t o reduce t h e number o f Federal reserve "banks would
be
r e s i s t e d
i n t h e
cour t s
an d
would cause confusion, uncertainty,
a n d l ack o f confidence i n t h e Federal Reserve System, - a r e s u l t
s p e c i a l l y
t o he
avoided
a t
th a t time when
t h e
world
war was
raging
i n
Europe. Their fe el in g i n t he mat ter was also confirmed b y t h e knowledge
t h a t t h e members o f t h e Federal Advisory Council, - on November 1 6 , t h e
d a y
fol lowing
t h e
d i scuss ion
i n t h e
Board al ready referred
t o , -
a f t e r
i n -
formal dis cus sio n, were unanimously aga ins t
a n y
at tempt
t o
reduce
t h e
number
o f
Federal reserve banks
a t t h e
pr ese nt t ime.
Final ly* one member o f t he Committee and one other member of the
Boar d, whatever th e i r former views
may
have bee n, rea che d
t h e c o n -
c lus ion tha t
a
r educ t i on
o f t he
number
o f
Federal reserve banks should
n o t b e undertaken a t that t ime.
Thus,
a s
once before s tated,
i f a
f i na l vo t e
h a d
been taken
a t
th e
meeting
o f t h e
Board
on
November
2 2 , 1 9 1 5 ,
wholly apart from
t he
adverse opinion
o f t he
Attorney General,
t h e
Redist r ic t ing Commit tee 's
r epor t
i n
favor
o f
reduct ion
i n t h e
number
o f
Federal reserve banks
would have been defeated b y t h e decis ive vote of f i v e to two, and
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202
29 X 6715
M r.
Warburg's "Majority"
o f
four
wo Id
have dwindled into
a
feeb le
•Minori ty" o f two*
-XVII-
The wr i t e r b e l i e v es th a t b y t h u s " l i f t i n g t h e v e i l * a t t h e point
where
M r.
Warburg ceased
t o
l i f t
i t , h e h a s
exploded
t h e
myth
of a
combination o r consp i racy on the p a r t of the P res id en t and o th e r o f f i ce r s
of t he United States t o suppress debate i n t h e Board; a n d h e i s f i rmly
o f t h e opinion that t h e subsequent marvellous work of the twelve Federal
reserve banks i n bear ing on th ei r shou lders , l ik e At l as , t h e c red i t
burdens o f t he whole world dating an d s ince t h e w a r , will have convinced
t h e
most skeptical that
th e
f a i l u r e
of the
a t tempt
t o
reduce
t h e
numbet
o f t h e Federal reserve banks h a s enured t o t he b e n e f i t n o t only of the
System b u t , a s w e l l , t o t he b e n e f i t o f t he en t i re peop le o f t h e United
S t a t e s .