UTICA TRUST & DEPOSIT CO. UTICA, N. Y. Resources, $16,000,000.00 OFFICERS President J. FRANCIS DAY Vice-Presidents GEORGE E. DUNHAM Vice-President and Secretary GRAHAM COVENTRY Treasurer CHARLES J. LAMB Assistant Secretary Assistant Treasurer GEORGE W. WILLIAMS Assistant to the President..C. W. HITCHCOCK The Real Estate Title Insurance and Trust Company of Philadelphia 523 CHESTNUT STREET, Across from Independence Hall THE OLDEST TITLE INSURANCE COMPANY IN THE WORLD Capital (full paid) $1,000,000 Surplus and Undivided Profits (earned) $2,400,000 Incorporated in 1876, this Company has issued over 258,000 policies of title insurance and has accumulated information which enables it to execute work with unequaled accuracy and promptness. Executes trusts of every description. Lends money on installment and term mortgages. Becomes security for persons acting in fiduciary capacities. Receives money on deposit and allows interest. Buys and sells real estate and assumes the management thereof. OFFICERS FRANCIS A. LEWIS, President EXECUTIVES OF THE LEADING RAILWAY SYSTEMS OF THE UNITED STATES Their task is to bring about readjustment of wage and other problems attending return of transportation systems to private control. Seated, from left to right: J. M. Herbert, Samuel Rea, A. H. Smith. C. De Witt Cuyler, Alfred P. Thom, C. E. Loomis. Standing: B. M. Robinson, F. D. Underwood, J. Kruttschnitt, E. N. Brown, Daniel Willard, W. H. Finley, W. B. Storey and W. W Atterbury DISCUSS FUTURE OF AMERICAN SHIPPING AND MERCHANT MARINE The United States Shipping Board consults with leading business nen as to methods of transferring Governmentowned shipping into private control. Admiral William S. Benson, chairman of the board, is seated in center with Judge John Barton Payne on his left and former chairman Edward N. Hurley on his right Trust Companies Endorsed by the Executive Committee of the Trust Company Section, American Bankers' Association Vol. XXX April. 1920 Number Four RESPONSIBILITY FOR INFLATION ORGANIC DEFECTS OF FEDERAL RESERVE SYSTEM S the Federal Reserve system fundamentally wrong and is it primarily responsible, in its operations, for the failure of credit, banking and business to respond more readily to normal processes? An indictment, such as this inquiry suggests, may appear unduly harsh and ill-digested to those who regard the evils of inflation, excessive prices and suspension of economic laws as unavoidable concomitants of a great war which no human agency could have prevented. It may also seem a hasty and unwarrantable conclusion when we subscribe to the general view that the Federal Reserve system was forced to depart from its avowed functions in order to enable the Government to float its huge war loans by impounding the liquid banking resources of the country and subordinating its rediscount and rate-governing policies to Treasury requirements. Continued aggravation of credit and price conditions render it not only pertinent but necessary, however, for the most enlightened banking and economic thought of the Nation to scrutinize the machinery of the Federal Reserve system from a new and more searching viewpoint. Even to the most casual observer it must be evident that from the standpoint of economic readjustment, es pecially in relation to credit inflation and prices, this Nation seems to be drifting along helplessly like some derelict on uncharted seas. Efforts to retrace our course or make for a safe port, by such means as progressive discount rates to contract credit, preaching the gospel of greater economy in public and private expenditure or of urging increased production, are about, as effective as trying to empty the ocean with a spoon. Assuredly we cannot blame the Federal Reserve system for the epidemic of extravagance, for unreasonable demands of labor, social discontent and prevalence of strikes which causes hundreds of millions of waste, ties up our transportation lines, and seriously impairs the machinery of industry and production. We cannot hold the Federal Reserve system directly accountable for the impotency of our Government officials which defeats the best intentions of our business and financial leaders by connivance with industrial and social trouble-breeders and which permits administrative inefficiency, debauch of public funds and persistent affliction of war-time taxation. our elected and appointed officers of Government are eloquent in their disclaimers, asserting that our economic and social disorders are but reflections of world-wide unrest and undefined as And yet pirations for new standards of living. Disregarding the purely social and industrial aspects of the prevailing situation a survey of the facts leads us back to the door of the Federal Reserve system as the most responsible factor in rendering negligible and even abortive every attempt thus far made to apply correct formulas for economic reconstruction. In saying that there is no reflection upon the wisdom or sincerity of those who are entrusted with the administration of the Federal Reserve system. What we do wish to convey is that by reason of the misdirection of the proper functions of the Federal Reserve banks under stress of war-time necessity and chiefly because of ill-considered legislative amendments which are economically unsound and dangerous, the system has become practically powerless to resist, of its own volition, the sweep of inflationary forces which constantly act as feeders to higher prices, higher wage demands and dislocation of values in their relation to the laws of supply and demand. The American bankers must face the certainty that if the Federal Reserve system is to cease to be an engine which encourages and promotes credit inflation; that if Federal Reserve notes are intended to exist "solely as an elastic credit currency which shall expand and contract in volume with the demands of commerce," they must assume the initiative and not rely upon the Federal Reserve system as a divinely endowed "cure-all" and "panic-proof" instrument. To be sure the Federal Reserve Board might take the bit in its teeth and by drastic advances in the discount rate bring about a violent contraction of credit and redemption of notes. But the consequences of that are sufficiently plain to require no further detail. The sooner the Federal Reserve system undergoes a complete reconstruction, or at least, a return to its original functions, the better. We have seen how the volume of rediscounts has been shifted from war paper to commercial paper and how the volume of credit expansion has grown at a still greater pace since the Federal Reserve Board adopted its policy of gradual advance in discount rates last November. We witness an even greater projection of Federal Reserve notes despite the fact that a year and a half has passed since the armistice was signed, that the Government has withdrawn from the market for long-term loans and Treasury expenditures have been very materially curtailed. MUST RESTORE SOUND CURRENCY PRINCIPLES HE reason for the helplessness of the Federal Reserve policies is that demand for credit will not cease to be voracious and pay higher premiums so long as the source of credit seems inexhaustible with speculation and extravagance unchecked. When Congress enacted amendments which permitted unlimited expansion of credit and currency upon greatly reduced reserves, which made it possible for Federal Reserve notes to be used as actual reserves and to be accepted in circulation as equivalent to gold, it dallied with the chemicals of inflation which sooner or later end in an explosion, as history so frequently reminds us. Piecemeal amendments such as the Phelan bill recently passed by Congress which provides for a progressive rate of discount where accommodation extended to any one borrowing member bank goes beyond a certain limit, will not have any decisive effect in either holding down or contracting the volume of inflationary media. Congress must address itself to the task of an organic reconstruction of the Federal Reserve Act. The Federal Reserve Board must be freed from Treasury as well as political influence in its decisions. With earnings of 100 per cent. on their capital last year the Federal Reserve banks should cease to operate for profit at member bank expense and Treasury certificates should be issued at rates which will induce wider distribution. The war is over and it is time to revive sound and economically correct principles in our National currency and banking system. Meanwhile, the burden of cutting down all credit and currency that is either directly or indirectly employed for speculative or non-essential operations and the necessity of relieving their portfolios of non-liquid loans based on war |