xt7wwp9t2q46_16 https://exploreuk.uky.edu/dips/xt7wwp9t2q46/data/mets.xml https://exploreuk.uky.edu/dips/xt7wwp9t2q46/data/59m61.dao.xml American Liberty League 37 linear feet archival material English University of Kentucky This digital resource may be freely searched and displayed.  Permission must be received for subsequent distribution in print or electronically.  Physical rights are retained by the owning repository.  Copyright is retained in accordance with U. S. copyright laws.  For information about permissions to reproduce or publish, contact the Special Collections Research Center. Jouett Shouse Collection (American Liberty League Pamphlets), No. 19 "The Pending Banking Bill: An Analysis of a Proposal to Subject the Nation's Monetary and Banking Structure to the Exigencies of Politics," March 11, 1935 text No. 19 "The Pending Banking Bill: An Analysis of a Proposal to Subject the Nation's Monetary and Banking Structure to the Exigencies of Politics," March 11, 1935 2013 https://exploreuk.uky.edu/dips/xt7wwp9t2q46/data/59m61/59m61_19/Am_Lib_Lg_19_001/Am_Lib_Lg_19_001.pdf section false xt7wwp9t2q46_16 xt7wwp9t2q46 wr  ' , ‘ ;:
 
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Pamphlets Available
Copies of the following pamphlets may be ob- A
tained upon application to the League’s national
h¤¤dq¤¤rt¤rS= A    
American Liberty League—Speech by J ouett ,
Shouse
The Tenth Cgmmgndmgnt    
Why, The American Liberty League? p
Statement of Principles and Purposes
Progress vs. Change——Speech by J ouett 3
Shouse
_. Recovery, Relief and the Constitution- A   * * *
Speech by Jouett Shouse
American Liberty League——Its Platform
, An Analysis of the President’s Budget Mes- ·
Sage An Analysis of a Proposal to Sub»
. N.f(§.t}Aé?`I113Gs1rI;ast, and Recommendations p ject the  atiolfs Monetary and
_ I Analysis of the _$4,880,000,000 Emergency . Banklng S¢r¤¤¢¤r¢ to the ,
d Relief Appropriation Act ‘· Exigcncics of Politics
Economic Security—A Study of Proposed [
Legislation I .
Democracy or Bureaucracy?—Speech by
Jouett Shouse p.
The Bonus—An Analysis of Legislative Pro- I
posals p- R
The Constitution Still Stands—Speech by $1 · ,.** *74,
J ouett Shouse _  
Inflation—Possibilities Involved in Existing %   $'
and Proposed Legislation _ "`4>,.Y L€>"
The Thirty Hour Week——~Dangers Inherent I-
in Proposed Legislation h
* ,
W . I AMERICAN LIBERTY LEAGUE
rzte to _
Mammal Headquarters
AMERICAN LIBERTY LEAGUE NATIONAL PRESS BUILDING
NA·rIoNAL PRESS Bumnmc f WASHING"]-`ON· D- C-
WASHINGTON, D. C. l ‘
  * ir
@4 ""
· n Document No. IQ
1 > March, 1935

 I · ·   vately owned. Instead it adopted a system of
The Pcndlng Banklng Blll reg%pnaLFederaL Reserve banks, owned and con-
* tro ed y mem er banks under the supervision
fFdlR Bdh'h `tdd
The. proposed Banking Act of 1935 contains llc be fiegrfromeiiinrhillgcalnilrlifluvelnizle. Véiiselinpglwelis
provisions which would confer undue and im- over currency and credit as were conferred by
proper povver upon the executive branch of the 1 the Congress upon the Federal Reserve banks
governmen . Q were to e exercised under carefull rescr`b d
The bill, described by the President in a letter i rules, There was no carte blanche laulthority (to
to committee chairmen as "a tentative draft/’ experiment with new theories respecting money
makes these 1“eV0l11t1011e1‘Y Ghengee 111 p1‘eSe11t I and credit. The Federal Reserve form of organ-
Prac ice: ization has met all roper ce tral ba k` e d .
1. It provides for abdication by the Congress l . While the Federall Reservel Boardnhdlslgbelcdmse
or its constitutional duty to regulate the value increasingly a body subjectto the influence of
o money. I the political officers of the government the
2. _It delegates to the executive branch un- 1 theory of the framers of the original Act was
restricted authority to control the volume of ~ that the long and overlapping terms of ap-
currency and credit without so much as declaring pointive members and the conditions governing
a po icy. their selection would assure their independence.
3. It makes our monetary and banking struc- A The experience of nations throughout history
ture subject to the whims of_pol1t1cal influence. _ has been that, when governmental influence over
4. It strengthens the Pres1dent’s power over banking systems assumes the nature of manage-
the Federal Reserve Board and makes it im.- ment rather than supervision, financial ruin fol-
possible for that agency or the Federal Reserve 1 lows. In such circumstances the fiscal require-
banks to be independent. ments of Treasuries rather than of industry and
5. It shifts to_ the Federal Reserve Board agriculture tend to become the prime considera-
powers now exercised by the non-political Fed- tion in the determination of policies. The out-
eral Reserve banks. _ standing examples of disastrous inflation in the
_ 6. It destroys safeguards in present law affect- world have resulted from political control of 1
mg the use of currency and credit. central banks.
7. It facilitates inflation and offers no ade-
quate means of checking tendencies in this . _ a
direction. EXecut1Ve Power Already Increased
8. It opens the door to unsafe banking.
Developments of the past two years have
A ee¤rre1 Beskiee B111   l°li‘£idhElt%S’%?’tii°§$2ln§’§elleeebiitttt §¥§$.‘E2i`·
The changes Wnjoh propose to Overtlurn the extent than previously. _Central banking func-
principles upon which the Federal Reserve Act hlohe heVe been lodged lh the TreeeurY uhder
was based are embodied in Title II cf 1-1. 11. . the Ge1dRe»seryeAetef1934- The Treesury hes
5357 and S_ 1715 jntrodnoed by Representative 1 displaced the Federal Reserve banks as the cus-
Hygnry B_ Steargall Of Alabama, Chairman Of the 4 j t·OCl]8»H ofthe IIIOH€tz3I`y.gOlq. YBSCYVBS. The Tr€3»S•
House Banking and Currency Committee, and ury threush the elehlllzdeloh lurld oeh buy end
by Senator Duncan U. Fletcher of Florida, chair- _ · eell_ geld, lorelgu exehehge end seyernmrert ee·
man gf the Sgngtg Banking and Currency Com- A Cl11‘1t1€S Bild 0311 €Xp&I1Cl CI‘(-Bdlt tl1I'Ougl1 operations
mietee. This Title, taken in eebjunerded with eemperebie te epen market pureheses by the v
provisions of recent monetary laws, goes far . K Feders1Reserye hehl1‘f§9»S<·> 111 P1`1<>€S 111d11€€d by &11 }·>XP811S1011 of
out of the hands of the Reserve banks, wiping credit. The House of Representatives in May,
out present restrictions respecting eligible paper, 1932, passed the. Goldsborough Price Stab1l1za—
collateral and reserves and vesting broad power tion bill which directed the Federal Reserve au-
in the Federal Reserve Board. thorities to restore and maintain the price level
The bill provides that any sound asset of a of the 1921-29 period by the control of the vol-
member bank shall be el1g1ble for discount at a 111116 of 01‘€<11l5 and 01111‘€110Y- Thfi $611816 falléd
Reserve bank, subject to regulations of the Fed- to approve it. _
eral Reserve Board; that the Board shall have The pending measure makes possible what was
authority to prescribe limitations on the matur- §1011’¤€111Pl&”¤€d 1111d€1' 13116 G0ldSb01'011gh blu- _AS
ity of advances to member banks; that all mtroduced, however, It does not give specific
obligations guaranteed as to principal and in- author1zat1on_by the Congress for the adoption
terest by the United States government shall be of Such a policy. Complete freedom is allowed
eligible for purchase by Reserve banks without to the Executive branch 1n the determ1nat1on of
regard to maturity; that the requirement for policies perm1tt1ng manipulation of currency and
collateral for Federal Reserve notes in the form credit. By the clause respecting qual1ficat1ons
of eligible paper or government securities above of members of the Federal Reserve Board there
the minimum 40 per cent gold shall be repealed; 1S 1111Pl1€d 3 $2111011011 of €<101101111<> Pl31111111g 111
and that the Board may change reserve require- _ the monetary realm on an extensive scale. _ _
ments for deposits, both time and demand, in .i» The cl1m1pat10n of statutory restrictions facili-
any or all districts or classes ofcities. _ tates _e-xperimentation and thus increases the
. i possibilities oaf dangier. Thetpreseiit ieqgirements
as oc araceran maur11eso 611 e a er
Economic Planning tend to prevent the assets of the Resirve Eaigks
_ _ _ _ _ from becoming frozen. A central banking sys-
_A highly Significant <>ha¤s<*= m the qusliiiw- tem, maintaining ina ultimate reserves of the
tions for members of the Federal Reserve Board oommoroiai banks most bo kept liquid If the
Sheds light Oh what is in °°h}°€mplhhl°h· The Congress fails to define eligible paper which may
hggrsggzvggfi ghliliiggs b1;r€§£i?1i;};iOS;1a£ gglsgih be discounted at the Federal Reserve banks, it
ence or both to participate in the formulation of Wfghgive Xoohiiuch l§S°;€]i°,1°§t(i iaidmlnlstigatlvg
national economic and monetary policies." The O hi? Si) dn m gpgn Bn 6 Bm ?S€Ii"° boar
law now provides that the President shall have Img h ch. epeh B *}P°h l°° a°J°.W1S€ y> ut h
"due regard to a fair representation of the board W wh }S SubJ€0l? t0 Polmcal P1`€SS111`€
financial, agricultural, industrial and commercial Would be cerlmn tc Shgw V10 §§1‘€&l> 1* 191116110Y-_
interests, and geographical divisions oi tho The repeal _of requ1rements for collateral in
Country]? The present Clause is in harmony   the fOI`H] of Gllglble p3ip€I° or government S€CuI°]'*
6 7

 ties to supplement gold in support of Federal tion Finance Corporation. The home and farm
Reserve notes is another relaxation which may mortgage refinancing might be similarly handled.
prove dangerous. It opens the way to the is- Heretofore, the Congress has refused to allow
suance of notes against frozen assets and tends this type of obligations to be carried by the Re-
to defeat the purpose of the Federal Reserve serve banks. The repeal of collateral require-
system to provide an elastic currency which ex- ments for Federal Reserve notes encourages the
pands and contracts to meet the needs of busi- Reserve banks to hold securities of the govern-
ness. It makes it possible to base currency on ment and its various corporations. The power
Treasury deficits, now authorized only as a ' given the Federal Reserve Board to change
temporary expedient. reserve requirements makes it easier to force
The authority to change reserve requirements government securities upon the member banks of .
permits favoritism and discrimination. Either `_ the system.
the present fixed percentages for reserves in dif- Already our banks are overloaded with gov-
ferent classes of cities or a flexible scheme such ernment securities. At the end of the last fiscal
as heretofore has been under consideration is year, June 30, 1934, the banks, including Reserve
preferable. I banks, held nearly $13,000,000,000 of Federal
The elimination of these restrictions as sought obligations or about 50 per cent of the $26,000,-
in the pending bill is contrary to American — 000,000 of then existing interest-bearing debt.
principles. It tends toward further centralization Including government securities held as col-
of power in the hands of the Executive. It gives lateral on loans the total was as much as 60 per
authority which might be used to the detriment cent. On June 30, 1930, the banks held only
of the nation’s banking system. about $4,500,000,000 out of a total of $15,200,-
000,000 of interest-bearing debt. Present hold-
. . ings, which have continued to increase since the
Tr€aSurY Flnanclng _ end of the last fiscal year, are considerably more
. than three times the total of 1930.
.0118 Of the most Important phases has to .d° Legislation which tends to aggravate an al-
Wlth Treasury fmancmg The blu tends to gwe ready unhealthy banking status should be viewed
assurance that policies of the Federal Reserve with Sus mon
Board will be in harmony with the desires of the p `
Treasury. It is made easier for the Treasury to
finance deficits through the Reserve banks and e Who Shguld Control? ·
the commercial banks.
Past experience of all nations proves that a In behalf of the new bill it has been urged
government should not be in a position to domi— that there must be conscious and deliberate gov-
nate a central banking system. Too close an ernmental control of banking, and that the regu-
alliance encourages policies which may be help- ¢ latory body must be one which represents the
ful for immediate needs of a Treasury but give interests not of any particular class or group but
encouragement to inflation and in the long run . of the nation as a whole. Even if it is granted
are injurious to industry and agriculture. P that a greater measure of control is desirable,
It is not the function of any banking system ` its assumption by a politically dominated body
to afford the government a higher credit rating would most certainly not assure action consistent
than it is entitled to under prevailing market with the best interests of the nation as a whole.
conditions. Excessive government financing tends The mechanism devised under the Federal Re-
to interfere with normal commercial banking serve Act whereby the policies of a central board
operations. Any proposals to eliminate present are tempered by the checks and balances set up
restrictions upon government financing should be through the regional banks is much better fitted
considered most carefully. to produce policies in the national interest.
The bill allows the Federal Reserve banks to Under the operation of the present law the
purchase obligations of government corporations Federal Reserve Board has had a large measure
guaranteed both as to principal and interest, of authority. In looking back over the years
without any restrictions as to maturity. Under there is evidence to indicate that its judgment
such a policy the Treasury might shift to the was not always as good as that of the directo-
Reserve banks the financing of the Reconstruc- rates of the Reserve banks.
8 9

 The inflation which followed the World War real estate provision together agviththosefrelaxing
Woe eoeooregerl by the policy of the Federal restrictions and permitting ob llggtaona lo lglovern-
Reserve Board which, at the instance of the Sec- mont Eofpomtlons tg be abs? ?.  t 6 feiirve
retary of the Treasury, kept discount rates at a honlio hhloolons oollonoly l o lolul l Y E EEE
low level to facilitate the floating of the Victory lhEtmltlEnS· . . . . h d f
Liberty Loan. When the Board decided in 1920 Another provisionewhich mig thco1lvo(aie1rn% e
to contract credit, its methods were blamed for a banking IS that which allows t e c era ua
harmful deflation of agriculture. , serve Board to waive capital requllrements in _ e
In 1927 the Board adopted easy money poli- · admission of insured banke mtodt de sysgem piaor
cies with a view to stimulating business in this tc July l»_l937; Thlo lo lnl·En E dto 1 in EPP
00UI1tI‘y and €I1COUI‘8.glng 3, HOW of gold to Euro- }00W3·I'd Unlfloalilon of l5ll€ pI`€$€nt·h l18· 8·n_ lng
pean countries which were asking for assistance. . system, part of which is underl t eriaullervaaiolri
The Board forced the directors of the Federal 1 of the Federal government an p _ (atlas: ic};
Reserve Bank of Chicago to reduce discount except for such authority as 1S exgrcise froug
rates although its power to do so was of doubtful the_ Federal Deposit Insurance orpoga iond is
legality. The view of the Chicago direetoro that subleet only to control by t e statels. _t _urD11 ala-
such action would divert money from the middle tion is highly desirable butkto a lair 151 0 te
west to the East and that it would encourage 1 Federal Reserve system ban s wa; ma; eqaia e
speculation subsequently proved to be correct. capital will only weaken the banhing sdruc ture.
The Board’s policy at that time gave a start to There might be danger rather t anda van age
the wave of speculation which culminated in the ln b¤1ld1r1g UP o· honklng system lg Elgin Po l
stock market crash of 1929. The Board during ically dominated Federal Reserve oar . _
the year before the collapse refused to permit ‘
” advances of discount rates tlo as high levels as No Need for Haste
directors of Reserve banks e ieved were war- , . T . ‘. .
ranted. Such increases as were made failed to A Thls oholysls dchls mth °‘ llmllgllpagl ofqligc
halt speculation. Fletcher-Steagall bill known as Tia eh   _e
The proposed legislation unquestionably would TlhlE Eonmms no pr°V1S1°n f°rdW mt £’ gm 128
greatly facilitate credit expansion policies. It emergency need. Necessary araaenlmen ta od an 
would encourage inflation. It is dimeolt to eee lng laws are in Title I which {le atela do cecs}
how it provides any real powers to eohtrol harm- insurance and _1n Title III _w_1c en; a iesle exil-
ful tendencies beyond those given in the Banking flbiénviiiilllgglegztll_:);$oI;’Io;S9§niX;?;I@%1S23-): sioeritlg H'
Act of 1933` f k Before approval lof (auch rlreaoraanazhchangles  
Unsa e Ban ing policy as are invo ve in i e ` ere s ou
I b a com rehensive stud of bankin and mone-
The bill onooulogoo o doPol`l?ln`o frcm Pl`ln‘   tgry matigers by a nationlal commissihn of appro-
ciples which oxpolflonoo has shown tc he essential § priate character. The Congress has enacted many
tc _Solo oonllnololol bonklng and Vlolotlon of “ banking and monetary measures during the past
which contributed to widespread banking fail- I l two years under the Spur of an omargahoy Ng
Woo- It Phopoooo tc allow nlolnhol banks cf tho further laws of a permanent character should be
Federal Reserve system to loan an amount equal oountenanced except under conditions favorable
to their entire capital and surplus on real estate to Sound judgmorra _
for periods of 20 years and up to a sum ranging
from 60 to 75 per cent of the value of the
property.
The effect would be to freeze assets of a com-
` mercial banking system which to a much greater .
extent than is necessary in investment banking
should be kept liquid. Furthermore, the frozen
assets can be shifted to the Federal Reserve
banks at the will of the Federal Reserve Board
which is relieved of restrictions as to eligible
paper, collateral behind notes and reserves. The
10 ll