xt7wwp9t2q46_28 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. 31 "Political Banking" Speech of Dr. Walter E. Spahr, Professor of Economics, New York University, April 26, 1935 text No. 31 "Political Banking" Speech of Dr. Walter E. Spahr, Professor of Economics, New York University, April 26, 1935 2013 https://exploreuk.uky.edu/dips/xt7wwp9t2q46/data/59m61/59m61_31/Am_Lib_Lg_31_001/Am_Lib_Lg_31_001.pdf section false xt7wwp9t2q46_28 xt7wwp9t2q46 ment of a National Commission on Money and
Banking.
Titles I and III of the Bill are safe enough, * *
and need not cause you concern; they merely
include technical amendments of minor con- P l' ° l
sequence. But if Title II should he passed, 0  
then only the most providential good fortune •
can save this country from the evil consequences  
which are almost certain to flow from a po-
litically-controlled banking system.
Let us all do our part in an attempt to prevent
the passage of this measure.
I ir *k ir
Speech of
DR. WALTER E. SPAHR,
Professor of Economics, New York Uni-
Y versity, and Member of the National
Advisory Council of the American A
Liberty League, over the Blue Net-
work of the National Broad-
casting Company, April 26, 1935
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I   so  .. .  cg
’?;·Y Lg? ‘
AMERICAN LIBERTY LEAGUE]
National Headquarters
NATIONAL PRESS BUILDING
WASHINGTON, D. C.
  4 * *
  V
t Document N0. 31

 serve Board can be made a political agent of
Political Banking the party in power; the Board will be able to
control the boards of directors of the Federal
* reserve banks; and these banks, in turn, control
THE question of “Political Banking" is not the member commercial banks. When such
one of mere academic interest; on the contrary, powers fall into the hands of a political party,
the issues involved have a most important bear- it is a simple thing to control business and the
ing upon the welfare of everyone of us. As you principal activities of people as they attempt to
may know, the American Liberty League does make their living. Give a political party con-
not attempt to utilize valuable time upon the trol of the commercial banking system of a
air, such as that allotted this evening by the country and it can control its citizens to any
National Broadcasting Company, except to dis- ·. extent it desires. The freedom of the people
cuss problems which are extremely pressing and g can disappear over night. 1
vital to the people of this country. ’ Despite the general denials of such intent on
At the moment there is a serious issue facing ·‘ the part of those who advocate· the passage of
our people in the tendency to convert our vari- Title II of the Banking Bill, and despite what
A ous banking systems into politically-controlled may appear to be plausible arguments advanced
` institutions. The general public does not ap- in behalf of some of its features, a wise and
pear to appreciate just how far this movement. prudent people will not permit such powers to
has already 'gone. I have just made a list of fall into the hands of any political party.
t twenty-one of our most important banking and The movement to make a politically-com
financial systems which are owned wholly or in trolled agency out of our Federal Reserve Sys-
part by the Federal government. This list in- tem cannot be fully appreciated without ex-
cludes, for example, such important institutions amining the fundamental notions which obvi-
as the Reconstruction Finance Corporation, the ously surround the plan and provide its prin- .
Federal Intermediate Credit System, the Fed- cipal setting.
eral Home Loan Banking System, the Home Those who advocate that
Owners° Loan Corporation, and the Central Causes of the Federal Reserve Sys-
_ Bank and the twelve Regional Banks for Co- Depression tem be brought under
operatives, and sixteen other systems and cor- Misunderstood the direct control of the
porations. Of this list of twenty-one, seventeen party in power are, in
are completely, and four are partially, owned general, the ones who have failed to understand
by our central government. Although Federal the fundamental causes and cures of this de-
ownership of some of these institutions is to be · pression. Though the depression was caused
defended, my purpose is to give you some idea by the World War and the attendant maladjust-
of the extent to which socialization in the Held ments, these advocates have contended that our
of banking and Hnance has already taken place. · . money and banking systems were fundamentally
Most of this has been accomplished since March, responsible for it. Though the depression, like
1933. the World War, was almost world wide, the ad-
Now steps are being taken which will make vocates of political banking nevertheless hold
it possible to convert our Federal Reserve Sys- that our money and banking systems were
tem into a politically-controlled institution. chiefly responsible for our depression. Though
This System supervises and provides banking the greatest inflation and the greatest aftermath
facilities for the member commercial banks; of suffering were experienced by those warring
and it is the commercial banks which touch the countries in which the central commercial
lives of all of us in our daily transactions. Title banks were brought under direct political con-
II of the Banking Bill of 1935, now before Con- trol, advocates of political banking would have
gress, opens the way by which the Federal Re- 3
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 us adopt such a system as a means of fostering force the government to go into the open
a business recovery. . market for its funds as do other borrowers. It
The advocates of political banking, in gen- is not the function of any banking system to
eral, believe that money and credit can be give the credit of any borrower a higher rating
forced into circulation by artificial means and than it deserves; and yet this is precisely what
a sound recovery generated. To accomplish the political bankers propose shall be done with
this they believe that they must have control the credit of the government. This, of course,
of our Federal Reserve System. They do not means credit inflation. These advocates who,
understand that, when a price level rises in a in the main, are the same ones who believe a
sound manner, the currency supply is a result nation can spend its way into recovery, are
rather than a casual factor. They do not under- l afraid to force the government to go into the
stand that the only certain way a currency can T open market for its funds; they are afraid that
be made to cause a rise in prices is to inflate it J investors would not purchase the government’s
and that this leads to subsequent disasters. In i' securities except at lower prices and that this
short, they do not understand that there is a   would tend to restrict the government’s borrow-
sound rise in prices which accompanies a sound ing and spending programs.
recovery and an unsound rise in prices caused The advocates of political banking are also
by currency inflation. They do not understand providing the means by which all sorts of long-
that the causal factors in each case are different, term illiquid assets can be dumped into the
that the reactions of people to the two types of . Federal Reserve banks and thereby converted
rising prices are different, and that the economic into deposit currency or legal-tender Federal
n consequences are different. Reserve notes. This, too, involves currency in-
It should be clearly understood that a sound flation.
rise in the price level is caused by the increased ln short, Title II of the
activities of producers, particularly those in the DaI1g€1‘0l1S Banking Bill of 1935 will
heavy goods industries, whose inventories and Possibilities giVe the Party in power
costs are reduced sufiiciently to enable them to Involved an OPPO1‘t¤11itY to insti-
resume operations at profit, and that the supply tllte all these inflationary
and velocity of currency in circulation increase and other measures which are known by mone-
as a consequence, The ungrjund rise in pricgg tary authorities to be economically fallacious
is caused by currency inflation, The Sound rise and dangerous for a nation. It is not too much
generates widespread confidence; the unsound to saY that under this Title II almost anything
generates widespread fears. The sound rise een be dene by the party in power through its
brings economic equilibrium and general pros. ;_ politically-controlled Federal Reserve Board. It
perity to all classes of people, The nnseund can inflate the currency without let or hin-
risc, caused by currency inflation, can end enly   drance; it can convert the government’s deficits
in a business collapse, or in repudiation of the r and other illiqnid paper into legal-tender paper
currency, or in its devaluation—all of which in- mono}? it can change the member ha11lSS° re-
volve serious losses for a people, serve requirements at will. The bill opens the
The adveeates of peliti. way for doing the very things that the impor-
Special cal banking algg propose tant lessons of central banking teach us should
Favors fer to grant the Federal gev. not be done. It does not provide for better
Qgvernment ernment; speeia] favors, central and commercial banking but for more
as against ether ber. political banking. There is nothing about the
rowers, in seeking loans, They are planning re program which can contribute to a sound busi- r
provide the government with an isolated market noss 1`oooVoYY5 thoro is nothing in tho nature of
in the banks at low interest rates, rather than T s sound I`oooVo1`Y Program which requires snoh
4 5

 a political banking scheme; and there is noth- Bill. This Committee is composed of the lead-
` ing which a central banking system can appro- ing monetary economists of this country. A
priately do to aid recovery which cannot be ac- short time thereafter sixty-two members of this
complished now by our Federal Reserve System. Committee issued another statement urging the
Another most damaging indictment against appointment of ·a National Commission on
this movement to make a political agency out Money and Banking. The American Liberty
of our Federal Reserve System is found in the League did likewise. Various other national
fact that there is no emergency calling for the bodies and outstanding individuals have urged
passage of such fundamental banking legisla- delay so that further study can be made of our
tion. Therefore the purposes of its advocates money and banking problems. The United
either rest upon fallacious notions as to the States Chamber of Commerce has urged such
powers which a central banking system can · delay and further study; the President of the
appropriately use to aid a sound business re- New York Chamber of Commerce has, for
covery, or they are part of the program of those several weeks, been publishing the names of
who wish to bring as many of our vital institu- 4 prominent people who have urged postpone-
tions as possible under political control in order ment of further legislation and the appointment
to insure the perpetuation of the party in of a National Commission; and a similar pro-
power. Of course there are others who support posal was made by a Special Committee of the
such a program because it is a step toward a American Bankers Association.
thorough socialization of our major economic To provide for such a Commission is but the
institutions. In any event, it is not the part of part of prudence; and at the present time such
prudence for our people, if they do not desire a procedure is especially wise considering that
political control of our most vital economic the advocates of Title Il are composed largely
institutions or if they do not wish to see social- of political planners, iniiationists, fiat money
ism advanced in this country, to ermit the advocates, and believers in a program of free
party in power to take possession of diur Federal spending by the government. The fact that
Reserve System. The lessons of central bank- these people oppose the appointment of a
ing unmistakably teach us that the farther re- scientific Commission to conduct a study of our
moved the central banking system is from po- currency and banking problems provides an
litical control the better it is for the general V additional good reason for insisting upon the
welfare. creation of such a Commission. Their anxiety
Recognizing that there to bring the Federal Reserve System under their
aCarefu] are no circumsta·nces oontrol as speedily as possible speaks for itself. i
Study which justify the passage *· Even though you may not be a close student _
Urged of SUGI1 ¤ bill at the pres- of the problems of money and banking, you
ciii times iii $0 far 38 thi? must be impressed with the wisdom of not per-
I1CC€SSiti€S of 8 sound YCCOVCYY EPB COI1CCI`I1Cd, i` Initting any Political Party to Obtain the power
find iiciiig "‘IiPrCii‘°’iiSiV€ regarding the d¤¤g€1‘$ to manipulate our commercial banking system
in the situation, various outstanding organiza- as it Sees HL You must appreeiate thc apn1.o_
tionsdhave urged that such legislation be.post- nriateneee of having money and banking reforms
pone and that mstead a Nat1onalComm1ss1on Studied and Proper laws drafted by a non_
6 appouitcd to Study the Problems °f mmlcy political scientific body interested in giving our
and banking reform before any further funda- ·
. . . people the best money and bankmg systems
mental legislation IS undertaken. Not long ago . bl Th f ·t C
sixty-six members of the Economists’ National attama 6. cm Orc, wH·c your Ongriisgmani
Committee on Monetary Policy issued a Public » Senators, and·newspapers 1n protest against the
statement condemning Title II er this Banking i’““"g° °f thm Tub IL and "rg° the "‘i’i’°mt'
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