Many of the implied charges against the Federal reserve system could be explained by the fact that no inconsiderable part of the trouble arose because the banks failed to realize that deposits are demand obligations, and therefore got things into a serious situation by a large volume of injudicious loans when they had extraordinarily high deposits. No small part of the alleged deflation was due to the fact that, not being able to collect these loans to satisfy depositors when the demand came, all their borrowing power with the Federal reserve banks was used for that purpose, and as it was not enough loans had to be called, and in such a situation payment is demanded from the man who can pay, regardless of the fact that he may be more entitled to the accommodation than some other customer who can not pay. As a matter of fact, Federal reserve banks were being called upon not only to furnish additional sums which the farmers needed, but what the banks needed to meet the demands of their depositors, and since the demand of the depositor is necessarily superior in the eyes of the banker to the demand of a would-be borrower, in many cases additional funds borrowed from the Federal reserve bank were given to the withdrawing depositor rather than to the farmer. The situation at one time in fact, all during the year 1920looked ominous. But the situation began really to brighten up before we knew it; it is brighter to-day than a great many people realize, infinitely brighter. And if there could be a cessation for a brief time of this pessimism that has spread all over the country, a pessimism because of the conditions which existed some time ago, as everybody admits they did, if we could restrain ourselves and not go to these extremes, we would not have these periods of depression. Fundamentally and basically, as shown by the figures of the Federal reserve banks, this situation is going to work out all right. You take the demand for wheat; or you take the cotton situation. Why, there is no comparison at all between the cotton situation this year and what it was last year. You take the Government report on the 25th of July, which indicated a yield of 8,200,000 bales, and compare that with the Government report which came out in August of last year, which indicated a yield of 12,500,000, and the actual yield proved to be 13,365,000-and bear in mind that August is the time when deterioration takes place in cotton, as the Congressman from Texas knows that is the time when the drought and insects get in their work. Based on present reports, I feel sure the cotton situation will be much improved this year. Now, consider the credit situation. When cotton was theoretically worth 40 cents a pound-I say theoretically, because while that was the price on the exchanges and certain grades could be sold at that figure the demand was very sluggish, and it had to be nursed along; large offerings would have broken the market. Last year many of the banks had low reserves and could not loan as they usually did on cotton. And suppose the banks had gone along and made loans on the usual basis of 80 per cent of market value, where would they have been? Now, this year, with cotton at the present price, with reduced supply in prospect and with the improved trade outlook, the prospects are very much brighter. In addition to all this, England had a coal strike and other labor difficulties, and those things are anticipated before they come along, and affect our exports. Already our exports of cotton are beginning to pick up, and so the member banks of the Federal reserve banks are fully warranted now, from the standpoint of sound and conservative banking, in doing things that they could not have done last fall. I want to elaborate on that a little more before I finish. It seems to me the best thing to do for the farmer and everybody else is to get out of this everlasting pessimism and saying we are going to the dogs, because we are not. We have passed through other situations, and we will get through this one. Representative TEN EYCK. I agree with you on that. Gov. HARDING. If a man wants to get credit at a bank, he must make a showing or put up his collateral, and have a cheerful countenance. The banker always thinks of the obligation he is going to take; he is ever mindful of his obligation to his depositors, and if a man goes into a bank and wants to borrow $10,000, and says that he has such and such commodities, but they are unsalable and that he does not know what they are worth, and if he does not get the money he will be everlastingly ruined, and makes a poor mouth, he is not as apt to get it as if he were cheerful and optimistic. It may be well enough to put up that line of talk to the tax assessor, but you can not borrow much money by talking to a banker like you talk to a tax assessor. Representative TEN EYCK. You must tell the banker the truth. Representative SUMNERS. Governor, I want to compliment you on your position on that matter. Gov. HARDING. I have made addresses preaching optimism all this year. The Federal Reserve Board did not create the depression. It saw this condition coming, and got ready for it, and the people of this country ought to be thankful that the Federal reserve banks have protected them as they have. Now, the very man who is one of our leading critics this year-I read from his annual reports this morning, and I want to insert one more reference in the record here of one thing which he stated. I want to call attention to this statement made in the last annual report of the Comptroller of the Currency. Representative FUNK. What I want to know, Mr. Harding, is whether it was or was not the policy of the Federal Reserve Board to take the position that farmers' credits should be limited. Gov. HARDING. No, sir; it never was. Representative FUNK. It was not in San Francisco? Representative FUNK. What about Julius Barnes's letter? Gov. HARDING. Who? Representative FUNK. The Wheat Corporation; did you O. K. or did the Federal Reserve Board O. K. his position upon the deflation of wheat? Gov. HARDING. I never heard of that before. Representative FUNK. The Federal reserve bank of San Francisco? Gov. HARDING. Not to my knowledge. I do not know anything about it. Representative FUNK. They sent out circulars to that effect. Representative FUNK. Yes. Gov. HARDING. What was wheat worth when the circular was sent out? Representative FUNK. About the peak. Mr. Barnes took the position that wheat would fall, and the bank of San Francisco sent out to its member banks Gov. HARDING (interposing). Did it fall? Gov. HARDING. Did that circular accentuate the fall? Representative FUNK. I think so. Gov. HARDING. The Federal Reserve Board has cautioned the reserve banks against issuing circulars. It has advised the banks to do their correspondence as far as possible privately, and admonished them to do it quietly. It has admonished them not to give out any information which could affect prices. It is not the function of the Federal reserve system to regulate prices, either up or down. The Federal reserve system is a banking system, and every banker looks to his collateral, but it ought to be done in a quiet way. This matter which I want to insert in the record is on page 291 of the comptroller's annual report for 1920 [reading]: The past seven years have been, in numbers of persons and extent of interest involved, the most momentous and critical in the history of this Republic. We have had to face and to solve gigantic and unprecedented problems, and the banking and financial machinery of the country has been subjected to a test and strain unparalleled. It has been the duty of our country very largely to finance the world, and in carrying out the program which fate imposed upon us we have overcome successfully difficulties that at times seemed almost insurmountable and we have met every righteous demand made upon us. Our Federal reserve financial and banking sys tem, inaugurated in 1914, has been of inestimable value; and without its aid, tasks which we have so successfully accomplished would have been impossible. Now, Mr. Chairman, I can read here the minutes and proceedings showing the policies and attitude of the board all during the fateful year of 1920. I can show you what happened when the wool growers got into trouble and came to Washington. I can show you what happened in May, when a conference was held here, and I have never seen any quotations from a statement issued after that conference. The CHAIRMAN. What I think the commission is interested in knowing is what the factors were which moved the Federal Reserve Board in adopting the policies which it did adopt at the various stages of this economic crisis through which we have been passing. That is, after all, the thing this commission is interested in, and it is interested in that, I believe, only in so far as an understanding of what has occurred and why it has occurred is helpful in determining what should be done in the future. GOV. HARDING. I want to say that that change in discount rates of the Federal reserve banks was not a change in policy; it is not a change in policy, changing a discount rate; that is something that is done to meet changes in the banking situation. I think possibly the best light I can throw on the policies of the Federal Reserve Board for 1920 is to read you a press statement which was given out after a conference held on May 28, 1920. The CHAIRMAN. I am going to suggest, as it is now 5.20 o'clock, that we take a recess until to-morrow morning at 10 o'clock. (And, thereupon, at 5 o'clock and 20 minutes p. m., the commission adjourned to meet at 10 o'clock a. m., on Fridav August 5, 1921.) AGRICULTURAL INQUIRY. FRIDAY, AUGUST 5, 1921. CONGRESS OF THE UNITED STATES, JOINT COMMISSION OF AGRICULTURAL INQUIRY, Washington, D. C. The joint commission met at 10 o'clock a. m., pursuant to adjournment of yesterday, in room 70, Capitol Building, Hon. Sydney Anderson (chairman) presiding. The CHAIRMAN. The commission will come to order. Mr. Harding, you may proceed with your statement, if you will. STATEMENT OF GOV. W. P. G. HARDING-Continued. Gov. HARDING. Mr. Chairman, I am anxious to conserve the time of this commission, and I think I can get through this morning. 1 have a great mass of material here, but I do not want to introduce very much of it now. It can be introduced later, if the commission so desires. If I may have the privilege after I have had an opportunity of digesting the record of the proceedings here this week of either coming before the commission again at some future date, or of sending a written communication to it, I would appreciate it, and it will enable me to finish this morning much sooner than I otherwise could. The CHAIRMAN. I do not think there will be any objection to that, whatever. GOV. HARDING. Thank you, sir. The CHAIRMAN. I want to say in this connection that the commission is anxious to give you every opportunity to express your views and to explain the provisions and policies of the board in any way that you desire. Gov. HARDING. I appreciate that, and in my remarks to the commission this morning I shall try to confine myself strictly to things that are germane to the matters that this commission is inquiring into. I would like the privilege, however, of filing for the record certain statements, which are not very long, which have a bearing, I think, on the whole situation. The CHAIRMAN. That may be done. GOV. HARDING. I would like to file a statement of call money rates and a statement of cotton quotations over a period of months, in order that the commission may determine what relationship there is between the two sets of figures, if there is any relationship. The CHAIRMAN. Without objection, the statements will go into the record. There appears to be no objection. |