Benjamin Strong Jr. to Carter Glass
Title
Benjamin Strong Jr. to Carter Glass
Creator
Strong, Benjamin, 1872-1928
Identifier
WWP18828
Date
1927 October 5
Description
Benjamin Strong Jr. writes Carter Class regarding the Federal Reserve system.
Source
Benjamin Strong Jr. Papers, New York Federal Reserve Bank
Language
English
Text
Dear Senator:
Your kind letter of September 30 is before me, and I have read the enclosure which accompanied it.
I am utterly unable to fathom what Dr. Willis is driving at in his editorials. Many of them are based upon mistaken notions and frequently upon very flimsy ideas as to the operation of the Federal Reserve System.
While I do not regard the matter as of any serious consequence, it has rather offended my sense of the fitness of things that one so closely associated with the preparation of the bill and with the subsequent inauguration of the System should now be engaged in these persistent and frequently ill-founded criticisms.
I am quite unable to understand why the action of the Federal Advisory Council was not published, unless they feared it would add to the feelings aroused over this matter. I was told that one or two members of the Council were opposed to making any record of action whatever. The action taken was moderate and dignified. I presume by now you have had a reply from Mr. Wetmore with a copy of the resolution.
As to the last part of your letter, you need harbor no doubts as to my own position in this and like matters. I have no hesitation in advising you confidentially that when I learned by telephone from Washington that the Board proposed to take this action I did what I could to persuade some of the Board not to do so and, failing that, to defer action for a period, as I felt sure that but a short time was needed before the rate in Chicago would be reduced.
Knowing something of the legislative history of the Act in regard to the rate proviisions, I have never felt that Congress intended the Board should exercise this power but, of course, you know much better of what the law intended in that regard than I do. It may well be claimed that it is somewhat ambiguous. Whether the law intends that the Reserve Board should initiate changes or not I feel very certain that an attempt to exercise that power by the Board will, in the end, be fatal to the regional character of the System and will result in progressive deterioration in character of management of the various Reserve banks. The fact is, that in recent years, feeling the development of the tendency to centralize authority in the Federal Reserve Board and at times to undertake too many of the functions of an operating body, I may have gone too far in the other extreme in resisting the development so far as I had any influence to do so.I think I am warranted in stating that all of our directors and all of my associate officers in the Federal reserve bank feel as I do that thie tendency to centralize the direction of operations, and the authority to execute policies undertaken by the Board in Washington is a mistake and will be detrimental to the System. We certainly should be able by discussion, exchange of views and agreement to arrive at understandings where doubtful questions arise without its being necessary for the Board to invoke mandatory powers which are of very doubtful legality anyway, and which simply arouse controversy and cause bad feeling.
I am very hopeful of an improvement in these matters since the appointment of Mr. Young. He has had a long service in the Reserve System and understands thoroughly the various operating problems. He is a man of courage, of very high character, and what to me is most important, he enjoys the respect and affection of all of the officers of the Reserve banks who know him.It seems to me that it would be a calamity to have an overhauling of this matter by Congress. I feel quite certain that there is not likely to be a recurrence of this sort of an effort by the Board. If the Act needs clarification on this or any other point might it not be better to wait a few years until any changes which are felt to be really essential can be undertaken in better temper than is likely to prevail at the next session of Congress?
This whole affair has distressed me terribly. It was so unnecessary and the consequences present the possibility of so much harm. But please do not misunderstand my own position. It has never changed as to the necessity for maintaining the regional system as intended by Congress, and I can assure you that it won’t.
I have sometimes feared that you and others who have been watching the development of the System might not always understand just how it was functioning as to the relations between the several Reserve banks. I think the answer in a word is to say that it is functioning excellently in every respect. The feeling is good. There are no local or sectional jealousies such as might incorrectly be inferred from this recent episode and, on the other hand, the method of bringing about uniformity of operation, both as to policies and details through frequent meetings, committees, etc., has worked admirably and has welded the twelve bank into a real system without in any way destroying the regional principelle of local autonomy.You do not refer to Captain Allen in your letter, and I do hope that things are progressing favorably with him as well as with your own trouble.
With many thanks again for your letter, and warmest regards, I beg to remain,
Sincerely yours,
Your kind letter of September 30 is before me, and I have read the enclosure which accompanied it.
I am utterly unable to fathom what Dr. Willis is driving at in his editorials. Many of them are based upon mistaken notions and frequently upon very flimsy ideas as to the operation of the Federal Reserve System.
While I do not regard the matter as of any serious consequence, it has rather offended my sense of the fitness of things that one so closely associated with the preparation of the bill and with the subsequent inauguration of the System should now be engaged in these persistent and frequently ill-founded criticisms.
I am quite unable to understand why the action of the Federal Advisory Council was not published, unless they feared it would add to the feelings aroused over this matter. I was told that one or two members of the Council were opposed to making any record of action whatever. The action taken was moderate and dignified. I presume by now you have had a reply from Mr. Wetmore with a copy of the resolution.
As to the last part of your letter, you need harbor no doubts as to my own position in this and like matters. I have no hesitation in advising you confidentially that when I learned by telephone from Washington that the Board proposed to take this action I did what I could to persuade some of the Board not to do so and, failing that, to defer action for a period, as I felt sure that but a short time was needed before the rate in Chicago would be reduced.
Knowing something of the legislative history of the Act in regard to the rate proviisions, I have never felt that Congress intended the Board should exercise this power but, of course, you know much better of what the law intended in that regard than I do. It may well be claimed that it is somewhat ambiguous. Whether the law intends that the Reserve Board should initiate changes or not I feel very certain that an attempt to exercise that power by the Board will, in the end, be fatal to the regional character of the System and will result in progressive deterioration in character of management of the various Reserve banks. The fact is, that in recent years, feeling the development of the tendency to centralize authority in the Federal Reserve Board and at times to undertake too many of the functions of an operating body, I may have gone too far in the other extreme in resisting the development so far as I had any influence to do so.I think I am warranted in stating that all of our directors and all of my associate officers in the Federal reserve bank feel as I do that thie tendency to centralize the direction of operations, and the authority to execute policies undertaken by the Board in Washington is a mistake and will be detrimental to the System. We certainly should be able by discussion, exchange of views and agreement to arrive at understandings where doubtful questions arise without its being necessary for the Board to invoke mandatory powers which are of very doubtful legality anyway, and which simply arouse controversy and cause bad feeling.
I am very hopeful of an improvement in these matters since the appointment of Mr. Young. He has had a long service in the Reserve System and understands thoroughly the various operating problems. He is a man of courage, of very high character, and what to me is most important, he enjoys the respect and affection of all of the officers of the Reserve banks who know him.It seems to me that it would be a calamity to have an overhauling of this matter by Congress. I feel quite certain that there is not likely to be a recurrence of this sort of an effort by the Board. If the Act needs clarification on this or any other point might it not be better to wait a few years until any changes which are felt to be really essential can be undertaken in better temper than is likely to prevail at the next session of Congress?
This whole affair has distressed me terribly. It was so unnecessary and the consequences present the possibility of so much harm. But please do not misunderstand my own position. It has never changed as to the necessity for maintaining the regional system as intended by Congress, and I can assure you that it won’t.
I have sometimes feared that you and others who have been watching the development of the System might not always understand just how it was functioning as to the relations between the several Reserve banks. I think the answer in a word is to say that it is functioning excellently in every respect. The feeling is good. There are no local or sectional jealousies such as might incorrectly be inferred from this recent episode and, on the other hand, the method of bringing about uniformity of operation, both as to policies and details through frequent meetings, committees, etc., has worked admirably and has welded the twelve bank into a real system without in any way destroying the regional principelle of local autonomy.You do not refer to Captain Allen in your letter, and I do hope that things are progressing favorably with him as well as with your own trouble.
With many thanks again for your letter, and warmest regards, I beg to remain,
Sincerely yours,
Original Format
Letter
To
Glass, Carter, 1858-1946
Files
Collection
Citation
Strong, Benjamin, 1872-1928, “Benjamin Strong Jr. to Carter Glass,” 1927 October 5, WWP18828, Benjamin Strong Jr. Papers, Woodrow Wilson Presidential Library & Museum, Staunton, Virginia.