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great question for it to settle is whether it is an emergency system or whether it is an integral part of the financial mechanism of the country. The great central banks of Europe are the leaders of the financial markets of their respective countries and the commanding factors therein. The legislative proposals which preceded the Federal Reserve act were framed upon an entirely different theory. They conformed to the remedial measures that had been suggested for a quarter of a century previous, and like them, were based upon the view that legislation should be of an emergency character. The bank desired emergency relief from the bad results of inflation, panic, or disaster. The Federal Reserve act was not confined, however, to the satisfying of such a demand. It created a permanent and costly organization; it provided regular and sustained functions which must be continuously performed in order to render the system efficient; it looked to regular rediscount transactions, not merely as a means of paying its expenses and dividends but as an indispensable medium through which to affect rates of interest and lending conditions. For all these reasons it was expected to play an active and important part in the market. This, however, it has not as yet succeeded in doing. Rediscount operations with it have been small, largely because of the great ease of money the country over. In order to sustain itself and to exert the influence it was expected to have, the system has, therefore, been obliged to operate under its open market powers. Of a total investment of about $740,000,000 for the year ending December 31, 1916, 52 per cent consisted of bankers' acceptances and 12 per cent of warrants. Only 28 per cent consisted of rediscounted paper, while, of the bankers' acceptances thus held, a considerable part were the so-called renewal acceptances. It must be concluded from this that the field of activity in which the reserve system has thus far exerted itself has not been a broad one, and the question may fairly be asked how much it will be broadened in the future. Although specific provision was made in the Reserve act for direct dealings between federal reserve banks and individuals in case of necessity, practically none such have ever been undertaken, and some of the reserve banks even go so far as to decline to deal with an individual, even though he bring to them paper with the acceptance or endorsement or both of a member bank. They prefer to obtain their open market paper through brokers, and they abstain from any direct relationship with the business community. This policy is

in pursuance of the feeling that a plan of rigid separation between the reserve bank and the public will be more acceptable to member banks than one of close relationship, and the question is properly and pointedly asked whether the reserve system can succeed upon these lines. The answer undoubtedly depends upon the extent to which the member banks are willing to foster it and the volume of business which they permit to come to it. Should the system persevere in the view that for reasons of policy it is not wise to become active in the open market as a competitor of any bank, its field of operations will be confined to that which is allotted to it by the banks. Its popularity will be developed, moreover, only among the banks, since the business man will find himself entirely divorced from it save in so far as he may realize the effect of its indirect working. It is, therefore, fair to say that up to date the federal reserve system has not incorporated itself into the business life of the community and that it is still to be seen how far it will do so. Whether it is desirable that the system should be thus closely allied to the commercial world or not is a matter about which opinions evidently differ, but there is unquestionably a distinct body of opinion holding that a reasonable and direct relationship to the business community would strengthen not only the federal reserve system in the narrow sense of the term, but also its individual members. The settlement of this difference of opinion is perhaps the greatest problem by which the system today is confronted.


It may be worth while to draw together, in a brief summary, the conclusions of the foregoing discussion. The federal reserve system has accomplished the following results:

1. It has successfully organized and set in operation a plan of coöperative banking in each of the twelve districts comprising the continental United States.

2. It has successfully established and organized at Washington a central supervisory agency entitled the Federal Reserve Board. 3. The banks and the board have been, on the whole, efficiently and satisfactorily operated.

4. Under this organization interest rates have been harmonized and unified to some extent, currency demands have been readily and effectively met, crop-moving difficulties have been made to disappear, and generally harmonious action conveying all of the

benefits of centralized banking, and free of many of the demerits of that plan, has been the order of the day. Seasonal shipments of currency have been rendered unnecessary.

5. The federal reserve system has made decided and satisfactory progress toward the unification of the underlying banking resources of the country, and the accumulation of its gold reserves under uniform control.

The federal reserve system has undertaken several important pieces of work which are still incomplete:

1. It has begun the standardization and unification of the commercial paper of the country. Some progress has been made in this direction, but what has been done has been primarily educational, and thus far only secondarily practical.

2. An effort has been made to introduce new kinds of paper, notably the bankers' acceptance. With the aid of unusual financial conditions marked progress has been obtained, but this progress has been to some extent vitiated through the adoption of irregular or unusual expedients.

3. The federal reserve system has undertaken the establishment of a uniform and universal system for the collection of checks. It has succeeded in establishing such a system, and has been successful in eliminating some of the dangers arising from the artificially stimulated "float" which was carried by many banks in former times. It has rendered the task of check collection cheaper than formerly. A part of the benefits, but not all, have' been transferred to the public. It will be necessary to have more coöperation from banks and clearing houses before the plan is wholly successful.

4. The federal reserve system has endeavored to make a beginning at standardizing methods of business accounting and securing the rendering of uniform statements, which so far has been only partially successful.

There still remain to be accomplished (in addition to the continuation of development along the lines set forth above) certain tasks which may be enumerated as follows:

1. Exploitation of the foreign banking field and the introduc-' tion of satisfactory measures looking to the retention of the foreign trade.

2. Development of the foreign relationships of federal reserve.

banks themselves, which are thus far only tentative or rudimentary.

3. Creation and development of a general international discount market in which the United States should have a suitable share.

The reserve system is still laboring upon its underlying problem -that of making the system an integral factor in the financial life of the country, properly related to its business men and commercial enterprises, undertaking and performing within its own field regularly assigned functions, and serving the community not merely in "emergencies," but as a permanent and trusted instru



As bearing on the general problem of all natural resources and the specific problem of the diminishing timber supply, a searching inquiry into the price-determinants of lumber should be valuable. Such an inquiry has recently been made by Mr. Wilson Compton.1 It is peculiarly timely for two reasons: It concerns an industry whose magnitude2 in value of product is (1909) surpassed by that of only two other industries. The owners of that industry have within a twelvemonth been petitioning the Federal Trade Commission in public hearings for relief from oppressive trade conditions. The study has the further merit of being one of the few serious attempts to discover correct methods of analyzing the influences which determine the price movement of a given commodity—a subject of no little current significance.

As to the facts of wholesale lumber prices, historically considered, the inquiry shows that from 1880 to 1897, with slight increase in actual lumber prices, there was an almost unbroken and a very marked relative rise as compared with general prices. And for the period since 1897 it is shown that both lumber and general prices have risen almost constantly but that the former have moved more rapidly and to a relatively higher point than have the latter."

Indicative of the method of the study, it is assumed that such influences as have caused a rise in general prices, such as a relative increase in money, have been likewise operative in their effects on the prices of lumber. It is therefore proposed to discover

1 Wilson Compton, The Organization of the Lumber Industry, With Special Reference to the Influences Determining the Prices of Lumber in the United States (Chicago: American Lumberman. 1916. Pp. x, 153).

2 Thirteenth Census of the United States, 1910, Abstract, p. 442. The value of lumber and timber products is exceeded only by that of slaughtering and meat-packing products and by that of foundry and machine-shop products. In number of establishments and in number of laborers employed the industry ranks first.

Compton, op. cit., p. 2.

"It is assumed that lumber prices have been affected by all general price influences and that these general factors are an adequate explanation of the historical phenomena of lumber prices in so far only as such phenomena have coincided with similar phenomena, during the same period, in the movement of general commodity prices. Peculiar phenomena, however, measured by the extent and by the direction of departure from the course of general

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