based upon independent data being offered. Political opponents, both Progressives and Republicans, thought to assail the work of the Democrats and to discredit it as a means of making political capital. It is doubtful whether any important provision was altered on the floor as the result of discussion, although a few points at which the measure was weak were subsequently rectified, probably as a result of the repeated attacks to which they had been subjected during the weeks before the measure was finally adopted. As the bill ultimately passed the Senate, it differed from the plan of the House in no respect that was of theoretical importance. It retained the provision for sales of stock to private holders and for the voting of the stock by trustees representing these holders, as well as for the purchase of stock by the United States itself, in case of necessity for so doing. It, moreover, introduced a change in the method of distributing the earnings of federal reserve banks whereby a portion of those earnings was to be employed for establishing a fund for guaranteeing the deposits of member banks which had taken stock in the federal reserve banks of their district. It altered the number of banks by cutting it to no less than 8 and not more than 12, in place of the "at least 12" of the House bill. While many minor changes and alterations of wording were made throughout, they did not alter the essential structure of the plan, but in some cases carried it further than the framers of the House measure had been able to do, embodying ideas that had been urged by them while the measure was under discussion, but for which they had not succeeded in obtaining endorsement. Perhaps the most injurious features which were added during the Senate stage of the measure were the provision cutting reserves of member banks to too low a point and that permitting the introduction of bank notes into reserves as a constituent element therein.

It is now necessary to pause for a moment to consider a countercurrent in the legislative history of the measure in the Senate. During the time the bill was under consideration in the Senate committee on banking, a serious political breach had occurred between the administration and its supposed friends. Three Democratic senators who were hostile to the ideas of the Federal Reserve Act had prevented an early unanimous report following the lines of the House bill, and, while two of them had subsequently sunk their differences of view, one had refused to do so and had joined with the political opponents of the measure. The committee was

thus divided into two portions, the one consisting of administration Democrats and those who voted with them, while the other consisted of old-time Republicans, Progressive Republicans, and one anti-administration Democrat. These two sections were numerically equal and both reported bills. That of the amalgamated opposition already described provided for but four reserve banks, and in various other particulars was considerably at variance with the terms of the official measure, which had ultimately been presented by the administration section of the committee. By a resort to caucus action which was early determined upon, it was possible to enlist a majority of two votes on the side of the official draft of the measure which in its ultimate form closely followed the House bill, as has already been indicated. The measure reported by the other section of the committee figured to some extent and was ultimately brought to a vote as a proposed amendment, but was defeated by the majority of two already referred to.

The substance of the work done in conference committee may be summarized somewhat further in order to bring out the points that had been accepted as innovations upon the House bill and those that have been rejected because the changes proposed in them were not deemed wise. Turning first to the alterations in the House bill that secured acceptance, the principal features may be enumerated as follows:

(1) Introduction of provision for sale of stock in federal reserve banks to the public in the event that not enough banks subscribe for the stock to furnish an adequate capital in any given district.

(2) Provision for alternative voting in the choice of directors of federal reserve banks so as to insure prompt election.

(3) Reduction of number of federal reserve banks to not more than 12, as against the "at least 12" of the House bill.

(4) Elimination of requirement that all national banks recharter.

(5) Broadening of powers of Federal Reserve Board and modification of language relating to rediscounts between federal reserve banks, so as to render such rediscounts easier than was intended by the House bill.

(6) Provision that the Secretary of the Treasury might, not must, deposit public funds in reserve banks.

(7) Reduction of reserve requirements placed upon member banks under House bill.

On the other hand, the following important points were yielded by the Senate in the conference:

(1) Omission of provision that holders of stock sold to private individuals (if any) should have voting power in directorates of federal reserve banks and elsewhere.

(2) Elimination of guarantee of bank deposits, by use of surplus earnings.

(3) Elimination of provision that federal reserve bank notes might be counted in reserves of stockholding banks.

(4) Restoration of provision that many classes of checks should be collected at par throughout the country, and that where such par collection was not enforced the charge for making collection should be fixed by the Federal Reserve Board.

(5) Elimination of domestic acceptances, thereby excluding them from use by stockholding banks and from rediscount by federal reserve banks.

(6) Modification of reserve requirements as formulated by the Senate so as to require actual cash reserves in the vaults of country banks (the Senate having entirely dispensed with such reserves after twenty-four months after date of the passage of the act) and general stiffening of reserve requirements made by the Senate, although the final language still constituted a reduction below the House provision.

(7) Reduction of period of maturity for which discountable paper might run from 180 days to 90 days.

While many other points of modification and concession on either side might, of course, be enumerated, it is believed that the foregoing presentation is representative and shows sufficiently well the nature of the conference work and the character of the points conceded on either side. Assuming that such a fair or representative selection has been made, it is evident that the work of the conference resulted in the establishment of the House contentions at nearly every essential point, the exceptions to such a remark being found in two main particulars: (1) the reduction in the number of reserve banks and their limitation to not more than 12 at any time, and (2) the provision that public deposits might or might not be made in the reserve banks at the discretion. of the Secretary of the Treasury. While other points were significant and important in their way, it can certainly be fairly concluded that on those matters involving important issues of theory the House virtually held its own in most respects. In

fact, it is an accurate generalization that the final bill as completed in conference committee and as passed by both Houses was a closer approach to the original House draft of the measure than anything that had intervened during the time the bill was going through the various permutations to which it was subjected in its slow progress from one stage to another of the legislative process. At one other point there was marked and vital departure from the original House measure-the provision with reference to the refunding of United States 2 per cent bonds and the treatment of the currency based upon such bonds. On this subject the final action of the conference was nearly equivalent to the acceptance of a plan formulated by the administration and designed to take the place of all of the various other schemes that had been recommended from different sources in either House. The action as to bonds was, therefore, not a concession by either side but was a virtual surrender by both and an acceptance of the conclusions of the Treasury Department. Barring the two matters already mentioned, the House measure was changed in no respect that affected its essential working; nor could it be said that even in these particulars it had necessarily been subjected to modification, since, in both, the action contemplated by the provisions ultimately adopted was permissive rather than compulsory.

II

What was the origin of this measure? We have already seen, in outline, how the bill had been developed by a gradual process of study under the auspices of a sub-committee of the House Banking and Currency Committee. The student of currency history in its analytical aspect will not, however, be satisfied with this as an explanation of the new measure, but will seek to know from what ultimate sources and with the use of what materials the measure was constructed. The answer to be given to such a question is necessarily complex. The Federal Reserve Act is the product of a lengthy course of development and has grown gradually out of the discussion and analysis of the past twenty years. It is not drawn, even largely, from any single source, but is the product of comparison, selection, and refinement upon the various materials, ideas, and data, rendered available throughout a long course of study and agitation. Many bills embodying the same general line of thought that now finds expression in the new act have been offered in Congress; some have been suggested outside

that body. The most fundamental concept of all-that of uniting the banks of the country into organized groups-is found in the clearing-house organizations, which in time of stress have pooled their resources and converted bank assets into the equivalent of reserve money. The bills prepared by or under the direction of Hon. Isidor Straus, Hon. J. H. Walker, Hon. Charles A. Fowler, and Hon. Maurice L. Muhleman have supplied at least the basis for many of the detailed analyses and methods of treatment that are found in the Federal Reserve Act. Earlier than any of these, was the bill recommended by the Indianapolis Monetary Commission, which did not provide for coöperative unions of banks, but upon which the framers of the present act have evidently drawn for some of their ideas. The latest bill in the long series which was available for study to the framers of the Federal Reserve Act, was that prepared for the National Monetary Commission and called in popular language the "Aldrich bill." By many the new law is regarded as a partial copy of, or plagiarism from, the Aldrich bill; and that view has been widely expressed both in and out of Congress. That such was not the opinion of Mr. Aldrich himself, his scathing and bitter denunciation of the House bill seems to bear abundant witness.3 It might be enough for purposes of argument simply to appeal on this point from the critics of the measure to Mr. Aldrich himself but that would hardly answer the purpose of historical analysis. The Aldrich bill may be considered from two standpoints, (1) that of its theory and broad general plan on the one hand, and (2) that of its machinery and technique of construction on the other. From the first standpoint, there is no shadow of relationship or similarity between the Federal Reserve Act and the Aldrich bill. From the second, there is at many points a close resemblance. The Aldrich bill provided for a single central "reserve association" with scanty public oversight, with control vested practically wholly in the banks, and with the preponderance of power in bonds of the larger institutions which owned stock. It so arranged things as to keep this "reserve association" relatively inactive except upon special occasions of panic or disturbance. It made no direct provision for the shifting of reserves in part from existing banks to the proposed association, but it relied upon inflation due to the placing of bank notes issued by the central association in the reserves of the stock

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1 Proceedings of American Academy of Political and Social Science, October, 1913.