Address to the Conference of the Federal Reserve District Banking and Industrial Committees

Gentlemen:

We have asked you, the members of the 12 Federal Reserve district banking and industrial committees, to confer together and with the officials of the Government agencies which are engaged in the problems of the depression. The purpose of the conference is to better organize private initiative and to coordinate it with governmental activities so as to further aid in the progress of recovery of business, agriculture, and employment. The committees of the different Federal Reserve districts were created some time since and have already been of great service in the solution of many local problems. Many constructive projects have been advanced by them. We wish to expand the ideas and solutions developed in the different districts over other areas where they may be adaptable, to coordinate private and governmental agencies, to initiate steps for organization of groups to undertake special and immediate problems in credit, in industry, in agriculture, and in employment as they arise in the different districts. In other words, this is a meeting not to pass resolutions on economic questions but to give you the opportunity to organize for action. It is not proposed that you shall have authority from the Government but that you should join in stimulation of organized private initiative of America.

The reason for calling this conference at this particular moment is that we are convinced that we have overcome the major financial crisis-a crisis in severity unparalleled in the history of the world--and that with its relaxation confidence and hope have reappeared in the world. We are now able to take further steps in solution of the industrial and agricultural problems with which we are still confronted.

To have overcome this stupendous crisis is not alone a tribute to the courage of American people but a proof of our resources. A moment in review of the magnitude of the forces we have overcome should strengthen our confidence for the future and the steps we now propose.

You will recollect that after a year of worldwide depression we came into the first quarter of 1931 with strong evidences of our recuperation. During those early months of 1931, the failure of banks decreased by 70 percent from the previous quarter. The hoarding of currency practically disappeared. The signs of resumption of industrial activity and employment gave us the right to hope that the country was righting itself. Then there came to us a concentration of catastrophes from abroad such as we have not experienced in the whole of our economic history. The economic and political demoralization in foreign countries, weakened by the Great War and the treaties, together with the general depression itself, loosened a host of new forces of destruction.

The first evidence of the impending financial collapse abroad was the difficulties of the largest bank of Vienna in April a year ago. In rapid succession were the difficulties of the national banks of Austria, of Yugoslavia, and finally of the Reichsbank, in the month of May. The general .panic began in Germany in June and finally culminated in drastic governmental decrees suspending exchanges, closing of all banks, and accompanied by the failure of important institutions. Similar suspensions took place in other important areas in Central Europe. The difficulties were further increased by the revolution in Spain and revolutions in Peru and other South American countries, the latter adding many further defaults upon foreign obligations. On the first of August evidence of distress in the Bank of England was indicated by heavy borrowing from abroad, further emphasized at the end of August by the large foreign loans by the British Government in an effort to protect exchanges. But the strain proved too great, and the gold standard was abandoned by England at the end of September, followed in October and November by similar action in Sweden, Norway, Denmark, Finland, Australia, India, and Egypt, with restrictions upon exchange in many other countries, which equally disrupted international payments and foreign trade. In September the conflict in the Far East began, and was followed by the suspension of the gold standard in Japan in December and the disturbing military operations of last winter. During the early months of this year, we witnessed more revolutions in small countries and further defaults upon their obligations.

In even normal times any one of these many shocks to economic stability would have seriously impaired our economic life and created falls of prices and unemployment. The effects upon us of each of those invasions were instantaneous. American securities held abroad were dumped upon our markets. The prices of our stocks and bonds and commodities were continuously undermined. Huge foreign deposits in our banks were frantically withdrawn. Our own borrowers on commodities and on securities were called upon for more margins. The necessity of meeting these drains brought pressure on every borrower in America, whether it be a bank or bank's customer, a manufacturer or a farmer, a homeowner or a merchant. Paralyzing fears spread into every quarter of our country. These fears added fuel to the fire through nationwide hoarding of currency. This hoarding increased to $70 million a week at the time of the German collapse, but stopped temporarily with the German moratorium, but rose to $150 million a week after the failure in England. The demand for goods slacked over the whole world and agricultural prices gave way entirely. Unavoidable delays and difficulties in legislative action added to the fears and apprehensions of our people. As we look back over the depression now we find over $2,400 million was withdrawn from us by foreign nations and their citizens, and a total of $1,600 million of currency was at one time withdrawn by our own citizens from our own banks. You know and I know that this foreign exchange, the gold shipped abroad, the currency and gold hoarded in our own country, is taken from the base of the inverted pyramid of our credit structure and translates itself into a strangulation of the volume of credit from 2 to 10 times even these huge amounts. Let no man believe that these are questions which are of interest solely to big business. They are the origins of millions of human tragedies of losses, unemployment, and distress.

The whole of this 18 months has been a period of constant defense and counterattack against these invading forces. The German moratorium, the German standstill agreement, the advances of our banks to the national banks of foreign countries, the creation of the National Credit Corporation, the Reconstruction Finance Corporation, the increased powers to the Federal Reserve System, the balancing of the budget, the financial aids to the farm loan banks, and above all, the unity and courage of our people, represent our incessant action in defense and counterattack.

Today that picture has greatly changed. We can look with assurance upon the cessation of foreign withdrawals from our country simply because they have substantially removed their holdings, and we have successfully accommodated ourselves to it. Our strength has proved equal to the shock although with many casualties. Confidence is returning. A return flow of gold from abroad has begun. Europeans are again investing in our markets. With the large prevention of bank failures and with relief from foreign pressure and its constantly renewed fears, the domestic hoarding of currency has ceased and is now returning at the rate of nearly $20 million a week. The demands for banking assistance from the Reconstruction Corporation have diminished by $170 million from the previous month. That our financial foundations are unimpaired is indicated by the fact that measured in amount of their trusts, 98 percent of our banking and fiduciary obligations to the public are intact. Seventy million insurance policies and 25 million depositors have been saved from jeopardy.

It is not alone our country that is making a successful fight for the return of stability. Foreign countries have not been idle in placing their own houses in order. The Lausanne Agreement has contributed to return of confidence. But while we thus see growing improvement in the financial sector, we must continue the battle upon the industrial and agricultural fronts. There is, however, a new setting of the depression, which offers opportunity through this confidence to set up machinery for wider spread cooperation of private forces and to coordinate them with our Government agencies for aid and action in industrial and agricultural fields.

Definite projects will be laid before you affecting the better distribution of credit, of employment, and commodities. What I wish is that banking and industry and business generally should in this new setting assume further initiative and responsibility, and they should cooperate with agriculture and labor and the Government agencies to organize and develop every possible avenue of coordinated effort on the economic front. Your committees have in different districts already made positive contributions; these tried methods need spread and more definite national organization; they need coordination with our governmental programs. You can assist to make that great program more effective. In so doing you will bring hope and added security to every farmhouse and every cottage door.

It is not proposed to engage in artificialities. Nor is it proposed that you attempt to settle here in a day great economic problems of the future. It is simply proposed that you organize for action in the problems immediately before us. Great future problems will occur to you as they are in the minds of all of us. You will no doubt seek the cooperation of national groups of business, agriculture, and labor to put such questions on the road to investigation and consideration.

I should like to suggest to you some general directions of thought.

We have a powerful governmental program in action for aid to recovery formulated and organized upon a nonpartisan basis. I am in hopes you will familiarize yourselves with its possibilities so as to coordinate your activities with it.

We need a better distribution of credit. Credit is available, but in many sections it is flowing inadequately in directions which would stimulate consumption of goods and employment. It needs resolution to use our banking and governmental resources and coordination to make them effective. There can be no question that there are in certain sections large numbers of businesses, particularly small business, which have been unable to find the credit facilities to buy raw material and to employ labor on goods which they can sell. There are difficulties in livestock and farm credits. There are foreclosures of home and farm mortgages because of inability to secure renewals. Yet credit is available if it be properly directed.

In the furtherance of business recovery it is clearly necessary that there be coordination of effort in hastening the return of unemployed to employment in their natural industries. It is doubtful whether any action we could take at this time would so greatly accelerate our progress, serve the welfare of our unemployed millions, or so quickly give us as a nation the benefit of widespread spending power as further spread of equitable plans of sharing the available work. As a matter of national policy, the shortening of hours is necessary not alone to meet the need of the moment. but it may be necessary to take up the slack in the future from the vast and sudden advance in laborsaving devices. As the result of conferences similar to this nearly 3 years ago many industries realigned their operations by shorter hours to retain hundreds of thousands of workers who would otherwise have been dismissed. Nevertheless, the still further spreading of available work in industrial, commercial, and service activities, especially with every recovery of employment, would be a vital contribution. Your committee in the 12th district recently inaugurated a drive for this spread of work. Already it is a great success. Many methods have been proposed by labor and industrial leaders to systematically shorten hours. While I heartily favor the purpose of these plans, I agree with both the employers and the leaders of labor whom I have consulted that its direction is not properly the function of Government, except as applied to the operation of Government service. Moreover with all the various phases of employment and operation to be met in private business no general rule can be applied. Results must be achieved through cooperation on the part of employers and employees suited to each locality and industry. I suggest you should consider the effective part which you can play in further forwarding organization to this end.

I do not need to remind you that the distressing problems of agriculture are not alone the problems of the farmer and the Government. Its relief is one of the primary foundations of all progress in our country, and upon it does the progress of your business depend. It is as much your problem as it is the problem of the farmer, and cooperation of your committees with the leaders of agriculture and the agencies which affect their welfare cannot but be helpful.

The other speakers will compass these many questions in detail, and I have but one final word. Now as always recuperation of the country will be the result of the multitude of activities of our citizens and the sustained confidence of our people in its great future. The problem before this conference is not to settle great questions of the future, or to establish artificialities, but rather by practical steps today or organization contribute to make more effective the activities of every agency which can promote the recovery of the Nation.

The great war against depression is being fought on many fronts in many parts of the world. One of the most stupendous actions of this great front has been the long battle of the last 18 months to carry our financial structure safely through the worldwide collapse. That battle may be likened to the great battle of Chateau Thierry. That attack on our line has been stopped, but I warn you that the war is not over. We must now reform our forces for the battle of Soissons.