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THE FEDERAL RESERVE BANKS AND THE CREDIT OF THE UNITED STATES The amount of credit a man can get at a store or at a bank depends upon either the value of property which he owns and can pledge as security or else upon his ability to produce wealth and thus earn money with which to repay the loan or extension of credit made to him. The credit of the United States Government is the credit of the American people as a whole. It rests squarely upon two things: (i) the ability of the American people to produce and (2) the power of the Government to tax. The sovereign right of the nation to coin or issue money is an unlimited right but prudence and sound judgment and a concern for the future will always dictate that this right be not exercised beyond the amount of credit which the nation possesses according to the definition just given. The American people each day that they work and produce broaden the base of their own national credit. The amount of money that should be in circulation at any given time is limited by but one main factor — the amount of goods available to be purchased with the money. Therefore, the central and basic truth about money is that by their industry and labor and the abundance of their production the American people, or any other people, determine the extent to which they have a right to have their government create money and feed it into the channels of their trade. No rational mind has yet been able to conceive why, therefore. 152 OUT OF DEBT, a sovereign people should be required to pay interest to private financial houses when their national money is created. By “money” we mean, of course, not cash or currency alone but demand bank credit of every sort as well, since it performs all the functions of cash money. The credit of the United States belongs by every right and legitimate title to all the people of the United States. It belongs to the farmers, the managers, the business men, the laborers, the inventors, the scientists, the doctors, the teachers, the home- makers of America. The reason the nation’s credit belongs to all the people is because they produce the real wealth that makes it possible for the nation to have any credit at all and because they pay the taxes that enable the government to make good on its obligations. But we don’t act as if the credit of the United States belonged to the people of the United States. In 1913 the Federal Reserve Act was passed. That Act as amended by later Congresses has given to the twelve Central Federal Reserve banks the opportunity to claim that they own the credit of the United States. Through these twelve central banks all the thousands of member banks of the Federal Re- serve system share in this claim. But the Central Federal Reserve Banks are private institu- tions. They belong to the member banks, which are private institutions. The United States Government does not own one penny’s worth of stock in these central banks of issue. The Board which governs the system is paid by the private banks and therefore is responsible to the private banks first and to the people and government of the United States second. A surprising number of people don’t believe that the twelve Central Federal Reserve Banks are privately owned institutions. Millions of people believe “Federal” Reserve Banks means what it says and that there is something “federal” about them. Some documentary evidence at this point would seem to be necessary. OUT OF DANGER 153 First, a letter from the Director of Research and Statistics of the Board of Governors of the Federal Reserve System itself. BOARD OF GOVERNORS of the FEDERAL RESERVE SYSTEM Washington February 14, 1940 Honorable Jerry Voorhis House of Representatives Washington, D. C. Dear Mr. Voorhis: In reply to your letter of February 10, the stock in the Federal Reserve banks is owned by the member banks and such State banks as were eligible and wished to join. The law requires the member banks to subscribe to the capital of the Federal Reserve bank of their respective districts 6 per cent of their own capital and surplus. Of this amount, 3 per cent has been paid in and the remainder is subject to call. There are no other stockholders in the Federal Reserve banks. If you wish it, I shall be glad to furnish you with a list of the approximately 6,300 banks that belong to the Federal Reserve System and their hold- ings of Federal Reserve Stock. In this connection, I take the liberty of sending you a statement on “The Nature of Federal Reserve Banks’" in which there is a discussion of the ways in which stock ownership in the Federal Reserve banks differs from ordi- nary corporate stock ownership. Very truly yours, (Signed) E. A. Goldenweiser Director of Research and Statistics OUT OF DEBT, 154 Second, a letter from the Assistant Secretary of the Board to a gentleman who had contended that the Government did own the Federal Reserve Banks. BOARD OF GOVERNORS of the FEDERAL RESERVE SYSTEM Washington Dec. 20, 1940 Mr. Andrew N. Hildebrand, 124 Lincoln way East, South Bend, Indiana Dear Sir: Receipt is acknowledged of your letter of December 6, 1940, in which you suggest that the United States is the equitable owner of the assets of the Federal Reserve Banks, that legal and equitable title are merged in the name of the real party in interest, and that therefore the United States is the legal owner of the Federal Reserve System. As stated in the Board’s letter of December 3, 1940, although the Federal Reserve Banks are corporations cre- ated by Congress as instrumentalities of the Government for the purpose of carrying into effect monetary powers of Congress, they are not owned by the Government. Their stock is owned entirely by the member banks of the Federal Reserve System. In a broad sense, of course. Congress and its instrumentalities may be regarded as representing and acting in behalf of the interests of the people of the United States; but clearly this is not what is meant by “equitable ownership” as used in your letter.
https://ia801506.us.archive.org/3/items/in.ernet.dli.2015.224092/2015.224092.Out-Of.pdf
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