tion is not a member of the Federal Reserve system, and (2) that the State institution is not located in the same city as the national bank, or if in the same city, that the city has less than 200,000 inhabitants.

You are, of course, aware of the fact that a director of a national bank with resources aggregating more than $5,000,000 can not, under the terms of the original Clayton Act, serve at the same time as a director of another mem

ber bank. The Kern amendment, however, authorizes the Federal Reserve Board to permit such a director to serve on the boards of not more than two other banks which come within the prohibitions of the original Act, provided they are not in substantial competition with the member bank.

SEPTEMBER 13, 1916.

Bonds Maturing in Six Months.

Receipt is acknowledged of your letter of September 5, inquiring whether bonds of your city, maturing April 1, 1917, could be purchased by the Federal Reserve Bank on or after October 1, notwithstanding the fact that these bonds, when originally issued, had a maturity of more than six months. You are advised that the Board ruled in August, 1915, that the mere fact that a bond had a maturity of more than six months when issued would not bar the

investment in such bond by a Federal Reserve Bank if at the time of purchase its maturity is less than six months, provided that such bond complies with the terms of the said ruling, which you will find on page 221 of the 1915 issue of the Federal Reserve Bulletin.

SEPTEMBER 14, 1916.

Trade Acceptances.

Knowing the interest you and the governor of your bank have felt in the development of trade acceptance paper, I thought you would be interested in hearing that large commercial concerns in other parts of the country are initiating a practice similar to that of a warehouse and lumber company in your district, of allowing a discount where settlement is made by trade acceptance. I quote for your information from the circular of a New York company, which has recently come to hand, as follows:

"Our terms are 1 per cent for cash in 10 days or 1 per cent for 30 days' trade acceptance, in your option, otherwise strictly net.

Believing that trade acceptances are of assistance to the buyer and seller alike, we invite our customers to cooperate with us in their use. We offer our regular cash discount to customers who, immediately on receipt of goods, send us their 30-day acceptances on the form attached, which has been approved by the Federal Reserve Banks."

This is the kind of a campaign of education which, as it spreads, will ultimately produce a considerable effect in revising borrowing practices away from one-name paper to the highly desirable trade acceptance. SEPTEMBER 20, 1916.

I take it, of course, that it is not contemplated to attempt to compel financial institutions to make loans on cotton at a stated price, as it would be impossible to force private corporations to lend money on paper which they might regard as being inadequately secured, so I presume that the proposition really is that the Federal Reserve Act be amended so as to compel Federal Reserve Banks to make loans on cotton direct to producers on an arbitrary valuation, to be fixed without reference to actual market quotations.

Without reference to the economic aspects of the case, I think that such legislation would lead to endless complications, as growers of tobacco and other staple crops, coal operators, lumbermen, and manufacturers would press their claims for similar favors; and without doubt many member banks, which would feel that the possibility of a wholesale investment of the reserve funds of the country in a valorization scheme would be perilous in the extreme, as well as an utter perversion of the underlying principles of the Federal Reserve Act, would withdraw and the Federal Reserve System would be disintegrated at the outset. While, as you know, I have every sympathy with the cotton grower and am anxious at all times to see farmers receive fair prices for their products, I do not believe that any attempt at valorization of cotton or any other staple commodity can possibly succeed unless production should be regulated most rigidly by legislation. I do not believe that such action would command popular support, nor would I regard it as at all consistent with our principles of government, and I will say frankly that the suggestion seems to me to be economically unsound and thoroughly impracticable. The price of cotton or of any other commodity must inevitably be controlled by the laws of supply and demand. What your correspondent seems desirous of accomplishing is to effect some way by which an arbitrary minimum market value or price may be created by governmental interference. Even though it were possible to establish a minimum price at which cotton might be taken as security for loans, the result would be directly opposite from that desired, for, should the minimum valuation for loans be fixed at a point low enough to make them reasonably safe, the effect would probably be to depreciate the

market value of cotton; and if, on the other hand, the price should be fixed at a point high enough to give the grower what he would consider a fair margin of profit above the cost of production, there would undoubtedly be times when the Federal Reserve Banks would be the virtual owners of large amounts of cotton, which they could not dispose of except at a heavy loss, which might, and probably would, result in the insolvency of the Federal Reserve Banks.

The fallacy of the idea that prices can be fixed by legislation has been demonstrated in the recent history of this country. We remember the persistent efforts that were made for a score of years to sustain the price of silver through governmental aid. From the year 1875, when the market price of silver began to fall below its coinage value, up to 1896 a large part of the American people were obsessed with the idea that the price of silver could be maintained by legislation. First we had the Bland Act, in 1878, under which silver bullion was purchased in amounts sufficient for the coinage of $2,000,000 per month, and, that device having proved futile, we had next the act of July 14, 1890, commonly known as the Sherman silver-purchase law, under which 4,500,000 ounces of silver bullion were purchased each month, being paid for by issues of legal-tender coin certificates. Yet it is a matter of common knowledge that, in spite of these heroic efforts to overcome the inflexible law of supply and demand, the price of silver steadily declined from $1.29 per ounce to about 47 cents per ounce and that it did not advance again until long after all attempts to support the market artificially had been abandoned and the economic law which governs the price of silver, as well as that of all other commodities, was given a free hand to exert itself.

I think that lack of adequate transportation facilities and high ocean freights react against the farmers and affect the prices that they receive for cotton, and it seems to me that we should endeavor to increase our carrying capacity; but I can see no merit whatever in any plan which contemplates establishing by law a minimum value as a basis for loans, and earnestly hope, therefore, that no serious attempt will be made to legislate along the lines suggested.

SEPTEMBER 20, 1916.

The following opinions of counsel have been authorized for publication by the Board since the last edition of the Bulletin:

Agricultural Products or Implements.

The purchase or sale of an agricultural product, or of implements or other commodities used in agriculture, constitutes a commercial transaction. Where

the proceeds of a note made by a merchant are used to purchase millet seed to be later retailed or sold, such a note can not be treated as one given for an agricultural purpose and can not be discounted by a Federal Reserve Bank if it has a maturity at time of discount of more than 90 days.

SEPTEMBER 15, 1916. SIR: The opinion. of this office has been requested on the question of whether or not a note given by a merchant for $2,500, the proceeds of which were used to purchase millet seed, may be treated as having been drawn for agricultural purposes and may, therefore, be discounted with a maturity at time of discount of more than 90 days.

Section 13 of the Federal Reserve Act provides in part that—

* Any Federal Reserve Bank may discount notes, drafts, and bills of exchange arising out of actual commercial transactions; that is, notes, drafts, and bills of exchange issued or drawn for agricultural, industrial, or commercial purposes * * *. Notes, drafts, and bills admitted to discount under the terms of this paragraph must have a maturity at the time of discount of not more than ninety days: Provided, That notes, drafts, and bills drawn or issued for agricultural purposes or based on live stock and having a maturity not exceeding six months may be discounted in an amount to be limited to a percentage of the capital of the Federal Reserve Bank, to be ascertained and fixed by the Federal Reserve Board.

The only question to be determined, therefore, appears to be whether the proceeds of this note were used or are to be used for an agricultural purpose or whether they were used or are to be used for a commercial pur

pose.

If the maker of this note used the proceeds to purchase millet seed which he intends to sell to others, his purpose was purely commercial and not agricultural, although the seed may ultimately be intended for use in agriculture. The purchase and sale of an agricultural product or of implements or other commodities used in agriculture constitute a commercial transaction.

In the present case, therefore, the fact that the proceeds were used to purchase millet seed would not make the note in question eligible for discount with a maturity of more than 90 days if, as the correspondence indicates, the millet seed was purchased with the view of selling it later to others.

Respectfully,

M. C. ELLIOTT, Counsel. To Hon. W. P. G. HARDING, Governor Federal Reserve Board.

Clayton Act.

A State bank or trust company which is incorporated under the laws of a State, but which is doing business in the District of Columbia, subject to limita

tions and restrictions imposed by the acts of Congress,

is subject to the provisions of section 8 of the Clay

ton Act which relate to banks organized or operating

under the laws of the United States.

SEPTEMBER 12, 1916.

SIR: There has been referred to this office for an opinion the question of whether a person may, under the Clayton Antitrust Act and the Kern amendment thereto, serve at the same time as an officer, director, or employee of two nonmember banks or trust companies doing business in the city of Washington, D. C., and organized either under the Code of Law for the District of Columbia or under the laws of some State of the Union.

Section 8 of the original Clayton Act prohibits a person from serving at the same time as an officer, director, or employee of a bank, banking association, or trust company "organ

ized or operating under the laws of the United States" in a city of over 200,000 inhabitants and as an officer, director, or employee of any other bank, banking association, or trust company located in the same place.

As Washington is a city of over 200,000 inhabitants, this prohibition would apply, provided nonmember banks or trust companies doing business therein and organized either

under the laws of the District of Columbia or of some State are banks or trust companies "organized or operating under the laws of the United States" within the meaning of the Clayton Act.

As the Code of Law for the District of Columbia is an act of Congress approved March 3, 1901, and amended by subsequent acts of Congress, banks and trust companies organized and operating thereunder would clearly be organized and operating under the laws of the United States.

Subchapter XI, section 747, of the Code of the District of Columbia, provides that—

No corporation or company organized by virtue of the laws of any of the States of this Union and having its principal place of business within the District of Columbia shall carry on in the District of Columbia any of the kinds of business named in this subchapter without strict compliance in all particulars with the provisions of this subchapter for the government of such corporations formed under it, and each one of the officers of the corporation or company so offending shall be punished by fine not exceeding one year, or by both fine and imprisonment, in the discretion of the

court.

Subchapter XI deals specifically with the business of trust companies, and it is clear that such companies, whether organized under State or Federal law, are subject in their operations to the laws of the District, and are, therefore, "operating under the laws of the United States" within the meaning of the Clayton Act.

Subchapter X, sections 713 and 714, of the Code of the District of Columbia, provides in part as follows:

SEC. 713. All savings banks, or savings companies, or trust companies, or other banking institutions, organized under authority of any act of Congress to do business in the District of Columbia, or organized by virtue of the laws of any of the States of this Union, and having an office or banking house located within the District of Columbia where deposits or savings are received, shall be, and are hereby, required to make to the Comptroller of the Currency and to publish all the reports which national banking associations are required to make and publish

*. And the comptroller shall have power, when in his opinion it is necessary, to take possession of any such bank or company, for the reasons and in the manner and of the United States with respect to national to the same extent as are provided in the laws

banks.

SEC. 714. The Comptroller of the Currency, in addition to the powers now conferred upon him by law for the examination of national banks, is hereby further authorized, whenever he may deem it useful, to cause examination to be made into the condition of any bank mentioned in the preceding section.

It is apparent, therefore, that savings companies and other banking institutions organized under the laws of any of the States of the Union and doing business in the District of Columbia are subject to certain laws of the United States. It is true that such banks derive their corporate powers from the States in which they are created, but in conducting their operations in the District of Columbia they are subject to the laws of the United States which apply to such institutions. Their status is therefore similar to that of State banks and trust companies which become members of the Federal Reserve System and which exercise powers granted them by the States in which they are domiciled, subject, however, to the limitations and restrictions imposed by the Federal Reserve Act on member banks, and

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