district unite in forming a new bank called the Federal reserve bank, to which each national bank contributes 6 per cent of its paid-up capital stock and surplus to provide the necessary capital.

The individual capital of these 12 Federal reserve banks varies, respectively, from a little under 5 millions to a little over 20 millions of dollars. The total capital of the 12 banks (not counting State institutions which may ultimately become members) is a little over 100 millions of dollars.

In addition to the capital payments that must be made, each national member bank is obliged to pay to its Federal reserve bank a certain portion of its legal reserve, which portion, however, it still counts as part of its reserve. These payments of reserve are spread over a period of three years, and the total payments will amount to over one-third of the total reserves held by the national member banks.

In addition, the Secretary of the Treasury may deposit the general funds of the Treasury-excepting only certain trust funds-with the Federal reserve banks, and disbursements of the government may be made by checks drawn against such deposits.

The national banks in the 12 respective districts (and State banks which may join the system later) are the only stockholders of the Federal reserve banks, and their stock cannot be transferred or hypothecated. The stock is entitled to a 6 per cent annual cumulative dividend, and one-half the net earnings of the Federal reserve banks may be paid into a surplus fund until it amounts to 40 per cent of the paid-up capital stock.

All net earnings over and above this dividend and surplus are paid to the United States as a franchise tax.

Each Federal reserve bank is managed by a board of directors, consisting of nine members, of which three are appointed by the Federal Reserve Board and six are elected by the member banks, three of the six directors representing the banks and three consisting of members who at the time of their election were actively engaged in commerce, agriculture, or some other industrial pursuit.

These 12 Federal reserve banks are under the control and direction of the Federal Reserve Board, consisting of the Secretary of the Treasury and the Comptroller of the Currency, ex officio, and of five other members appointed by the President and confirmed by the Senate.

The Federal Reserve Board sits in Washington, D.C. It appoints, as I before said, three directors on the board of each Federal reserve

bank; it has general powers of supervision and examination of the Federal reserve banks and the member banks; it may suspend or remove, for cause, any director or officer of the Federal reserve banks; it may suspend the operation of any Federal reserve bank and liquidate or reorganize such bank; it defines the paper which may be rediscounted by Federal reserve banks; it has power to review and determine the rates of discount established from time to time by the Federal reserve banks for the discount of commercial paper offered by the member banks; it regulates the open-market powers of the Federal reserve banks; it has power to suspend every reserve requirement of the act if it deems such course necessary; and it has many other specific powers which I need not mention here.'

Each Federal reserve bank is independent of every other. They are empowered, however, with the permission of the Federal Reserve Board, and at rates fixed by the board, to rediscount the discounted paper of any of the other Federal reserve banks, and can be required to do so by the affirmative vote of at least five members of the Federal Reserve Board.

The act also creates a body known as the Federal Advisory Council, one member of which is elected by each Federal reserve bank. The duties of the council are to confer with the Federal Reserve Board and to advise it as to matters connected with discount rates, note issues, reserve conditions, open-market powers, and similar questions.

'In connection with this selection reference is made to selections 103 and 104.-EDITOR.

134. COMPARATIVE DATA ON DISTRICTS

Territory Covered

Me., N.H., Vt., Mass., R.I., Conn.
New York State

N.J., Del., eastern Pa.

Ohio, western Pa., northwestern W.Va.,
eastern Ky.

D.C., Md., Va., N.C., S.C., remainder
W.Va.

Ala., Ga., Fla., eastern Tenn., southern
Miss., southeastern La.

Ia., southern Wis., Mich. (except penin-
sula), northern Ill., northern Ind.
Ark., all Mo. (except extreme west),
southern Ill., southern Ind., western
Ky., western Tenn., northern Miss.
Mont., N.D., S.D., Minn., northern
Wis., Mich., peninsula.

Kans., Nebr., Colo., Wyo., extreme
western Mo., northern Okla., extreme
northern N.M.

Tex., remainder N.M., southern Okla.,
remainder La., southeastern Ariz.
Cal., Wash., Ore., Idaho, Nev., Utah,
remainder Ariz.

Journal of Political Economy, XXII (1914), p. 1008.

135. SUPERIORITY OF DISTRICT OVER CENTRAL BANK

PLAN1

BY J. LAURENCE LAUGHLIN

The legislative struggle over the bill gathered mainly about the question of central control. On the one hand, owing to a current belief that a control over credits was possessed by the larger banks of New York City, there were many who regarded government control of banking credits as the only means for securing equality of treatment. This attitude was a part of the present-day tendency to press for increasing governmental interference with trade and industry. While there was opposition to a central bank of private capital and of private management, there was more or less support for a central bank owned and controlled by the government. Thus, although there was a well-preserved tradition in the Democratic ranks (based on ignorance of the real services of the Second United States Bank, and which did them little credit) against a central bank, and although Democrats were supposed to dislike a centralization of political power, yet the opposition to the plan of the National Monetary Commission was clearly due, not so much to fear of a central bank, as to the fear of a privately capitalized central institution which might be controlled by the "interests."

On the other hand, sensible men of all parties realized that it would be impracticable to allow government officials, often political appointees, to do the actual work of technical banking, to grant loans, to manage resources and investments-in short, to introduce the government into the banking business. Political control was obviously as dangerous as private financial control; and it would have been destructively inefficient.

The solution of the matter finally adopted was, interestingly enough, centralization by districts; that is, a centralization intended to prevent scattering of reserves was obtained by establishing in each district an institution itself quite similar, in powers within its jurisdiction, to the National Reserve Association of the Monetary Commission. That is, the government was saved from going into the banking business by granting local centralization with capital and management supplied by the banks, and yet federated under a common authority in order to establish governmental direction and unity of purpose. In its essence this plan retained the workings of local Adapted from "The Banking and Currency Act of 1913", Journal of Political Economy, XXII (1914), 310–12.

I