a knowledge of the agriculturist's needs rather than with any theoretical ideal of amelioration.

The association between the Treasury and the American farmer was when McAdoo became Secretary-tangent at one point, and that one of doubtful benefit to the tiller of the soil. Every year the harvesting and transportation of crops required the release of millions of dollars of credits from the banks of the nation to the farmers. Had this money been in the local banks of agricultural communities the rate of interest would have been that of usual local transactions. The money, however, had flowed from the country banks to the great banking reservoir of New York City, remaining there for use in Wall Street speculation and for the promotion of great corporations. When the country banks found it necessary to call for money for use in the annual harvesting and crop-moving Wall Street determined the rate of interest to the country banks, and the country banks, in turn, had to add their own interest rate in giving the loan to the farmer. Every year the country was threatened with financial stringency as a result of the intention and effort of the New York banks to secure the highest possible rate of interest from the rural banks. Every year the farmers of the country passed through a period of uncertainty, ending with higher interest payments. The situation was financially and socially wrong, and was intensified by the fact that it had been the custom of the Treasury to deposit Government funds in its possession at that time in the New York banks, not in the country institutions.

Year after year the money power of the New York banks had been drawn tighter at crop-moving time, and 1913, made tenser by the opposition of Wall

Street to the Democratic administration, came into summer with a threat of panic. The money tightness which had been overcome by the Secretary's announcement of the $500,000,000 reserve fund, open to applicant national banks, had overshadowed the fields of the nation. The farmer was confronted by what seemed an inevitable repetition of his experience of many years, the necessity of cutting down his just profits by payment of inflated interest for the use of crop-moving money. That the rate of interest was frequently usurious can not be doubted in the face of the later evidence presented to the Government agency which grew out of McAdoo's relief measures, the Farm Loan Board. Testimony afterward given showed that in some instances the farmers of Texas and Oklahoma were paying as high as twenty per cent. interest for short-time loans, and that in practically all cases the interest rate had been lifted by the existing method of operation between country banks and Wall Street institutions. It was at this juncture, with no apparent relief possible to the agriculturalist, that McAdoo acted.

In July, 1913, he called to the Treasury committees representing the clearing-houses of all the banks in the crop-moving centers of the country. From these men he ascertained the actual sectional necessities. From their testimony he saw the danger of a repetition of the panic of 1907. Tight money was imminent.

On July 31st he made the announcement that, to facilitate the movement and marketing of the unusually large crops then beginning to be harvested, he had determined to transfer from the Treasury to the national banks in the West and South, where such funds could be most advantageously placed for the

purpose, between twenty-five million and fifty million dollars.

In order to make these special deposits available to the banks for securities readily within their reach the measure provided for the acceptance by the Treasury of high-class prime commercial paper in addition to Government, approved state, municipal and other bonds. The commercial paper had to be submitted first to the clearing-house committees of the cities in which the banks offering it were located, and had to be finally passed upon for acceptance or rejection by the Secretary himself. As security for such deposits Government bonds were accepted at par, other bonds at seventy-five per cent. of their market value, and approved commercial paper at sixty-five per cent. of its face value.

The Government charged interest at the rate of two per cent. per annum on these deposits. The money was to be returned to the Treasury after the crops had been moved. It was the suggestion of the bankers that fifteen per cent. of it be repaid in December, 1913; thirty per cent. in January; thirty per cent. in February; and twenty-five per cent. in March, 1914.

The acceptance of commercial paper for security was at that time revolutionary, but, without it, the announcement would have been mere words. Had the Secretary insisted upon United States bonds, as had been the invariable Treasury custom, the banks would have had to go into the market and buy the bonds, which would have advanced to prohibitively high figures. The relief would have been nullified. As a matter of fact, the moment it became known to the country that the Government stood ready to assist the farmer, the tension was loosened, and the money market re

turned to normal. The banks in the involved sections found it necessary to borrow only $37,386,000 from the Government, although the Secretary denoted his willingness to have $150,000,000 advanced, if it became necessary.

Coupled with the legislation for the Federal Reserve, the Secretary's action in taking from the centralized banks of New York the established privilege of being sole agency for advancing great sums of money for crop-moving purposes started the swing of the pendulum away from financial concentration of power. The proclamation of 1913 and its successor, the proclamation of 1914, coming at a time when the world trembled from the shock of declared warfare in Europe, paved the way for improved agrarian legislation and started the foundations for the Farm Loan Board, a measure that was to carry the American farmer through times that would have been otherwise disastrous.

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CHAPTER VII

THE WORLD MOVES ON TO WAR

N the twenty-sixth of December, 1913, three days after the passage of the Federal Reserve Act, and six months before the assassination of an Austrian Archduke was to precipitate that series of events which finally brought the United States into the vortex of a great European war, the Secretary of the Treasury called the first meeting of the Organization Committee of the Federal Reserve System, and started the wheels of that machinery which was to save the American nation from financial wreck in the approaching storms of international conflict. Upon the certainty of the Act's operation, with its liberation of American finance from the tribute previously paid to old powers of privilege, hinged the national integrity of the United States in the crisis of the coming August; and public knowledge of the eminent justice of the new measure bulwarked American fiscal operation through the waves of World War. Had it not been for the writing of the Federal Reserve upon the statutes in 1913, the people of the United States would have suffered in the following year inevitable panic, for the money powers of the New York financial district would inevitably have tightened money at the very time when tight money would be disastrous to American agriculture and American commerce. The passage of the Act came at a peculiarly providential time, and the speeding of its establishment seemed not less foreordained.

The establishment of the system was accomplished with difficulties both above and below the surface. The