part of three members of the board toward the Government which surprises me. In other words, there seems to be a disposition to consider the board more of a creature of the banks than of the Government. Perhaps I am wrong in this, but I can not dismiss the impression. Why objection should be made, on the part of a Government Board, to a meeting on Government property is beyond my comprehension, and, particularly, in the circumstances, where the matter for discussion was one in which the Federal Reserve Bank of New York was primarily interested. An impression has been created by enemies of the Reserve System that the Federal Reserve Board is a creature of the banks, anyway, and this action will undoubtedly encourage such a belief."

In a letter of August 22nd, also to Governor Hamlin, he elaborated the issue:

"I should regret very much to believe, although I fear that there is much foundation for the opinion, that these gentlemen want to make it appear that the Federal Reserve Board has no relation to, or connection with, the Treasury Department; that it is absolutely independent of it, and that the board is more the representative of the banking interests of the country than an independent Government Board representing the public, whose functions are closely coordinated, by necessity, with the Treasury Department, and whose cooperation with the Treasury Department was not only contemplated by the Federal Reserve Act, but is, by that very Act, incumbent upon the board. Such cooperation is also essential to the success of the system, and in any case, is the common-sense and rational thing to do when one considers the law and the necessary things to be done in the intelligent administration

of the Federal Reserve Act. I think that for the future of the board it would be unfortunate if the belief, which has already gained some headway in the country, is allowed to grow, that the board is the creature of the banks and not independent of them, instead of being a distinctly Governmental institution."

Although the Secretary was willing to have the issue defined by the belligerents, and to thresh it out "without ill feeling," as he emphasized, even to the point of referring it to the Attorney-General, the matter went no further; but through McAdoo's time in office the status of the board as a Governmental rather than a banking institution was not questioned by that body. It may have been, as he later characterized it, a tempest in a teapot, but it was a significant ebullition of the difficulties of administration which he had to overcome to bring about such working of the law as had been projected by its creators.

Another eruption of wider range but of hardly greater significance arose in November of the same year when a sub-committee of the Federal Reserve Board took under consideration the question of the abolition of the Federal Reserve Banks of Minneapolis, Kansas City, Dallas, Atlanta and Boston. A report of the proceedings, circulated with despatch in the whispering gallery that is Washington, brought out indignant protests from the Congressional sponsors of the Federal Reserve Act, Carter Glass and Robert L. Owen, although, as a matter of fact, the Secretary of the Treasury had disposed of the project four days before Senator Owen's communication was written to the Federal Reserve Board. Glass, after declaration that the framers of the law had never intended the bestowal of

such power upon the board, insisted that, even had the power been granted, the use of it at that time would startle the country to the point of panic. In a letter addressed to F. A. Delano on November 15th Secretary McAdoo reviewed the plan of reduction, summing up the situation in the statement that if the power had been given to the board in the Federal Reserve Act, it was certainly implied and not expressed. With Glass's insistence upon the lack of intention of such implication and Owen's flat-footed assertion that the law gave the board no right to abolish the number of banks created by the Act, with the Attorney-General's opinion sustaining this view, and McAdoo's already expressed determination to keep the board a Governmental agency, the board voted to table further consideration of the redistricting question, and the twelve original districts determined by the organization committee still hold.

The idea that the Federal Reserve System was an emergency measure, an idea which had for authority no less a proponent than Paul M. Warburg, dimmed as the continuation of the war in Europe threw heavier strain upon American financial institutions. From the time of the opening of the Federal Reserve Banks in November, 1914, to September, 1916, the office of the Comptroller of the Currency issued charters to 248 new national banks; and 180 existing national banks increased their capital to the extent of $20,000,000. During the first entire fiscal year of operation of the Federal Reserve System the liabilities of failed national banks amounted to less than one-tenth of the liabilities of national banks which had failed in the year preceding the inauguration of the system. The total loss to

depositors from the failure of national banks during the later year was less than $250,000. By September, 1916, the deposits in all the banks throughout the United States were so huge that John Skelton Williams made the declaration that if there should be withdrawn from all these banks an amount of deposits equal to the total resources at that time of the Bank of England, the Bank of France, the Bank of Spain, the Bank of the Netherlands, the Bank of Norway, the Bank of Sweden, the national Bank of Switzerland, and the Imperial Bank of Japan, all combined, the deposits of the American banks would still be as great as they had been in 1913. The abolition of the archaic system of banking and currency under which the nation had labored had resulted in the establishment not only of a real democracy of credit but also in a bulwark which withstood the shock of a world war.

The definition of status of the Federal Reserve Board as a Governmental agency was to have two vitally important results of immediate bearing upon the war: the establishment of the fact that, as Governmental agencies, Federal Reserve Banks could not make loans to belligerent countries, and the building of an institution which, by virtue of its closeness of alliance to the Treasury of the United States, stood ready upon the nation's entrance into the war to accomplish the task imposed upon it by the Secretary. Had it not been for the method of operation of the Federal Reserve System McAdoo could not have set in motion with such amazing speed the Liberty Loan machinery which was to prove one of the country's greatest wartime assets. The tracks of American war finance were already laid before the beginning of the war abroad, and, as the waters of conflict widened, the instrumentalities of victory were

being put in readiness for possible need. No one can study McAdoo's course through the period between August, 1914, and April, 1917, without realization that his outstanding executive quality was foresight. He was no Jeremiah. He refused to acknowledge any inevitability of American participation in the struggle, and seconded the President in determined effort to avoid war; but, like a captain who cruises on the edge of a storm belt, he made ready his ship for whatever winds might blow. The Federal Reserve System, pivotal though it was to national integrity, was not his only concern. It was, in fact, characteristic of him also that, once he had directed it into operation and guided it over the shoals and quicksands of dangers, he went to the bridge and left the helm to the steersmen of his choosing. Only when the situation demanded his immediate action did he take it. The exigencies of war, however, forced this action upon him so often that in the long run he remained throughout his term in office the pilot of the vessel; and the log of the ship has to be written from the angle of the captain's binnacle.

AMERICAN SHIPPING AND FOREIGN EXCHANGE

The first Treasury order directly concerned with the war rang out on a clarion note. The instruction given by the Secretary on August 5, 1914, to Collectors of the Customs at all ports of the United States: "Notify all steamship companies and masters immediately that no vessels will be permitted to steer from your port until they have filed their full manifests and also that all outgoing foreign vessels will be subject to the inspection of their papers and cargoes by United States authorities within the territorial waters