10. Aldrich-Vreeland notes and the crisis of 1914. —The Federal Reserve Act, which became a law December 23, 1913, extended the life of the Aldrich Vreeland Act by one year, to June 30, 1915, for fear that some emergency might arise before the Federal Reserve system could be put into actual operation. It also amended the Act in certain particulars so as to make emergency issue easier. The tax rate was low ered to three per cent per annum for the first three months and an additional rate of one-half per cent for each month until six per cent should be reached.
From 1908 until 1914, no stringency occurred which made it necessary for the banks to issue emer gency notes. The outbreak of the European war, however, brought on a severe crisis which even caused the New York Stock Exchange and other important exchanges thruout the country to close. Immediate recourse was taken to emergency circulation. From the date of first issue, on August 4, 1914, to the date of the last issue, on February 13, 1915, the authorized issue of Aldrich-Vreeland notes was $386,444,215. Of this amount, $910,500 was issued by the Comp troller direct to the banks under the third provi sion in the preceding section. The remainder was is sued thru currency associations. By May 1, 1915, $380,039,030 of the amount authorized had been re tired; and, by June 30, 1915, the entire amount had been retired except $200,000, which was issued by a national bank that failed and was placed in the hands of a receiver.
The volume of ordinary national bank notes did not vary materially during the crucial period, but re mained between $720,000,000 and $750,000,000. The authorized issue of emergency circulation was ap proximately one-half of the regular bond-secured cir culation. It was over one-tenth of the total mone tary circulation. No further statement is necessary to show how valuable the Aldrich-Vreeland Act was during the early days of the war.
From the first week in August until the middle of October, 1914, loan certificates were issued by twelve clearing houses, the maximum amount issued being $211,778,000. They were all retired by December 15. In the panic of 1907, fifty-one clearing houses issued lOan certificates, the maximum amount being $255,536,300. The difference is less than $45,000,000. There is no way of telling what might have hap pened if we had not had access to emergency circulation. Let it be borne in mind that all but $910,500 of the Aldrich-Vreeland notes were closely akin to the clearing house loan certificates. They were issued in much the same way but were intended primarily for general circulation, while loan certifi cates were for payments between banks.
11. Aldrich plan.—After four' years of exten sive investigation the National Monetary Commis sion submitted to Congress a report which in cluded a plan for the establishment of a new banking system. The system is ordinarily called the
Aldrich plan, as the Honorable Nelson W. Aldrich, then senior senator from Rhode Island, was chair man of the Commission. The essential feature was the establishment of a banking association, to Le called the National Reserve Association. In reality it amounted to the establishment of a central bank in Washington, D. C. Its stock was to be subscribed by the national banks of the country in certain amounts proportionate to their capital. The gov ernment was to share in all earnings above a certain per cent, which was to go to the stockholders and to surplus. No bank was to be compelled to join the association.
In speaking of the plan before the Eighteenth An nual Convention of the National Association of Credit Men, Professor W. A. Scott said: The plan of reform in the bill took account of our bank ing history and conditions. It proposed the establishment of local associations of banks and the grouping of these into regional associations, and the grouping of these regional associations into a national association with its head office at Washington. The functions assigned to this organiza tion of the banking' institutions of the country were essen tially the same as the functions performed by the great central banks of Europe—i.e., the rediscount of commercial paper for banking institutions, the holding and administra tion of the bank reserves of the country, the service as de pository and distributing agent of the United States Govern ment, the issue of notes against commercial assets ; and a system of control was devised which, in the opinion of the commission, and of most other persons who gave it careful attention, would prevent- its domination by any group or interest.
People all over the country began to take an active interest in banking legislation and to study the prob lems of finance. The eve of a presidential election is not a good time for attempting to pass thru Congress a measure about which there was so much fear of public disapproval as there was in the case of the proposal to establish a central bank. Staunch support could not be marshalled from politicians who were about to go before the people for reelec tion. The result of the Commission's work was pri marily educational. It did cause all three of the im portant political parties to include a plank for bank ing reform in their platforms of 1912. The final outcome of the agitation and study was the Fed eral Reserve Act of 1913, which is discussed in some detail in the following chapters.