CONGRESSIONAL RECORD
              PROCEEDINGS AND DEBATES OF THE 88th CONGRESS,
                              SECOND SESSION

                  The A B C's of America's Money System

                  SPEECH of Hon. Wright Patman of Texas
                     IN THE HOUSE OF REPRESENTATIVES

                          MONDAY, AUGUST 3, 1964

          The SPEAKER pro tempore (Mr. Price). Under previous order of
the House, the gentleman from Texas [Mr Patman] is recognized for 60
minutes.

            Mr. PATMAN. Mr Speaker, first I will indicate the table of
contents of my speech as follows:

                            TABLE OF CONTENTS



Americans Pay $75 Billion on Gross Interest Charges.
The Beginnings of the Federal Reserve System.
The Origin of the Powerful Open Market Committee.
The Bankers Take Over in the Depression.
The "Fourth Branch" of the Government.
Why I Oppose the Unchosen Few.
How Monetary Policy affects Employment.
How Money and Credit Are Created.
The Fed Spends Taxpayers' Money in Odd Ways
Federal Reserve Officials Make International Monetary Agreements.
The Tax and Loan Account Gimmick.
The Big Bankers Lobby---The ABA.
Our Subcommittee's Half Year of Had Work.
Majority of subcommittee's Recommendations.
The Importance of Grassroots Support.
What Each Good American Can Do To Help.



Mr. Speaker, this is the story of money, monetary policy, and a unique
American institution, the Federal Reserve System. It is the story of who-
--what forces---control the supply of money and credit in the United
States. It is the story of a radical change in the ebb and flow of money
and credit in the 50 years since Woodrow Wilson set up what has become
America's central banking system---the Fed. It is the story of what we---
as citizens---can do to make money more available and cost less.

Money is more important than any other part of our economy. If a small
group controls the money mart, as I have long contended, money is scarce
or plentiful, dear or cheap to rent, depending upon this small group's
whims, wishes, selfish interests, or public concern. It is this small
group that determines whether the people pay high interest rates or low
on their farm mortgage, their new automobile, their washing machine, or
their split-level It is the powerful few who have taken authority
Congress never intended for them to have who determine whether money is
readily available or hard to come by.

In a letter John Adams sent to Thomas Jefferson 2 years before George
Washington was sworn in as President, the Massachusetts gentleman wrote:

"All the perplexities, confusions, and distresses in American arise not
from de-fects in their Constitution or Confederation, not from the lack
of honor or virtue, so much as from direct ignorance of the nature of
coin, credit, and circulation."

The purpose of my remarks today is to show that money and monetary policy
is not nearly as complex as the few who control it want the public to
believe. I wish to end contemporary ignorance concerning money matters.

Under the Constitution it is the right and duty of the Congress to create
money, but when the Congress set up the Federal Reserve System it farmed
out its power. As we will see, a limited authority was transferred to the
Fed and the commercial banks.

Today the Fed and the commercial banks possess immense power, since they
manufacture money which they lend out or use to purchase securities. They
are not counterfeiters--they are licensed to manufacture money. This
power, if properly used, could work in the public interest. However, the
authority had been abused. As I have indicated for many years, they
charge the public too much money for money they manufacture

           AMERICANS PAY $75 BILLION IN GROSS INTEREST CHARGES

The American people--according to the Department of Commerce--will pay
$75 billion in gross interest charges this year. Eleven of the $75
billion is for annual interest on the national debt. These charges are so
high that if the trend continues the day may arrive when it will be true
that America cannot afford to spend the money needed for its schools
     or city and rural area renewal, for mass transit, conservation,
recreation or reclamation and for old-age or veterans' compensation or
pensions, to name a few. In other words, the more we must pay the
moneylenders, the less we have to spend for our national well-being. The
more we are taxed by the moneylenders, the less chance we have to
increase our economic growth rate. Unemployment will increase. Business--
-both manufacturing and retail---is handicapped by high interest charges
which they must inevitably pass on to the general public.

While the Federal Reserve and the banks in the past have attempted to
justify high interest charges with the excuse that the high rates would
hold prices down and stop inflation, in reality they were upping prices
by increasing the cost of credit--both for individuals and business
institutions. The inflation bunkum has pretty well worn itself out---
people will not heed it any longer. The new propaganda by the same
controlling financial interests then contended that we had to up interest
charges in order to stop our gold flow abroad. And then we heard a lot
more hokum to the effect that it would be necessary to increase interest
so that American money would not go overseas where rates were appealing
to the investors because they were much higher than American rates. Such
hobgoblins have fortunately been laid to rest, but the next time you hear
them remember that they are part of the designed fraud put forth by the
moneylending lobby--the American Bankers Association particularly--to
make higher interest rates palatable to the American people.

Important and powerful bankers are no different from some important and
powerful people engaged in manufacturing automobiles, aluminum, steel, or
detergents. They want fewer and weaker competitors. They want to lead the
pack, dominate their respective markets.

From our earliest history as a nation a few bankers have had the ambition
to gain control over America's monetary policy. There was old Nicholas
Biddle, who had his running feud with Andrew Jackson, and fortunately
lost. And then there was the House of Morgan, who employed the kidglove,
gold-cane approach to banking in the early decades of this century. Then
Andrew Mellon came along in the twenties--a ruthless and corrupt
politician-banker who became Secretary of the Treasury--until I nearly
had him impeached for using his high office for personal gain. And more
recently, there has been the Morgan-Aldrich-Rockefeller banking empire
and the giant-sized Giannini Bank of America phenomenon in the West.

               THE BEGINNINGS OF THE FEDERAL RESERVE SYSTEM

Ever since 1913 when the Federal Reserve Act was passed, control of the
money mart has become more and more concentrated in fewer and fewer
hands. How this came about follows in a brief historical sketch of the
Federal Reserve System, which was founded in 1913, and became operative
the following year. The big bankers did not like the Federal Reserve Act,
as enacted, because they were not allowed on the Board to determine the
volume of money and interest rates. The Federal Reserve System was set up
because following the panic of 1907 it became clear that an elastic
currency and a viable means for transferring reserves among banks was
necessary to avert panics and to assure economic stability.


As the then Congressman Alben Barkley stated:

"Against many of their methods (Wall Street) I do complain, and the
people of the country have complained, and will continue to complain
until the cause for this complaint is removed."

Representative Charles A. Korbly of Indiana, then a Member of the House
Banking and Currency Committee, stated in 1913 when the Federal Reserve
Act was being considered:

"We have a control by New York banks and New York banking. We propose to
break this. We not only propose to break it, but we propose to
decentralize it. We propose to scatter it into 12 different sections of
the United States. Then it will be a control within a particular section,
subject to the power of the Government."

At the beginning the Fed was composed of 12 separate banks, each one a
autonomous financial world onto itself. As we will note, today, the power
of control has gone full circle--back to Wall Street. A half-century of
neglect by the Congress--which as not bothered to look at the operations
of the Federal Reserve System--has made it a pliable instrument for a
comparatively few mighty bankers.

Parenthetically, at its birth in 1913, the Democrats favored the Fed and
the Republicans opposed it. It is noteworthy that today--now that the big
banks, mostly in New York, call the tune at the Fed--the Rupublicans--at
least on the House of Representatives Banking and Currency Committee, of
which I am chairman--oppose almost any change which would make the
Federal Reserve responsive to the President and his economic and fiscal
policies.

             THE ORIGIN OF THE POWERFUL OPEN MARKET COMMITTEE

In 1923, the bankers in New York formed a committee of five to issue
money and buy bonds on the credit of all 12 Federal Reserve Banks. The
committee got permission from the 12 banks to operate, and this they did
until 1933 without sanction of law--merely through a "gentlemen's
agreement."

The arrangement was not secure because any of the banks--then autonomous-
-could have gotten out any time it desired. However, it became profitable
for all banks.

This committee of five became the first Open Market Committee, which
controlled credit by buying and selling Government securities, employing
the resources of all the banks combined. It was called an "Open Market
Conference," although in reality it was a "closed" market affair because
nobody except the few inner-sanctum members knew what was going on.

In 1927, when the McFadden Act was pending, an amendment was inserted
which removed the 20-year limitation on the Federal Reserve System. Thus
the Fed, set up for a 20-year trial period, became a permanent American
institution. The new law was passed because the big bankers, through
their unofficial Open Market Committee, realized that it would be
comparatively simple for them to gain control of the Federal Reserve they
had originally opposed.

                 THE BANKERS TAKE OVER IN THE DEPRESSION

In 1933, in the depths of the depression, while the Congress was looking
the other way, the bankers were writing a law--playing for keeps this
time. Under this law an advisory group was set up consisting of a
representative from each of the dozen Federal Reserve banks. Each
representative would be a banker, and, the Federal Reserve Board, under
the law, could not deal in open market transaction without the request of
this group of bankers. But the Board was not satisfied with this
situation so a change had to take place. Under the Glass-Steagall Act of
1935, the seven members of the Board of Governors and the New York
Federal Reserve Bank president--made a permanent member in the early
forties--are designated as 8 of the 12 members of the Open Market
Committee. Presidents of the other 11 Federal Reserve banks alternate as
the other 4 members of the Open Market Committee for short terms.
Also under Glass-Steagall of 1935, the 12 members of the Open Market
Committee are permitted to wear two hats. They can be bank presidents and
members of the Federal Reserve Board one day, or they can be Open Market
Committee members, buying and selling Government securities, tightening
or easing credit, responsible only to themselves and God. Under the
original act of 1913 there were seven members to the Federal Reserve
Board, including the Secretary of the Treasury and the Comptroller of the
Currency, the latter two ex-officio. The other five members were
appointed for 10-year term, one expiring every 2 years. In the 1933 act,
the Secretary of the Treasury and the Comptroller were retained, but the
other five were appointed on a staggered basis for 12 year terms and
finally in the 1935 act, the Secretary and the Comptroller were dropped,
and seven members were appointed for 14-year term, one expiring every 2
year. There was indeed a method behind these terms of years. The money
managers were rigging the tenure so that only one term would expire every
2 years. Therefore, a President who served two full terms would only get
to appoint two members the first 4 years in office. The third would come
the first 2 years of the second term and the fourth the last 2 years of
his 8 years as U.S. President. Under a recent amendment to the
Constitution, no President can serve longer than two terms. Moreover, our
Chief Executive's hands are tied in selecting the Board's Chairman.

In the last year of President Kennedy's administration he was allowed to
appoint a Chairman of the Federal Reserve Board. Under the Glass-Steagall
Act of 1935, he was forced to select the Chairman from one of the seven
Board members. Under the 1935 act, the President of the United States
could never get control of the monetary policy of the Government he was
elected to head. The Fed and the Open Market Committee could veto
whatever economic and financial policies Congress and the President
desired if the few insiders so wished. Of the present seven members of
the Board the first expiration date is that of Mr. Balderston, whose term
expires January 31, 1966. The second is Mr. Shepardson, whose term
expires January 31, 1968.  Thereafter the expiration dates extend on up
through 1978 as follows:
William McC. Martin, Jr., January 31, 1970, A.L. Mills Jr., January 31,
1972, Dewey Daane, January 31, 1974, George W. Mitchell, January 31,
1976, and J.L. Robertson, January 31, 1978.

In the evolution of the Federal Reserve System, the 11 member banks---
aside from the New York bank with its 5,000 employees--have practically
gone out of business.

Officials and about 15,000 employees of the other 11 Federal Reserve
banks are desperate in their efforts to find something to do. At present
they are only clearing checks and distributing currency and coin to their
member banks. This at a cost of well over $100 million a year to the
taxpayers. The fact is, the Federal Reserve Bank of New York is the hub
of the working mechanism of the Fed. Alfred Hayes, president of the New
York Federal Reserve Bank, receives a salary of $70,000--fixed by the
Federal Reserve--not by Congress--although he is paid by the taxpayers.
Only the President of the United States receives a higher salary from the
taxpayers.

Chairman Martin, of the Board of Governors of the Federal Reserve System,
has always insisted that the open market operations are conducted in the
New York Federal Reserve Bank but under the direction of the Open Market
Committee.

The fact is the New York Federal Reserve Bank has been acting
independently--sort of as a 'Wild card" roving end of the Federal Reserve
System. What Coach Martin wants he sometimes fails to get because "wild
card" end Hayes decides he wants to do something else and runs with the
ball the other way.

Under the law everything that is done in the New York Federal Reserve
Bank is under the direction of President Hayes. Section 4 of the Fed Act
provides that the President: "shall be the chief executive officer of the
bank . . . and all employees of the Bank shall be directly responsible to
him." They are. He is responsible to a Board of Directors (who selected
him as President) composed of nine members, six of whom were selected by
the private commercial banks.

                  THE "FOURTH BRANCH" OF THE GOVERNMENT

I have previously mentioned the Open Market Committee---which has been
called "the fourth branch of the Government." It meets secretly every 3
weeks--and in these meetings the 7 members of the Federal Reserve Board
and the 12 presidents of the Federal Reserve Banks determine how much
money the people have. That is, the volume of money and what the interest
rates shall be on Government securities. They buy and sell Government
securities, and by their actions control the reserves in the more than
6,000 member banks in the Federal Reserve System which have 85 percent of
the deposits in the 14,000 banks in the United States. These reserves
determine whether money is comparatively easy or hard to come by and
whether it is obtainable at beneficial or harmful rates of interest.

It is a fact that the Open Market Committee's actions have created three
depressions in the last 10 years-- 1953-54, 1957-58, 1960-61.  Each of
these man-made recessions was preceded by tighter money and higher
interest rates. We cannot afford any longer for such an expensive group
to operate secretly. There should be no mystery whatsoever--no secrecy--
concerning the control of money supply, interest rates, or credit.

These are matters affecting the public from the time they get up in the
morning until they retire at night. For the Federal Reserve and the
banker-oriented Open Market Committee to cloak the working of the money
system in a mantle of secrecy is to violate the prime rule of a free
society. there is a place for such secrecy only in an authoritarian
state.

I do not wish--under any circumstances--to appear as one ready to indict
all bankers merely because they happen to be bankers. I know from direct
experience that some community bankers are leading citizens of their
towns and cities. They are altogether cognizant of their
responsibilities. They are also aware of the particular privileges that
accrue to them because of their authority in the community to lend or not
to lend money.  They are also conscious of the enormous--even abnormal--
prosperity that bankers have enjoyed the past few years.

In an article on bank profits in the July 17, 1964, issue of Time
magazine, we learn:

The $312 billion U.S. banking industry is sharing in the current economic
advance to a degree that surprises even it.  Bankers, in fact, are making
more money than ever before. Last week all time high first-half earnings
were reported by several banks, including the two largest ones, San
Francisco Bank of America and New York's Chase Manhattan . . . the
Nation's major banks earned 9 percent more in 1964's first half than in
the first half of 1963. Much of the gain came in the kind of loans that
bankers like most of all--consumer installment loans, which give them
interest yields of 12 percent or more.
The bankers have also been earning more from the $59 billion that they
have tied up in Government securities. . . . To further increase their
income, the bankers have been switching increasingly from Government
securities to municipal bonds, which are tax exempt.

This article by the conservative news magazine in the last paragraph
states that bankers complain that "interest payments on deposits are too
generous." And they say that my old friend William McChesney Martin
worries that the bankers have taken on too many "chancy" construction
loans.

But the last sentence is the payoff.  Says Time:

Because the banks have only a small supply of liquid funds, the Federal
Reserve now has greater power to tighten up on credit should strong signs
of inflation appear.

It seems that Time magazine and WRIGHT PATMAN agree concerning the
authority of the Federal Reserve System. We disagree only on one point: I
would end the ability of the Federal Reserve to exercise this authority
independently of the Congress and the President. I will wager a longhorn
Texas steer that Time would not.

                      WHY I OPPOSE THE UNCHOSEN FEW

In my congressional career, I have been an implacable foe of those who
insist on jacking up interest rates to an excessive degree and thus
tightening credit, which most certainly slows up our economic
development. Presently I am at war--as you have gathered--with a small
coterie of men--primarily from the ranks of the big New York banks--in
cahoots with the Fed--the same crowd who controls the American Bankers
Association--who have upped the interest charges on Government securities
since the Roosevelt-Truman era and thus forced the American people to add
$40 billion unnecessarily to the public debt. If we had maintained the
interest rates in effect prior to the Eisenhower regime, the carrying
charges on our entire debt would be $6 instead of $11 billion per year,
and the debt itself would be $270 rather than $310 billion. I have
publicly stated that if these people are able to get away with it they
will continue to encourage monetary policies that can lead only to a $600
billion national carrying charge within 15 years at a 6-percent carrying
charge amounting to $36 billion per year of the taxpayers' money.

To show how pernicious is the effect of interest increases, one-fourth
percent increase in the rate of interest on the national debt would cost
the taxpayer approximately $800 million a year. Now let us look at
increased interest costs as they pertain to homeownership. A national
farm organization has estimated that home mortgages during the period
1952-63 have cost homeowners $6 billion more than they would have had to
pay if the rates had been held to the pre-Eisenhower regime interest
rates. This $6 billion alone is enough to cover the capital costs of
between half a million and a million new houses for middle and lower
income families.

This small but formidable group of tight money, high interest rate
devotees I oppose are the insiders who back up William McChesney Martin
when he arrogantly pronounces how independent the Federal Reserve System
is and must remain---and how wicked the politicians like myself are who
want to do away with this mythical independence and instead make the Fed
responsive to the President rather than to a bunch of money hucksters.
These are the people who want no reform of the Federal Reserve Board.
They boast about being insulated against the politicians--Congress and
the President--but they do not deny working closely with the big bankers
who have the most to gain by their actions.

The Constitution wisely provides that Congress shall coin money and
regulate its value for the reason that the Congress and the President,
who would control the money, would be accountable to the people, who
would have an opportunity to express approval or disapproval at the
polls. If monetary matters are left to the Federal Reserve, insulated
from the people, then the public will have no way to express its approval
or disapproval of their actions. The fact is an independent Federal
Reserve means something that is not in the framework of our
constitutional system, which says that Congress will make the laws and
the President shall execute them. Those who desire a dictatorship on
money matters by a "bankers club"---away from the Congress and the
President---are in effect advocating another form of government alien to
our own.

As the tight money, high interest clique sees it, it is perfectly all
right for the President to be able to appoint his own Secretary of the
Treasury and his economic advisors. But it would be "politically
mischievous" for him to be able to appoint the head of the Federal
Reserve or to find out what goes on in the Open Market Committee
meetings.

In other words, those who consider monetary matters hallowed ground are
insisting that the bankers control the volume of money and the cost of
interest. They contend that the politicians---the people who are elected
by the people--are not competent to pass upon the questions involved. But
it is perfectly all right for the Congress and the President elected by
the people to pass on the use of nuclear missiles, the atomic bomb, the
appropriations and expenditures of government, the drafting of the young
men into military service and into war, but they are not competent to
pass upon monetary matters.

As the money trust sees it. financial matters must be left entirely up to
bankers. They alone are qualified to understand the deep mystique of
money. Which reminds me that it was Woodrow Wilson, who, when asked by a
group of bankers to appoint bankers to the Federal Reserve Board,
inquired:

"Which one of you gentlemen would want me to appoint railroad presidents
to the Interstate Commerce Commission?"

Bankers are people who know how to make loans but little about the
science of money as it affects the total economy. In 1913, Congressman
Graham, of Illinois, put this idea succinctly:

"The ordinary banker devotes very little of his time to a study of
financial systems. He devotes himself rather to the immediate management
of his bank."

                  HOW MONETARY POLICY AFFECTS EMPLOYMENT

For more than 30 years I have believed that monetary policy can vitally
affect employment. Early in Franklin D. Roosevelt's first term I
introduced a bill which---among other things---called for expanding the
money supply "until there is substantially full employment at the wage
and price level of 1926." The bill called for expanding the money supply
so as to achieve full employment without inflation. I lost that battle,
but in 1946 I was the House of Representatives' author of the Full
Employment Act which make it the responsibility of the President:

"To coordinate and utilize all of the Government's plans, functions and
resources . . . to promote maximum employment, production, and purchasing
power."

I conceived that this Employment Act would provide the basis for
achieving the full employment monetary policy called for in my 1943 bill.
It was my intent when the Employment Act of 1946 was being drafted that
the President of the United States should be responsible for formulating
monetary guidelines. However, following passage of the bill, the
controversial question of the Federal Reserve's independence has
consistently prevented the President from implementing the act as I had
originally intended. Instead, monetary policy has been formulated in a
vacuum---uncoordinated a good deal of the time with our fiscal and
economic policies and programs.

This ludicrous situation must not be permitted.

A letter written by professor emeritus, Seymour E. Harris, famous Harvard
economist who served as advisor to President Kennedy, printed July 16 in
the Washington Post says in part:

"On no issue of economic policy has more nonsense been written than on
the independence of the Federal Reserve System. And no one has proclaimed
this independence more insistently than Mr. William McChesney Martin,
Chairman of the Federal Reserve Board:

"If the Government seeks full employment, relative stability of prices,
and reasonable balance in international accounts, the Fed would have no
alternative but to follow policies that help the Government achieve these
ends. This is a must. We cannot afford, in these days of crisis, the
luxury of the Executive going one way and the Fed another."

Under President Kennedy, there were threats of restrictive monetary
policy; e.g, at one point Mr Martin would veto the tax cut by not
financing the deficit out of additional money.

The Board itself gives too much attention to the wishes of the financial
interests. The banks even more so. Financial interests are biased in
favor of excessive monetary restriction and high price for their product
and restricted supplies. They might do better, though they do not seem to
realize it, by selling more at lower prices.


                     HOW MONEY AND CREDIT ARE CREATED
For the next few moments I would like to discuss how money and credit---
which is the same as money---are created. I have already said that
commercial banks have the power--along with the Fed---to create or
manufacture money. They do so in different ways and for different
reasons.

Under the basic rules laid down by the Federal Reserve System, banks may
create several dollars of bank deposits for each dollar of reserves which
are at the moment credited to their account on the books of the Federal
Reserve. For example, say that the Fed has credited a bank with $100 of
reserves.  And suppose the banks are permitted to create $10 of deposits
for each one of reserve, as they now are.  This would mean that all banks
in the System can create bank deposits by making loans and purchasing
investments up to a point where total deposits reach $1,000, or $10 to
every $1.

Stated in another way, when the Fed increases a bank's reserves by $100,
that bank can lend out $90 in new loans and keep only $10 as reserves.
The $90 loan usually will be deposited in another bank, in which case the
second bank can lend out $81, retaining approximately $9 as reserve. The
$81 created in new loans is then usually deposited in a bank, 10 percent
held in reserve and the other $73 is available for new loans. This is the
chain reaction of the money-creating process, the net result of which is
a 10-for-1 buildup in new money.

The question is raised that since banks make profits from interest they
receive from loans and investments, why do they not simply create an
unlimited amount of money--making every loan they can place---and buy up
all legitimate securities offered. The reason is, the banks are required
to hold reserves equal to a certain fraction of their deposits. Without
these required reserves, there would be no limit to our money supply, and
a rational control of our economic system would not exist.

Now the Fed provides banks with reserves free to permit them to create
checkbook money, and it provides these reserves by purchasing Government
securities. It could--if it so desired---reduce or even retire all of our
publicly held national debt by providing banks with reserves.

But bankers cannot exist without debt. No debt, no money. Government
paper is wonderful to have around. The clipping of coupons is profitable-
--and no risk exists.

However, I would like to see bankers get back into the banking business--
-paying less attention to high-interest-bearing Government securities and
tax-exempt municipals---although they are certainly the keystone of our
national economy---and more attention to loaning money at reasonable
rates to people and industry---particularly to independent and small
businessmen---so that our economy can grow and the trend toward merger
and monopoly would be at least be retarded, if not reversed.

               THE FED SPENDS TAXPAYERS' MONEY IN ODD WAYS

As of today the Federal reserve holds in its New York vaults, $34 billion
worth of Government bonds. The taxpayers---you and I---are paying over $1
billion a year on these securities. The Fed spends as much of this $1
billion as it wants to for any purpose whatsoever, including $90,000
worth of annual dues to the American Bankers Association. I mentioned
earlier that Federal Reserve employees are desperately trying to find
something to occupy their time. Some have taken up courses in
Shakespeare, sales management, public opinion, metropolitan politics and
ethics, art history, and the philosophy of religion; one was even driven
to take a course in the sociology of occupation, all at the taxpayers
expense. No one seems to have taken a course in the proper use of the
taxpayers' money. Other employees have found relief in dinner parties---
one cost over $4,000 including $25 for a preacher for the invocation and
$125 for a comedian---and theater and golf parties---still on the
taxpayers money. Others have taken to travel. One Fed official spent a
fortnight in India with his wife; his expenses---#269.10, hers, $7.10---
which led one reporter to comment, "He traveled like a Prince, his wife
like a coolie." You see, the Fed does not have to go to the Congress for
an annual appropriation, since it contends it is independent.

What it does not spend of the $1 billion, it returns to the Treasury. The
bonds which I mentioned a moment ago and which are bought with Government
money should either be canceled or the interest turned over to the
Treasury Department  These $34 billion in bonds have been paid for once,
since the Federal Reserve notes that are printed at the Bureau of
Engraving and Printing in Washington were used to buy these bonds. Each
Federal Reserve note is a Government obligation, so what the Fed has been
doing---and I can think of nothing more ridiculous---is to take one form
of non interest-bearing obligation, a Federal Reserve note, and trade it
for another Government obligation consisting of interest-bearing
Government bonds, and then require the taxpayers to continue to pay
interest on the bonds traded for.

It is my firm belief that since the bonds have been paid for once, they
should be canceled. If permitted to remain in effect, the taxpayers
should not be required to pay interest on them or the interest should at
least go back into the Treasury.

    FEDERAL RESERVE OFFICIALS MAKE INTERNATIONAL MONETARY AGREEMENTS.

A moment ago I noted the expenses of a high official of the Federal
Reserve System in his travels abroad. He is not alone. Many Federal
Reserve executives are taking frequent trips abroad at the taxpayers
expense---attending monetary conferences and carrying on business with
various central banking officials of other nations.  As an outcome at
some of these meetings, fundamental financial decisions which have a
direct bearing on our economy are made. There is a possibility that some
of these may go beyond the authority granted the Fed officials. They may
even be in violation of American constitutional law. I hope that this is
not the case, but I must state that it is a distinct possibility.

It is ironic that our committee which would like to find out what is
going on at some of these oversea meetings is not permitted to travel
outside the confines of the United States. The resolution setting up our
prerogatives as a committee states:

"Funds authorized for expenses incurred in the committee's activities...
shall not be made available to the Committee on Banking and Currency for
expenses of its members or other members or employees traveling abroad."

Since our committee is the first in 50 years to look into all phases of
the Federal Reserve System, it would seem advisable for our members to
have the same privilege to travel abroad as officials of the Fed. They
would thus be able to investigate what might prove a most revealing facet
of the Fed's operation. Such an investment of taxpayers' money could be
worth a thousand times its cost.

                    THE "TAX AND LOAN ACCOUNT" GIMMICK

A major taxpayers' headache connected with our banking world has been the
bankers' bonus. I refer to the "tax and loan account" gimmick.

Hardly known to the general public is the fact that the U.S. Treasury is
subsidizing banks every day of the year. Bankers---most of whom are
conservative and Republican---like Ed Neilan, former President of the
U.S. Chamber of Commerce and head of the Bank of Delaware in the Duchy of
DuPont--generally oppose all Government subsidies, except, of course, the
ones they receive. The tax and loan account is one of the bankers'
principal subsidies.

When Federal income tax is deducted from your salary, the check is made
out to the Internal Revenue. The check is returned to the boss' bank, but
the money remains right there in a tax and loan account; it is not sent
immediately to the Treasury Department although, eventually, it will be
called for by the Government.

In the meantime, this money is loaned out at the going rate of interest
by your bank to any qualified borrower, or it may be used to purchase
securities---including Government bonds.

Last year an average of $5.3 billion was held by banks in tax and loan
accounts throughout the Nation. At 4 percent this means a cost of $212
million annually to the taxpayers. This costs the taxpayers more because
the public debt is made higher by the Government's failure to take
possession immediately of tax and loan money. It is the taxpayer who has
to pay the interest on the additional debt.

It is the contention of the banks that they render service to the
Government which cancels out any reasonable interest payments they might
make to Uncle Sam for money they loan out from the tax and loan accounts.
I would pay the banks for any service they render the Federal Government.
I believe, however, that most of the services they talk about are those
they must render in order to keep their customers from going across the
street to their competitors.

Some day soon I hope that banks, which are so abundantly profitable, will
pay the Treasury something for these deposits.

                     THE BIG BANKERS' LOBBY---THE ABA

Big financial lobbies---like big business lobbies---seldom concern
themselves with the public interest. The American Bankers Association is
no exception.

A number of years ago, the Buchannan Lobbying Investigating Committee of
the House of Representatives divided lobbying into two categories---
direct and indirect. The American Bankers Association--as ugly as any
lobby in existence---practices both categories to the full. Direct
lobbying is where a paid lobbyist goes to see---or buttonholes in the
corridor---a Congressman to give him his song and dance on specific
legislation favoring whomever he works for. indirect lobbying---by far
the most insidious type---can and has taken the form of S O S pleas t
members of the American Bankers Association to intimidate their
Congressman through long-distance calls, telegrams, or letters---damning
some bill which might favor the public over banking interests. Or the ABA
might ask for affirmative action on another piece of legislation favoring
banks vis-a-vis the people.

Not for a moment would I deny the ABA or anyone else the  constitutional
right of petition. They---like any other greedy lobby--have the
unrestricted right to work for legislation inimical to the best interests
of the American people. This is a cost we must pay for our freedom. I
merely cite how the bankers' lobby operates so that the public may be
aware of its activity.

Recently indirect lobbying was used to kill legislation that was very
much sought by savings and loan associations and many bankers,
particularly small town and small city bankers. This legislation would
have increased insurance from $10,000 to $20,000 on individual bank
accounts. The ABA lobby---which dances to the tune of the giant banks---
went to work asking bankers around the country to yell bloody murder
against the increased insurance coverage unless--now get this--there were
amendments added th the FDIC bill that would have crippled the savings
and loan companies. They even made it appear that the administration was
opposed to increasing this insurance. The facts are that the top
leadership in the House of Representatives--which does not fight the
administration--supported the bill.

Bankers look upon savings and loan institutions as competition. They are
envious. If the bankers had been on the ball--if they had remained in the
banking business and loaned money to people who need it for housed,
farms, and other things--instead of buying non-risk-taking Government
securities at high interest rates, they would have enjoyed the billions
of dollars worth of mortgage business that now goes to the savings and
loan people.

One clever means of antipublic action by the bankers' lobby is as subtle
as a wart on a movie actress' nose. It takes the form of offering a
Congressman bank stock either free or at a cost greatly under the market
value. A member of my committee was approached and offered $14,000 worth
of bank stock as a gift. I am proud to report that he is of such caliber
that he told the would-be donors to get out of his office and stay out---
and in language unfit for this occasion.

The bankers' lobby---like others representing giant American interests---
is potent and often effective. But with grassroots support as I envisage
from the American people, I believe it can be contained. More about this
a little later.

                OUR SUBCOMMITTEE'S HALF YEAR OF HARD WORK

Now I want to tell you a little about what the Domestic Finance
Subcommittee of the Banking and Currency Committee has been doing the
first half of this year regarding its extensive investigation of the
Federal Reserve System---the most revealing and penetrating investigation
that has taken place in the Fed's 50-year existence.

We heard from 50 witnesses. Included among them were the 19 ranking
executive officers of the Federal Reserve System, including Chairman
Martin; the Secretary of the Treasury; officials of the General
Accounting Office; representatives of the American Bankers Association
and the Independent Bankers Association; the research director of the
AFL-CIO, and 23 experts in the field of economics, public administration,
and law. These witnesses were thoroughly interrogated by the members of
our subcommittee on Domestic Finance of the Banking and Currency
Committee of the House. In addition, interesting statements and exhibits
were included, along with the testimony of witnesses. These experts were
not only eminent scholars but represented a wide range of opinion. Some
had been advisers to Presidents Truman and Kennedy. One has served as an
economic advisor to Senator Goldwater. Several had worked in the Federal
Reserve System---one or two were still attached to it as consultants---
and they came from all parts of the country.

Despite the great diversity of viewpoint and geography of these 23
experts, there was remarkable and substantial agreement among them about
the need for reform, not alone of the Federal Reserve System structure,
but also of its basic policies.

No subcommittee in my entire 36 years of congressional experience ever
devoted itself more thoroughly and painstakingly to its task. Most
recently the majority members representing 8 of the 13 sub committee
members decided unanimously to recommend to the Congress revisions of the
Federal Reserve System which would seem to be a must to improve our
monetary policy, thereby giving a lift to our national economic
performance.

The recommendations of the majority of the subcommittee do not rule out
the prospect for further constructive recommendations. In all likelihood
these will result when the subcommittee considers its proposals in public
hearings after the next Congress convenes in January of 1965. Meanwhile
the proposals are being circulated in order to stimulate full study and
discussion by the Congress, the executive branch, the Treasury, the
Federal Reserve, and more important than any of these, the people of the
United States. A bill embodying the recommendations of the subcommittee
will be introduced at the beginning of the 98th Congress in January. This
bill, if passed, will put an end to the private control of the
Government's monetary affairs.

                MAJORITY OF SUBCOMMITTEE'S RECOMMENDATIONS

While I shall not burden you with all of the wordage of the
recommendations, I would like to indicate many of the forward steps that
were suggested. It was recommended:

First. That the term of the Chairman of the Board of Governors of the Fed
be coterminous with that of the President of the United States;

Second. That the number of Governors of the Federal Reserve Board be
reduced to five;

Third. That we reduce the terms of office to 5 years and allow for
reappointments;

Fourth. That instead of continuing the appointment of bankers, the
requirements would state only that the Governors be "men of integrity,
devoted to the public interest";

Fifth. That a public audit be made by the Comptroller General of all
expenditures of the Federal Reserve Board and the Reserve banks---no
Government or independent audit has ever been made of the 12 Federal
Reserve banks.

Sixth. That the Federal Reserve stock be retired---member banks own the
stock but this is unnecessary any longer since the Fed is and has been
since 1935, the central banking system of the United States of American.
The stock does not carry a proprietary interest, and, therefore, it is
not stock in the real sense of the word;

Seventh. That all capital gains and interest received by the Federal
Reserve from the U.S. Government securities be covered into the Treasury
as miscellaneous receipts and that all capital losses be covered by the
Treasury;

Eighth. That the President be required to set forth in his periodic
Economic Reports, recommendations concerning monetary policy, domestic
and foreign, including the growth of the money supply necessary to attain
the goals of maximum employment and production and purchasing power;

Ninth. That we express the sense of Congress that the Federal Reserve
Board operate in the open market so as to facilitate the achievement of
the President's monetary policy; provided that if the Fed's monetary
views and actions diverge from those of the President, it shall file with
the President and the Congress a statement of reasons for its divergence;

Tenth. That we permit the Federal Reserve to concentrate on monetary
policy by transferring its present bank supervisory functions to the
Comptroller of the Currency, The Federal Deposit Insurance Corporation,
or to a newly created Federal banking authority.

It is my belief that if most of these recommendations are translated into
law, as I confidently expect, with the help of the American people, the
Federal Reserve System will operate as it was originally intended---for
the good of the people This Nation can no longer afford to have a central
banking system that goes its own way while ignoring the President and the
Congress.

When the administration determines of a policy of full employment and
price stability, the Fed must carry on parallel action and help, not
hinder, the achievement of the desired ends.

The Washington Post in a editorial stated not long ago that the "United
States is the only great power in which monetary policy is not subject to
the firm control of the incumbent administration." The editorial
concluded by pointing out that: "An institution that produces something
less than optimal results in the absence of great pressures and that is
the spawning ground for a dangerous conflict in time of trouble cannot be
tolerated in a world where money and monetary policies really matter. The
time for thorough going reform has arrived."
I am attaching the Washington Post editorial, and another informative
piece from Business Week at the end of my remarks.

                   THE IMPORTANCE OF GRASSROOTS SUPPORT

If there is to be any important change made in the working of America's
monetary policy---so vital to the well-being of all of us---we are going
to have to depend upon the grassroots to demand this change. The big
financial community---the banking establishment, you may call it---has
been very clever while Congress has slept. While Congress has slumbered
the banking lobby---particularly the American Bankers Association and
their propagandists---have seen to it that the people have remained
either uninformed or misinformed on monetary matters. The business
community has been passive, even though it has become a prime victim of
high interest rates and tight money policies. Businessmen as well as
other American must become alert. Do not permit the money changers to
increase the tremendous gross interest burden of $75 billion per annum we
are already paying.

Now for one or two final observations.

Most people assume that money has always been here---that some law of
nature guarantees a fixed and unchanging supply. When a public figure
like myself suggests that it might be possible to improve our monetary
system, some folks react as though I were proposing to meddle with nature
or perhaps butcher a sacred cow. Though I am a consistent and vocal
critic of high-interest, tight-money policies, I want to make it
abundantly clear that there is no room in my thinking for anything that
smacks of unsound credit or unsound money. Both inflation and deflation
are tragic in their human consequences.

Despite my pointed remarks concerning many facets of our banking system
and of the Fed particularly, our monetary setup has enabled us to create
more wealth and thereby do more for people than any other banking system
in any other nation in recorded history. Our country has done this
despite tight-money, high-interest rate policies and also despite man-
made depressions every few years. How much further we could go toward
even better standards of living without these unnecessary hindrances.

If any person desires to assist in the crusade to bring back public
responsibility to the Federal Reserve System and thus improve our entire
monetary machinery, I suggest that he take the following steps:

First. Notify your own Congressman and the two U.S. Senators from your
own State that you wish to reverse the trend toward high-interest, tight
money policies brought on by a small group that controls our monetary
system through the Federal Reserve as now constituted;

Second. Free publications listed below may be obtained by Members of the
House and Senate to fill requests of their constituents from the House
Committee on Banking and Currency. Requests for single copies will
receive first consideration. If the committee's supply should become
exhausted, efforts will be made to secure additional printings for free
distribution to fill all requests of Members from their constituents.
Purchases may also be made directly from the Superintendent of Documents,
Government Printing Office, Washington D.C.  20402

                   DOCUMENTS ON BANKING PRODUCED BY THE
              COMMITTEE ON BANKING AND CURRENCY OF THE HOUSE
              OF REPRESENTATIVES DURING THE YEARS OF 1963-64
                                 Hearings

"The Federal Reserve System After 50 Years," volume I (January and
February 1964): Contains the testimony of five of the seven members of
the Federal Reserve Board and of all of the presidents of the 12 Federal
Reserve Banks. Price $3.25

"The Federal Reserve System After 50 Years," volume 2 (February and
March, 1964): Contains the testimony of the Secretary of the Treasury,
the remaining two members of the Federal Reserve Board, and 18
economists, including several of the Nation's most respected
academicians. Price $1.75.

"The Federal Reserve System After 50 Years," volume 3 (April 1964):
Contains the testimony of representatives of the commercial banking
industry and of a number of outstanding authorities in law, political
economy and public administration.  Price $2.

                             COMMITTEE PRINTS

"The Federal Reserve After 50 Years" (staff report on testimony, volumes
1,2,3), 30 cents (104 pages).

"Study of Federal Credit Programs," (February 28, 1964): volume 1, 75
cents (316 pages); volume 2, $2.50 (904 pages).

"Comparative Regulations of Financial Institutions," (November 22, 1963),
$1.25 (432 pages).

"Bank Holding Companies" (May 20, 1963)  40 cents: (140 pages).

"Chain Banking," 20 largest stockholders of the 200 largest member banks
of the Federal Reserve System (Apr. 15, 1963), $1.50 (552 pages).

"Twenty Largest Stockholders of Record of the Other 6,000 Member Banks of
the Federal Reserve System  Volume 1, (Fed. Res. Districts Nos. 1
(Boston), 2 (New York), 3  (Philadelphia)),$1.50 (312 pages);  volume 2,
(Fed. Res. Districts Nos. 4 (Cleveland), 5 (Richmond)), $1.25 (253
pages), volume 3 (Fed. Res. Districts Nos. 6 (Atlanta), 7 (Chicago)),
$1.75 (357 pages); volume 4 (Fed. Res. Districts Nos. 8 (St. Louis), 9
(Minneapolis)), $1.00 (221 pages);  volume 5 (Fed. Res. Districts Nos. 10
(Denver), 11 ((Dallas), 12 (San Francisco)), $1.75 (345 pages).

"A Primer on Money"' 40 cents (152 pages).

The "primer: on money mentioned above will be released by the Banking and
Currency Committee sometime this week. This document represents
information gathered over a period of years and is designed to explain to
the average citizen how our monetary system works.

Third. Let me hear from you if you want to be kept informed of the
progress we are making regarding an overhaul of the Federal Reserve
System.

Notify Representative WRIGHT PATMAN, Member of Congress, Suite 1136
Longworth House Office Building, Washington, D.C., 20515, to put you on
the mailing list to receive future releases.

Fourth. Talk about America's monetary policies and system to intelligent
people of your acquaintance who can spread the word

Fifth. Urge you U.S. Representative and Senators to join a steering
committee that will be organized in January 1965, to cosponsor and push
for the passage of a bill that will be introduced at the beginning of the
89th Congress to make the changes in the Federal Reserve Act recommended
by the Subcommittee on Domestic Finance.

I have learned from long congressional experience that when the people
are behind you, you can accomplish miracles. That is why I am appealing
to your.Like every other American you have a stake in seeing to it that
the Federal Reserve no longer has a stranglehold over America's monetary
policies which makes it mandatory for you to overpay on interest charges
and permits tight money to deprive America of the economic advancement
she must have to take care of our growing population in an age of
fantastic possibilities. With your help these possibilities can become
reality.


Mr REUSS. Mr.Speaker, will the gentleman yield?

Mr. PATMAN. I am glad to yield to the distinguished gentleman from
Wisconsin [Mr. Reuss].

Mr. REUSS. I appreciate the gentleman's yielding. I do not wish to
interrupt his train of thought, but I commend the gentleman for the point
he has made, that there is no policy more closely related to an expanding
and growing national economy than the policy of monetary authorities
providing reasonable interest rates and an adequate supply of money in
order that the economy may be lubricated and thus expand. I ask the
gentleman if he would agree that in addition to sound fiscal policies,
tax policies, and wage and price policies it is absolutely essential, for
a growing national economy, that the money supply of the Nation grow from
year to year if we are to attain a proper rate of national economic
growth.

Mr. PATMAN. I thank the gentleman for his contribution. I agree with him
fully. He is one of the ablest members of the Banking and Currency
Committee.

Mr. GONZALEZ. Mr Speaker, will the gentleman yield?

Mr. PATMAN. I am glad to yield to my distinguished friend and colleague,
the gentleman from Texas [Mr. GONZALEZ]

Mr. GONZALEZ.  Thank you very much, Mr. Chairman.