America's Money Machine

I T
12.
The First Inundation
WAS A FORTUNATE CIRCUMSTANCE -we can hardly call it
foresight-that the Congress included in the Federal Reserve Act a
provision extending until June 30, 1-915, the Aldrich-Vreeland emergency
act ofMay 30,1908. That act had been due to expireJune 30, 1914.
It permitted, as will be recalled,* national currency associations to issue
emergency currency.
It was the operation ofthis act rather than the Federal Reserve Act that
permitted the monetary system ofthe country, such as it was, to meet the
shock of the outbreak of World War I.
The Aldrich-Vreeland Act had been on the books more than five and
a halfyears, but up to the signing ofthe Federal Reserve Act only twentyone
currency associations had been formed under its terms, and no
currency had ever been issued nor had any individual bank applied for
the issuance ofcurrency notes. One reason, ofcourse, was the prohibitive
tax on such issues (as were secured by other than government bonds)
imposed to discourage their issuance except for extreme emergencies.
This tax was at the rate of 5 per cent per annum for the first month, with
the rate increasing at the rate of one per cent a month to a maximum of
10 per cent per annum.
The Federal Reserve Act, in extending the Aldrich-Vreeland Act, reduced
this tax to a minimum of 3 per cent per annum and a maximum
of 6 per cent per annum.
*See Chap. 6.