America's Money Machine

The Aldrich-Vreeland Bill 45
Reserve Act which came into effect December 23, 1913. This act extended
the life of the Emergency Currency Act to June 30, 1915. The
subsequent events relating to this legislation are bound in with the story
of the Federal Reserve Act and the outbreak of World War I and will be
related in that connection.
Here we may note only that the act remained moribund until the
outbreak of World War I. The immediate effects of the 1907 Panic had
passed and the necessity for the organization ofcurrency associations did
not appeal to the banks. In fact, while the National Currency Association
ofWashington was organized very speedily, onJune 18, 1908, it was not
until 1910 that any other action was taken. In that year associations were
formed in New York, Philadelphia, Louisiana, Boston, St. Louis, St. Paul
and Minneapolis, Detroit, Albany (counties of Rensselaer and Schenectady),
Kansas City and St. Joseph, Baltimore and Cincinnati. In 1911
associations were formed at Dallas, Texas, and in Alabama, and for Denver,
Colorado Springs and Pueblo. In 1912 the Los Angeles Association
was formed. Only three were formed in 1913, at Louisville, San Francisco,
and Pittsburgh. Thus, at the close of 1913, there were in existence
twenty-one National Currency Associations, representing 352 national
banks, with combined capital of $381,184,710 and surplus of $329,­
300,510. While the number ofbanks represented was less than 5 per cent
of the total in· operation, they represented over one-third (36 per cent)
of the total capital and about 45 per cent ofthe aggregate surplus of the
national banking system. 1
However, no additional currency, that is, emergency currency, was
issued throughout this period until the outbreak of WorId War I.
In retrospect, the Aldrich-Vreeland Act fulfilled its function ofcreating
an emergency currency power. It continued the system of fiat money of
the old National Bank Act, which permitted the issue of paper notes
secured only by government bonds. It introduced one novel feature in
U. S. currency practice: it gave validity to the view that if fiat money was
to be issued at all, sound promissory notes of short maturity made for
commercial transactions were good collateral for such a purpose.