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other, skilled clerks were engaged and trained, and accounting methods were perfected, so that when the test came as a result of our entry into the war, in April, 1917, the Federal Reserve banks were in large measure prepared for the grave tasks and responsibilities at once to be assumed.

During the first twelve months of our country's participation in the war the reserve system became established upon a basis of confidence and respect, even in fact of admiration, among both bankers and business men; and its future therefore seems assured so long as good management deserves the support now enjoyed.

During these four years, however, the work of organization, and during the last year and a half the work assumed by the Federal Reserve banks as fiscal agents of the Government, have so occupied the time of all connected with the system that it has been difficult to overcome, in a comprehensive way, much of the ignorance and misunderstanding of the functions of the system. It is widely accepted as successful and necessary, but, with some exceptions, it is still hardly possible to say that it is understood. It has come as an enlargement of the scope of a great banking machine which had become complicated by the dual development of two classes

of banks, national and state; and, in the case of state banks, a development which covered a vast field of business activity not confined to commercial banking. Under the influence of the new system of twelve closely allied banks of reserve and of discount, the tendency will be toward unification and simplicity which will be brought about by the state institutions, in increasing numbers, becoming stockholders and depositors in the reserve banks.

Until, however, through evolution in methods and many changes in both state and national laws, we have a truly unified system, banking in this country will be a puzzle and a mystery to the casual observer, to the business man, and to bankers abroad, unless its various features are presented in a concise and comprehensive form, stripped of the technicalities of economic discussion. It is much more difficult to present a complex problem in concise form than in extended detail. This task, however, Professor Kemmerer has undertaken with distinct success. count of the functions assumed by the federal reserve banks as fiscal agents of the United States Government, and of the handling of war bonds, certificates of indebtedness and government funds would have complicated, and, possibly, rendered less clear the description of the

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position the federal reserve system occupies in the banking field. It would have involved, further, a discussion of the long felt necessity for a modification of the independent treasury system. These subjects, therefore, have properly not been enlarged upon.

It is a public service to undertake the difficult task of preparing an account of this great change in our fiscal system so as to combine accuracy with a comprehensive survey of the subject and, at the same time, to avoid technical details. All that is required to give the reader an understanding of the fundamentals of the new régime of American banking is contained in the following pages, which will be read with attention and interest by many who have been seeking this information during the past five years.

THE ABC OF THE FEDERAL

RESERVE SYSTEM

CHAPTER I

PURPOSE AND PLAN OF BOOK

This book is an attempt to set forth in nontechnical language the chief reasons why the federal reserve system was called into being, the main features of its organization, and how it works. Although the federal reserve act of 1913 is one of the most important pieces of financial legislation enacted in modern times, and although it has been in operation several years, comparatively few people are familiar with its elementary principles. It is looked upon by the majority of people as too technical and complicated a matter to be understood by persons other than bankers and economists. As a consequence there has been a surprising lack of public interest in the workings of the system and in the important legislative and administrative modifications which the system has undergone since its establishment. This unfamiliarity is not surprising when one considers the complex character of much of the

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