Full text of Marriner S. Eccles Papers : Monetary, Credit, and Fiscal Policies... [Hearing Excerpt], Box 70, Folder 3, Item 1

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MONETAKY, CREDIT, AND FISCAL POLICIES
FRIDAY,

D E C E M B E R 2,

1949

CONGRESS OF T H E U N I T E D S T A T E S ,
S U B C O M M I T T E E O N M O N E T A R Y , CREDIT, A N D F I S C A L POLICIES,
J O I N T C O M M I T T E E ON T H E E C O N O M I C R E P O R T ,
Washington,

D.

0.

The subcommittee met, pursuant to adjournment, at 10 a. m., in the
caucus room, Senate Office Building, Senator Paul H. Douglas (chairman of the subcommittee) presiding.
Present: Senators Douglas and Flanders, and Representative
Wolcott.
Also present: Dr. Grover W. Ensley, actings staff director; and
Dr. Lester V. Chandler, economist to the subcommittee.
Senator D O U G L A S . The committee will please come to order.
Mr. Snyder, we are glad you have come this morning and we are
grateful for the reply which you made earlier in the autumn to our
questionnaire. That reply and the others have been very helpful
to us. We had thought that these replies would shorten the hearings
and enable us to get down to more informal discussion more speedily.
I understand that you, however, have a supplementary statement
that you would like to read this morning.
Secretary S N Y D E R . Yes, Mr. Chairman.
Senator D O U G L A S . We will be very happy to have you do that.
Secretary S N Y D E R . D O I have permission to read the statement into
the records
Senator D O U G L A S . Yes, go right ahead.
STATEMENT OF HON. JOHN SNYDER, SECRETARY OP THE TREASURY; ACCOMPANIED BY WILLIAM McC. MARTIN, JR., ASSISTANT
SECRETARY; EDWARD P. BARTELT, FISCAL ASSISTANT SECRETARY; GEORGE C. HAAS, DIRECTOR OP THE TECHNICAL STAPP;
SIDNEY G. TICKTON, ASSISTANT DIRECTOR OP THE TECHNICAL
STAFF; THOMAS J. LYNCH, GENERAL COUNSEL; C. R. McNEILL,
OFFICE OF THE GENERAL COUNSEL; AND J. L. ROBERTSON, FIRST
DEPUTY COMPTROLLER OF THE CURRENCY, DEPARTMENT OP
THE TREASURY

Secretary S N Y D E R . Mr. Chairman and members of the subcommittee of the Joint Committee on the Economic Report, I am pleased
to have the opportunity of appearing before you today to discuss
questions on the monetary, credit, and fiscal policies of the United
States Government. I should like at this time to take a few minutes
to talk about some of the current factors in the outlook for Treasury
financing and debt-management policies in the light of the budget




387

388

MONETARY, CREDIT, AND FISCAL POLICIES

estimates that have been released since I sent my answers to your
questionnaire to the committee. In discussing some of the figures, I
shall refer occasionally to a booklet of charts which we have prepared, and which I have given to members of the committee.1
The budget position is a matter of first importance. The new
budget estimates show a deficit of 5.5 billion dollars for the present
fiscal year. Expenditures are estimated at 43.5 billion dollars and
receipts at 38 billion dollars, as is shown in chart 1 in the booklet. It
seems to me, however, that in times as prosperous as these we should
have a balanced budget. National income today is close to the highest level in our history; and, by every standard of sound Government
finance, the time to have a balanced budget is now.
This is the position I have taken consistently since I became Secretary of the Treasury in June 1946. In the statement which I made
at that time, I said:
* * * It is the responsibility of the Government to reduce its expenditures
in every possible way, to maintain adequate tax rates during this transition
period, and to achieve a balanced budget—or better—for 1947.

It was, therefore, a source of great satisfaction to me to be able—as
Secretary of the Treasury—to announce at the end of the fiscal year
1947 that the Federal Government had operated with a budget surplus. In the following fiscal year, which ended on June 30,1948, we
again had a budget surplus—it amounted to 8.4 billion dollars and
was, in fact, the largest budget surplus in the history of the United
States Government.
In the past 3 years, I have restated the urgent need for an excess of
receipts over expenditures on many occasions—notably when the Congress was considering tax-reduction measures in 1947 and 1948.
Furthermore, President Truman has repeatedly urged the necessity
of reducing the public debt under the circumstances which have existed since the end of the war. In his message to the Congress on
April 2,1948, in which he returned, without approval, the tax-reduction bill, H. R. 4790, he stated:
* * * I repeat what I have so often said before—if we do not reduce the
public debt by substantial amounts during a prosperous period such as the present, there is Uttle prospect that it will ever be materially reduced.

You will recall that it was this tax-reduction measure which the
Congress passed over the President's veto, and which resulted in a
loss of revenues to the Federal Government amounting to approximately $5,000,000,000 annually. It is largely as a result of the enactment of this legislation that we had a budget deficit of 1.8 billion dollars in the fiscal year which ended last June 30, and that we
have a prospective budget deficit of 5.5 billion dollars in the current
fiscal year.
About 8 billion dollars of the deficit for the fiscal year 1950 has
already occurred. It has been financed principally by increases in
the weekly Treasury bill offerings and by increased sales of Treasury
savings notes. The total amount of Treasury bills outstanding rose
approximately 800 million dollars between August 4 and September 8
as a result of six successive offerings in excess of the amounts matur1

The charts referred to follow Secretary Snyder's statement.




389 MONETARY, CREDIT, AND FISCAL POLICIES

ing. The amount of Treasury savings notes outstanding has increased by over 2% billion dollars since the end of June.
The Treasury cash balance is currently running between $4,000,000,000 and $5,000,000,000. Without any further newfinancing,the
balance should remain near this level for the next 4 months, as shown
in chart 2. If everything works out exactly as calculated in present
estimates, the balance would run down to approximately $3,000,000,000 by next April 30.
There are always, however, a number of variables which could have
an important influence on the picture. There is the possibility that
revenues might vary from the amount shown in the budget estimates.
We knew, for example, at the time the revenue estimates were made,
that it was very difficult to gage the full effect of strikes on incomes
and corporate profits. It still is not possible to do so. There is bound
to be considerable range in expenditure estimates for such programs
as farm-price supports, RFC mortgage purchases, and various types
of payments to veterans. These considerations are important in our
estimate of cash-balance levels.
The picture of how the various Government operations affect the
cash balance is one that I have before me daily as I consider debtmanagement decisions and policies. We revise our appraisals constantly as new information comes in. It looks at this time as though
we will have to do some additional new-moneyfinancinglater in this
fiscal year.
There are three main sources which we might tap for new borrowing. These are nonbank institutional investors such as insurance
companies, mutual savings banks, and savings and loan associations;
other private nonbank investors, including individuals and pension
funds; and the commercial banks of the country. We keep close
watch at all times on the position of the various investor classes which
comprise the market for Government securities.
In addition to the problem of new borrowing, the Treasury will
find itself faced next year, as it has been in each oi the postwar years,
with a large refunding task. Approximately $1,000,000,000 of Treasury bills mature each week; there will be a number of issues of certificates of indebtedness and notes maturing, totaling about $33,000,000,000; and there will be four Treasury bonds amounting to about
$11,000,000,000 which mature or are callable next year. This is shown
in chart 3. The budget deficit makes it clear that there will not be
any reduction during the fiscal year 1950 on these maturities, except
for tail ends of maturing securities not turned in for refunding.
There will not be any official budget estimates for thefiscalyear 1951,
of course, until the President's budget message is released in January.
The total of maturing or callable marketable securities in the calendar year 1950 is approximately $56,000,000,000; and, on net balance,
it appears that nearly the entire amount will be refunded into securities- maturing in the future.
Two-thirds of the securities which mature in 1950 are held by the
commercial banking system. A significant portion of the remainder
is held by industrial, commercial, and mercantile corporations. The
ownership of maturing issues as well as the ownership of the remainder
of the public debt is, of course, one of the considerations which we
must take into account in making our debt-management decisions.




390

MONETARY, CREDIT, AND FISCAL POLICIES

The debt is broadly distributed and we want to keep it that way.
The present widespread ownership is, to a large extent, the result
of the Treasury's policy of fitting its security offerings to the needs
of various investor classes. This first became of special importance
during the war period when one of the major objectives was to sell
as great a portion as possible of the large wartime offerings to nonbank investors. It 'has had increasing importance in the postwar
period, when we wished to maintain a large nonbank holding of Government securities, especially among individuals, under varying circumstances of business reconversion and then expansion.
A central consideration in fitting Government securities to the
needs of different classes of investors has been setting the appropriate
maturities for each class. Industrial, commercial, and mercantile
corporations, for example, have been sold short-term securities primarily, since their purchases are generally made with reserves which
they may want to have readily convertible. The same type of consideration was kept in mind in fitting Government security offerings to
the needs of other classes of investors. The net results of this policy
can be observed by an analysis of the portfolios of the leading investor
classes. Information on this account appears in chart 4, which shows
changes in the estimated average number of years of maturity of the
Government-security portfolios of three important investor groups—
life insurance companies, mutual savings banks, and commercial banks.
Life insurance companies and mutual savings banks are, of course,
generally longer-term investors. During the war, insurance companies acquired a large volume of Governments, and it was the Treasury's policy to sell them longer-term securities. The results are evident. The average length of Government securities held by life insurance companies increased from about 10 years in 1941 to about 16
years in 1945. Since then there has been a gradual decline and at
the present time thefigureis 14 years.
The picture with respect to mutual savings banks differs somewhat
from that of the life insurance companies. The average length of the
Government-security holdings of these banks increased during the war
finance period from 9 years to 14 years and has declined subsequently
to 12 years. Savings banks also were sold longer-term securities, but
their investment needs resulted in the acquisition of more mediumterm securities than were acquired by life insurance companies.
Because there have been no new offerings of long-term marketable
securities since the end of 1945, the average length of the outstanding
marketable Federal debt has been automatically shortened during this
period. Investors who are primarily bondholders have this reflected
in their investment portfolios to a greater degree, of course, than do
investors who hold primarily short-term debt. The average length
of the holdings of life insurance companies and of mutual savings
banks would have declined more sharply since 1945, therefore, if these
institutions had not bought long-term issues in the market and sold
shorter-term issues. They offset thereby, to some extent, the automatic
shortening of their portfolios.
^ Commercial banks have been offered principally short-term securities throughout the warfinanceperiod and as a part of our postwar
program. This has been a major factor in keeping their portfolios
short on the average. The average length to first call or maturity




391 MONETARY, CREDIT, AND FISCAL POLICIES

date of the Government security holdings of commercial banks has
declined from 7 years in June 1941 to about 3 years at the present time.
There is considerable variation among banks throughout the country in the maturities of the Governments which they hold. Estimates
of the average number of years to maturity of Governments held by
commercial banks, by Federal Reserve districts, are shown in chart 5.
Longer-term securities are more generally held in the eastern areas,
with the exception of New York City, than in the western areas.
There are three districts in which the average length of Governments
held is less than 2y2 years; and, as you can see from the chart, these
areas are in the western part of the country. The shortest average
length, 2 years, is found in the Kansas City Federal Reserve District;
while the longest average length, 4% years, is in the New York district, excluding New York City. In this connection, it is interesting
to note that as we go farther west commercial banks also have more
loans in proportion to their capital.
I have gone into these matters at some length to indicate how the
present maturity distribution of the public debt developed. Our objective has been a smoothly functioning economy, and securities have
been issued to the various investor classes to suit their needs and the
requirements of the economy.
In handling the new money and refunding operations that are in
prospect for next year, the interest cost of the debt to taxpayers must
also be one of the considerations in our debt-management program.
The interest cost of the debt comprises over 13 percent of the Federal
budget for the fiscal year 1950. The total annual cost is likelv to
grow, even without any increase in the debt, because the rate of interest on savings bonds increases as they approach maturity and
because an increasingly large proportion of the debt represents the
accumulation of trust funds invested at an average interest rate which
is higher than the present average rate on the total debt.
Even a relatively small increase in the average interest rate on the
debt would add a substantial amount to the total annual interest cost.
It is estimated that the interest on the debt will amount to 5.7 billion
dollars in the calendar year 1949. About 1% billion dollars would
be added to this amount if the average interest rate were one-half
of 1 percent higher.
Senator DOUGLAS. The average interest rate, I take it, is about 2*4
to 2ys percent, is that right?
Secretary SNYDER. It is running 2.2 right now on the average. The
annual interest cost would be more than $5,000,000,000 larger if the
average interest rate were equal to the average borrowing cost of
World War I, which was approximately 4*4 percent. The annual
saving in the taxpayers' money as a result of the present level of
interest rates is an important factor in the budget picture of the
Federal Government.
The distribution throughout the economy of the interest on the
public debt is, of course, determined by the ownership of the debt.
The next chart, which is chart 6, shows interest on the Federal debt,
by class of recipient, from 1946 through 1949.
It seems to me that the outstanding fact in this connection is the
increase during this period in the interest on the Federal debt going
to individuals. Their share during the current calendar year is onethird of the estimated 5.7-billion-dollar total. It rose from 1.4 bil


392

MONETARY, CREDIT, AND FISCAL POLICIES

lion dollars in 1946 to an estimated 1.9 billion dollars in the current
year.
The share received by Government investment accounts also rose
during this period, while interest payments to other nonbank investors declined slightly. The share received by commercial banks
also declined. This was largely due to the Treasury's policy of concentrating debt reduction in the holdings of commercial banks.
Senator DOUGLAS. That is in the years in which you had a surplus?
Secretary SNYDER. That is correct, and also by using the cash balance we had at the end of the war. The receipts from the sale of nonmarketable issues were also available to retire bank-held debt.
Another way of looking at the interest cost of the debt is to consider
the burden which it represents when compared with the gross national product of the country, from which it must be paid. The public debt is nearly 10 times as large as it was at the World War I peak
in August 1919, as is shown in chart 7. But, because we were able to
finance the Second World War at a borrowing cost about one-half as
great as the average borrowing cost of World War I, the interest cost
of the public debt today is only 5 times, rather than 10 times, as large
as it was in 1919. This does not, however, mean an interest burden
5 times as great. For, in the meantime, our gross national product
has risen from less than $80,000,000,000 in 1919 to an estimated annual rate above $250,000,000,000 at the present time. We have a tremendously increased product out of which to pay the interest on the
debt, and the present interest cost is only 2.3 percent of gross national
product. This compares with 1.4 percent in 1919.
One of the important refunding matters which will come before
the Treasury in 1950, and in greater volume in 1951, 1952, and subsequent years, will involve the Government-security holdings of individuals. These holdings amounted to 69% billion dollars on October
31, 1949, up from 65 billion dollars on December 31, 1945, and from
10% billion dollars before the war, as shown in chart 8.
Ownership of Government securities by millions of individuals is
good for the country as well as for those individuals. It gives the
people of the country an increased interest in the affairs of their
Government and causes them to participate more actively in those
affairs. We have continued to promote the sale of savings bonds in
order to encourage thrift. Thrift has played a vital part in the building of our Nation, and today it is as important to our well-being as
it has ever been in the past. At the end of October, 48% billion dollars
of savings bonds of all series were held by individuals. Savings bonds
comprised 70 percent of their total holdings of Government securities. Holdings of E bonds alone—the bond which is designed to meet
the needs of small investors—amounted to 33% billion dollars.
The savings bonds held by individuals at the present time are distributed broadly throughout the country. In chart 9 the United
States is divided into geographical areas to show that the 48% billion
dollars of savings bonds outstanding in the hands of individuals are
distributed approximately as follows: 16% billion dollars held in the
northeastern area of the country; 10 billion dollars held in the States
of Michigan, Illinois, Indiana, and Ohio; 6 billion dollars held in the
southern part of the United States; 6 billion dollars held in the seven
States which are the farthest west; and 10 billion dollars held in the
large block of Central States which is bounded, roughly, by the Mis


393

MONETARY, CREDIT, AND FISCAL POLICIES

sissippi on the east, the Rocky Mountains on the west, and stretches
from Canada to Mexico. These savings bonds comprise a tremendous
amount of assets in the hands of individuals. The 48%-billion-dollar
total seems particularly significant if we recall that at the bottom of
the depression in 1933 national income in the country was only 39^
billion dollars. Across the Nation people now have a cushion of
reserves to fall back upon that is greater than the total income in the
Nation in that year.
You may remember that during the latter years of the war there
was considerable speculation as to the probable redemption experience
with series E bonds as soon as the war had ended. The opinion was
freely expressed that the large quantities of bonds which were being
sold under the pressure of patriotism and intensive wartime selling
methods would be redeemed speedily as soon as the war was ended.
Instead, as I have noted, we have continued to sell savings bonds and
to increase the total amount outstanding. Redemption experience
with series E bonds is, in fact, more favorable than the postwar rate
of turn-over in other forms of savings. Chart 10 shows the annual
rate of savings-account withdrawals and savings-bond redemptions
from 1943 to date, expressed as a percentage of total amounts outstanding. The rate of redemption of series E bonds has been substantially lower than the rate of withdrawals from savings accounts.
Furthermore, since the end of the war savings-bond redemptions as a
percentage of the amount outstanding have followed a downward
trend, while the rate of turn-over of other forms of savings has
followed an upward trend.
We have not, however, encouraged the sale of savings bonds at the
expense of other types of savings. From December 31,1945, through
October 31, 1949, the increases in practically all other forms of individuals' savings were substantially greater relatively than the increase
in savings-bond holdings.
It might be interesting at this point to give you the changes in some
other types of savings as compared with savings bonds.
Savings bonds increased, between December 31, 1945, and October
31, 1949, 13 percent; savings accounts in commercial banks increased
15 percent; m mutual savings banks, 25 percent; in savings and loan
associations, 60 percent; in postal savings, 10 percent; insurance increased 30 percent; and checking accounts, 10 percent. Currency
holdings decreased 10 percent.
I think those are interesting to show that the savings-bond program
has not been built up at the expense of other types of savings.
I have been talking about some of the technical matters that will
have to be considered in connection with Treasury borrowing and refunding. Uppermost in our minds in making all of our policy decisions is the fact that the foremost responsibility of the Secretary of
the Treasury is to maintain confidence in the credit of the United States.
One hundred and fifty years ago, the main financial problem of our
newly born Nation was to establish that credit. Confidence in our
Government's financial soundness was successfully established; and it
has been the responsibility of Secretaries of the Treasury for a century
and a half to maintain it.
But never before has this responsibility been so great as since the
end of World War II. The public debt increased more than fivefold
during the war. It represents more than half of all of the debt of the



394

MONETARY, CREDIT, AND FISCAL POLICIES

country, public and private. It comprises a substantial proportion of
the assets of the leading investor classes; and the decisions which are
made with respect to it are of immediate and vital significance to each
and every one of us.
The primary concern of the Secretary of the Treasury in formulating
debt-management policies is to promote sound economic conditions
in the country. Because the debt is so great, because it is such a large
proportion of the total debt of the country, and because it is interwoven in thefinancialstructure of the country, the policies and decisions made in the Treasury Department are of tremendous importance
and significance to the economic andfinancialwelfare of the Nation.
Figures on the total debt of the country—public and private—are
shown in chart 11. At the end of 1939, the debt of the Federal Government amounted to $47,500,000,000 and accounted for 23 percent of the
total debt of the entire country. At the present time, the public debt
amounts to $257,000,000,000 and comprises 51 percent of all debt.
The estimated distribution of the ownership of the debt on October
31 of this year is shown in chart 12. Nonbank investors held $172,000,000,000 of Government securities—two-thirds of the $257,000,000,000
of Federal debt outstanding on that date. It is particularly significant that the holdings of individuals are so large. They totaled
$69,500,000,000, as I mentioned earlier. Insurance companies held
$20,500,000,000 of Government securities. Mutual savings bank holdings totaled $11,500,000,000. Government investment accounts, principally Government trust funds which are required by law to be invested in Government securities, held $39,500,000,000 of the public debt.
The holdings of "other" nonbank investors—which include State and
local governments, corporations, pension funds, and charitable institutions—were $31,000,000,000.
One-third of the debt—$85,000,000,000—was held by the commercial banking system. Commercial banks held $67,500,000,000; and
the remainder, $17,500,000,000, was held by the 12 Federal Eeserve
banks.
These figures are large, in dollar terms; and they are also a substantial proportion of the assets of the various investor classes, as
shown in chart 13. In the case of commercial banks, for example,
holdings of Governments are equal to 56 percent of earning assets—
a large percentage, but a sharp decline from February 28,1946, when
Government securities comprised over 70 percent of the earning assets
of these institutions.
Nonbank investors—both financial and nonfinancial— also have a
large share of their assets invested in Government securities. On
October 31, mutual savings bank holdings of Governments represented
04 percent of their total assets; life-insurance companies had 27 percent of total assets invested in Government securities; and other insurance companies—fire, marine, and casualty—had 47 percent. Nonfinancial corporations had 13 percent of their current assets in this
form. And, when we turn to individuals, we find that Government
securities accounted for 34 percent of their liquid assets—that is, their
combined holdings of Government securities, savings and checking accounts, and currency—which approximated $200,000,000,000 on
October 31.
Thesefiguresare unmistakable evidence that the decisions which are
inade with respect to the public debt affect every segment of our econ


395

MONETARY, CREDIT, AND FISCAL POLICIES

omy. They indicate the compelling necessity for considering not
only the effect of our decisions upon the financial structure of the
Government itself, but their effect on thefinancialand economic structure of the whole country.
It is for this reason that Treasury and Federal Reserve authorities
have cooperated to keep the market for Government securities stable
during the postwar period. Under the circumstances which existed,
stability in the Government bond market has been of tremendous importance to the country. It contributed to the underlying strength of
the country's financial system and eased reconversion, not only for
the Government, but also for industrial and business enterprises.
This is in marked contrast to the situation after World War I,
when prices of Government securities were permitted to decline
sharply—with disastrous results. Investors suffered serious financial
losses. And the decline contributed importantly to the business collapse that occurred in the early post-World War I period. These
things happened at a time when the public debt was a much less
powerful element in the economy than it is at the present time. It
seemed obvious to us that widelyfluctuatingGovernment bond prices
would have even more serious repercussions after World War II.
It is now 4 years since Victory Loan 21/2,s were issued. Chart
14 shows the price history of the Victory Loan 2%'s after World
War II, as compared with the price history of the Fourth Liberty
Loan 4*4's during the corresponding period after World War I. At
the end of the fourth year, Victory Loan 2^'s are above par; at
the end of a similar period, Fourth Liberty Loan 4%'s were in the
vicinity of par. But the price movements within the two periods
differed radically. Victory Loan 21/£'s have always been above par.
The Fourth Liberty Loan 4^'s dropped substantially below par,
reaching a low of about 82y2. From this point, they had a long
climb back before reaching par.
In the short-term area of the Government security market, we also
had to consider the possible effect of our actions on thefinancialmarkets. When interest rates on short-term Government securities were
raised, beginning in mid-1947, they were raised gradually in order
not to disrupt these markets. When they were reduced, the change was
small for the same reason.
In the 4 years since VJ-Day, the United States has achieved a
record level of prosperity. There can be no doubt that world-wide
confidence in thefinancialsoundness of the Government of the United
States played a prominent role in achieving this prosperity.
I have gone into some of the current matters of public debt management with you in some detail in order to round out the entire picture
for your committee. Many of the answers to the questions submitted
by your committee to me and to other Government officials and
agencies touched on some of the points that I have mentioned; but
1 felt that it would make for better understanding of the problems
and considerations involved, if I summarized the current situation as
it looks from my position as Secretary of the Treasury.
Senator DOUGLAS. Thank you very much, Mr. Secretary. Might we
have your permission to include this list of charts in the printed
record of the hearings?
Secretary SNYDER. I would be pleased to have you do so.
(The charts above referred to are as follows:)



396

MONETARY, CREDIT, AND FISCAL POLICIES

C H A R T S A C C O M P A N Y I N G T H E S T A T E M E N T B Y SECRETARY OF T H E T R E A S U R Y S N Y D E R
BEFORE T H E SUBCOMMITTEE ON M O N E T A R Y , C R E D I T , A N D F I S C A L P O L I C Y OF T H E
J O I N T C O M M I T T E E ON T H E E C O N O M I C R E P O R T D E C E M B E R 2 , 1 9 4 9
CHART

1

FEDERAL BUDGET OUTLOOK

CHART

2

OUTLOOK FOR TREASURY CASH BALANCE




397 MONETARY, CREDIT, AND FISCAL POLICIES
CHAET

3

CHART

4

AVERAGENUMBER OF YEARS TO MATURHVOF
FEDERAL SECURITY HOLDINGS
Life Insurance Companies

Mutual Savings Banks

Commercial Banks

m

ifew 30, 0w,3i,

194!

99076—50




26

45

Oct %

49

r 3a Dec. 31, /Oct; 31,

1941

45

49

398

MONETARY, CREDIT, AND FISCAL POLICIES
CHART

5

COMMERCIAL BANK HOLDINGS QF FEDERAL SECURITIES,
AVERAGE NUMBER OF YEARS TO MATURITY*
By Federal R««*rve Districts. Oct 31, *949

CHART

6

.INTEREST ON THE FEDERAL DEBT.

r

Individuals

Government
^ Investment Accounts
* Other Nonbank Investors
Federal Reserve Banks
Commercial Banks
1046
v.

t




71947 (948
—CoNudcr Y«ors

I949*
'

MONETARY,

CREDIT,

AND

CHART

FISCAL

399

POLICIES

7

BURDEN OF THE FEDERAL DEBT _

Comparison of World War I [MM and Present Debt

Interest Cost as %
of Gross National Product'

CHART

OWNERSHIP

OF FEDERAL

8

DEBT BY

INDIVIDUALS

60

Marketabtes
and Other

-Fand G

Savings
Bonds
43

201

ioV2

Dec. 31,
1939




Dec. 31,
1945

Oct 31,
1949

400

MONETARY, CREDIT, AND FISCAL POLICIES
CHART

oeosRAPHKOismimmoN

OF

CHART

T

9

10

If 11 ftQruilQII wrceawnpnw*Qi rWWHHI W Wwwtlf WlffllWPiif '
REDEMPTIONS

SAVINGS ACCOUNT WITHDRAWALS

'47
L-Catofldor Ytart-*

ms




1943 4 5

47

1943 4 5

47

49

1943 '45

47

49

|

401 M O N E T A R Y , CREDIT, AND FISCAL POLICIES
CHART

11

.TOTAL FEDERAL GOVERNMENT AND PRIVATE* DEBT

CHART

12

OWNERSHIP OF THE FEDERAL DEBT, OCT 31,1949




Nonbank Investors
$172 Bil.

$85 Bil.

I7fe

Federal
Reserve
k

Commercial

Other^A
Government ^
Investment Accts

Mut'lSov
Bonks

20FE1

;39fe

69fe

life
'Insurance Cos.

r Individuals

402

MONETARY, CREDIT, AND FISCAL POLICIES
CHABT

13

.IMPORTANCE OF FEDERAL SECURITIES.
TO SELECTED INVESTOR CLASSES, OCT. 31,1949
FINANCIAL INSTITUTIONS
%of:
Current
Liquid
Assets
Assets

% of Total Assets'"

Other
* Assets

Federal
* Securities

Grntt
Batiks

Nonfin. Individuals
Corps.

. life
Other Mufua!
Lfasw<mceC0$.J Sav.Bki
CHART

14

TREASURY BOND PRICES AFTER
WORLD WARS I AND U
'

®*5
®4€
1947
1948
" 4 M U J 91 H 4 It 'll <1 8 W J M M 4 S

' ]""' •' • ' ' r' ''

1949
^.(.M

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N

I Victory Loan 2!fe's

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too
^Par

90

4th Liberty Loan 4!/4'$
80

w v w w v y v v ^ w V v w a w wjjfV'»' V-w
v *
19(9
1921
$20
1982
—;
, f
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; —»

1918




403 M O N E T A R Y ,

CREDIT, AND FISCAL POLICIES

Senator DOUGLAS. Mr. Secretary, I should like to begin, if I may,
with some questions on fiscal policy. I notice that you say at the end
of the second paragraph of your statement:
By every standard of sound government finance the time to have a balanced
budget is now.

Secretary SNYDER. Yes, sir.
Senator DOUGLAS. I wonder if you will describe the role which
the Treasury plays in the formulation of the annual budget and the
total receipts and expenditures.
Secretary S N Y D E R . The Treasury's part in the budget, of course—
in the formulation of expenditures—is limited to its own department
as to detail. But it is consulted on the over-all picture as the budget
develops because this picture has a direct influence on the amount of
revenues required.
As to the revenues, the Treasury Department cooperates with the
tax committees of the Congress and has been in consultation with
the joint tax group for over a year now in discussing the various
types of taxes both existing and those that might be considered for
additional revenue.
Senator DOUGLAS. Then do I infer from your statement that you
believe the budget for thefiscalyear 1950-51 should be balanced?
Secretary SNYDER. I certainly believe that an intense effort to
balance it should be made; yes, sir.
Senator DOUGLAS. And would it be premature or going outside the
province of your department to inquire whether you think it should
be balanced primarily by the imposition of new taxes, or by an attempt to reduce expenditures, or by both methods?
Secretary SNYDER. That is a matter, Mr. Chairman, that is in the
hands of the President; and as a member of his Cabinet, I would
be guided by his statements.
Senator DOUGLAS. And you feel it would be premature to state to
a committee of Congress what your own opinion on that would be?
Secretary SNYDER. In view of the fact that his budget statement
comes out in about 30 days, I think it is a little early for me to
comment on it.
Senator DOUGLAS. May I ask some questions about gold and silver?
Secretary SNYDER. Yes, sir.
Senator DOUGLAS. For some time there seemed to be a good deal
of uncertainty as to whether or not the Secretary of the Treasury
and the President had the discretionary power to increase or decrease
the price of gold without congressional action.
Now, I understand that in the early part of November your office
issued an interpretation stating that the price of gold could not be
changed without an act of Congress. Am I correct in that?
Secretary S N Y D E R . Yes; and we can introduce into the record here
the legal provisions relating to the price of gold.
Senator DOUGLAS. I S it your judgment that the Secretary of the
Treasury and the President cannot alter the price of gold without an
act of Congress ?
Secretary SNYDER. Only an act of Congress can alter the statutory
gold content of the dollar.
Senator DOUGLAS. What about the purchase price of gold, or that
which is not minted into dollars?




404

MONETARY, CREDIT, AND FISCAL POLICIES

Secretary SNYDER. That is tied up in the Bretton Woods agreement.
Under the agreement the price of gold must remain at $35 j)er ounce
unless there is agreement to change that purchase price within the
International Monetary Fund.
Senator DOUGLAS. Of course, the gold dollar as such has virtually
disappeared. Gold has gone underground, as it were. But the question is on the purchase price of gold bullion. Is it your judgment
that the Executive Department could alter the purchase price of gold
without an act of Congress, or would it be necessary to have an act
of Congress to alter it?
Secretary SNYDER. The Executive Department by itself cannot alter
the monetary price of gold.
Senator DOUGLAS. The purchase price of gold ?
Secretary SNYDER. The purchase price of gold.
Senator DOUGLAS. It would need an act of Congress ?
Secretary SNYDER. It takes corollary action.
Senator DOUGLAS. It would need an act of Congress ?
Secretary SNYDER. It would take an act of Congress for the International Monetary Fund to take any action with respect to a change in
the dollar price of gold.
Senator DOUGLAS. YOU mean the International Monetary Fund could
reach an agreement to alter the price of gold, and that would be
operative without the consent of Congress ?
Secretary SNYDER. Mr. Chairman, this is Mr. Thomas Lynch, general counsel for the Treasury Department. May I have him reply to
the technical question ?
Senator DOUGLAS. Yes.
Mr. L Y N C H . Eeplies to this question were given in the staff document submitted to the committee, and I believe that the matter is set
out in full therein.
There is statutory power still on the books for the Secretary of the
Treasury, with the approval of the President, to change the purchase
price of gold. The fact is, however, that under the United States
commitments respecting the International Monetary Fund, approved
by Congress, gold may be bought or sold only within a margin of onequarter of 1 percent of the par value of $35.
Senator DOUGLAS. That is, unless there is action by the International
Monetary Fund to the contrary ?
Mr. L Y N C H . The United States Government could not agree to
change the par value of gold without approval of Congress. That
is provided in the Bretton Woods Agreement Act. So long as par
value is fixed at $35 under the agreement the United States must buy
within one-quarter of 1 percent margin of $35, and that $35 cannot
be changed under the Bretton Woods Act without the approval of
Congress. That is a summary statement.
Senator DOUGLAS. That applies to the purchase price of gold?
Mr. L Y N C H . Purchase and sale.
Senator DOUGLAS. Could the executive branches of the Government
propose to the International Monetary Fund that the price be altered
without prior consent by Congress?
Mr. L Y N C H . The executive officials of the United States dealing with
the fund could take no action with respect to changing the par value
of the dollar in terms of gold without the approval of Congress. That




405 M O N E T A R Y , CREDIT, AND FISCAL POLICIES

is specifically reserved in the act of Congress approving participation
by the United States in the fund.
Senator DOUGLAS. And in your judgment no further legislation
would be needed to make that power of Congress definite ?
Mr. L Y N C H . The statute relating to the participation of this Government in the International Monetary Fund is binding.
I would like to suggest, if I may, that the answers in some detail
supplied to the staff become a part of the record.
Senator DOUGLAS. They are already a part of the record. You
mean the record at this point? There has been a supplementary
memorandum?
M r . LYNCH. Y e s .
Senator DOUGLAS.

We will be very glad to do that.
In regard to the questionnaire, I do not know that this specific
question was asked, and, therefore, I do not know whether it was
replied to.
Secretary SNYDER. In fact, it was.
(The material referred to above is as follows:)
T H E LEGAL PROVISIONS RELATING TO T H E PBICE OF GOLD

The gold content of the dollar, and hence the statutory monetary value of gold
in terms of United States dollars, was defined by the Presidential proclamation
of January 31,1934. The proclamation was issued under authority of section 43,
title III, of the act approved May 12, 1933, as amended by section 12 of the
Gold Reserve Act of 1934. That section of the act of May 12, 1933, authorized
the President to decrease the weight of the gold dollar by not more than 50 percent, and section 12 of the Gold Reserve Act provided that devaluation should
be not less than 40 percent.
The weight of the gold dollar fixed by the President on January 31,1934, was
15%i grains of gold nine-tenths fine, that is, one thirty-fifth of a troy ounce of
pure gold technically referred to as gold 1,000 parts fine. The monetary or
statutory value of gold in the United States is therefore $35 per fine troy ounce.
After several extensions the authority of the President by proclamation further
to change the gold content of the dollar expired on June 30, 1943.
Only an act of Congress can now alter the statutory gold content of the dollar.
•

F U L L DESCRIPTION OF T H E DISCRETION LEFT I N T H E HANDS OF T H E SECRETARY OIF
T H E TREASURY A S TO T H E PRICE OF GOLD

The Secretary of the Treasury has authority under sections 8 and 9 of
the Gold Reserve Act of 1934, as amended, with the approval of the President,
to purchase and sell gold at such rates and upon such terms and conditions as he
may deem most advantageous to the public interest.1
* Section 8 of the Gold Reserve Act, 31 U. S. C. 734, provides:
"SEC?. 3700. With the approval of the President, the Secretary of the Treasury may
purchase gold in any amounts, at home or abroad, with any direct obligations, coin, or
currency of the United States, authorized by law, or with any funds in the Treasury not
otherwise appropriated, at such rates and upon such terms ana conditions as he may deem
most advantageous to the public interest; any provision of law relating to the maintenance
of parity, or limiting the purposes for which any of such obligations, coin, or currency, may
be issued, or requiring any such obligations to be offered as a popular loan or on a competitive basis, or to be offered or issued at not less than par, to the contrary notwithstanding.
All gold so purchased shall be included as an asset of the general fund of the Treasury?'
Section 9 of the act, 31 U. S. C. 733, provides:
"SEC. 3699. The Secretary of the Treasury may anticipate the payment of interest on
the public debt, by a period not exceeding 1 year, from time to time, either with or without
a rebate of interest upon the coupons, as to him may seem expedient; and he may sell gold
in any amounts, at home or abroad, in such manner and at such rates and upon such terms
and conditions as he may deem most advantageous to the public interest, and the proceeds
of any gold so sold shall be covered into the general fund of the Treasury: Provided>
however, That the Secretary of the Treasury may sell the gold which is required to be
maintained as a reserve or as security for currency issued by the United States, only to the
extent necessary to maintain such currency at a parity with the gold dollar."




406

MONETARY, CREDIT, AND FISCAL POLICIES

The authority of the Secretary of the Treasury in this respect, however, is limited by a number of factors. First is the obligation undertaken by the United
States as a member of the International Monetary Fund. Article IV, section 2
of the articles of agreement of the International Monetary Fund provides:
"The fund shall prescribe a margin above and below par value for transactions
in gold by members, and no member shall buy gold at a price above par value
plus the prescribed margin or sell gold at a price below par value minus the
prescribed margin."
The fund has prescribed a margin of one-fourth of 1 percent above and below
the par value for purchases and sales of gold. Accordingly, the United States
has an obligation to the International Monetary Fund not to purchase gold at
more or sell gold at less, than $35 plus or minus the prescribed margin, unless
the par value of the dollar should be changed consistently with the articles of
agreement and with the Bretton Woods Agreements Act, which requires the
approval of Congress for any such change.
Even without this legal obligation to the International Monetary Fund there
are important considerations of policy which, in effect, circumscribe the discretion of the Secretary of the Treasury to change the price of gold. The gold policy
of the United States has been directed primarily to maintaining a stable relation
between gold and the dollar.
The importance which the Congress attributes to the maintenance of a stable
dollar price for gold is demonstrated by a number of legislative provisions. The
gold parity statutes contained in the Gold Standard Act of 1900 and the act of
May 12, 1933, provide that the gold dollar "shall be the standard unit of value
and all forms of money issued or coined by the United States shall be maintained
at a parity with this standard and it shall be the duty of the Secretary of the
Treasury to maintain such parity."
The Gold Reserve Act of 1934 provides that:
4'The amount of gold certificates issued and outstanding shall at no time exceed
the value at the legal standard of the gold so held against gold certificates.,,
In addition, section 5 of the Bretton Woods Agreements Act provides that
neither the President nor any person or agency shall propose to the International
Monetary Fund any change in the par value of the United States dollar or approve
any general change in par values unless Congress by law authorizes such action.

Senator DOUGLAS. NOW, may I ask a question about silver?
Secretary SNYDER. Reverting for a moment to my personal position
on the price of gold, Mr. Chairman, I have tried to make that perfectly clear. I have no intention of making any change in the price
of gold or of asking Congress or the President to make any change,
and the President himself has stated rather categorically his position
about it.
Senator DOUGLAS. I think that is made very definite now.
Now, as I understand it, you are purchasing silver under congressional action at 90% cents an ounce, and the open market price is 73
to 74 cents an ounce and that, therefore, constitutes a subsidy to American silver producers of at least 17 cents an ounce, and possibly more,
because if the Government did not purchase silver the price of silver
would undoubtedly fall still lower.
I notice that you have made a somewhat guarded statement in your
reply to the questionnaire in which you say:
On previous occasions the Treasury has stated that it would interpose no objection if Congress wished to repeal all the provisions relating to acquisition of
silver in the above-named acts.

Secretary SNYDER. We have not changed our position.
Senator DOUGLAS. YOU have no objection, but do you have any
recommendations ?
Secretary SNYDER. That is a matter for Congress. We will not
object to it if Congress seesfitto change it.
Senator DOUGLAS. But you do not plan to initiate any such movement?



407 MONETARY, CREDIT, AND FISCAL POLICIES

Secretary SNYDER. N O , sir.
Senator DOUGLAS. Y O U are going to play passive on that issue?
Senator FLANDERS. Hopefully passive.
Senator DOUGLAS. Well, now, Mr. Secretary, I have been struck with
the fact that most of the memoranda which you submitted this
morning dealt with the issue of debt management, and I can see that
you take the responsibilities which are imposed upon such a Treasury
very seriously, and I think, so far as debt management is concerned,
that you have legitimate reason for pride in the postwar record which
the Government has made under your direction.
You have been able to keep the interest rates low and yet maintain
the price of Government securities at par or above, and, so far as
that is concerned, I think your job has been done extremely well.
You have undoubtedly saved the taxpayers, with the help of fortunate
economic circumstances, billions of dollars.
You are aware, of course, of the fact that among (A) the banking
fraternity, and (B) those who believe in the power of the Federal
Reserve System being exercised to check credit expansion, it is argued,
for differing reasons, between these two groups, that in a period of
rising prices and credit expansion it would be wiser to let the interest
rate rise, even though that might mean a higher interest charge
and also a lower price of the long-term securities, in order that this
higher interest rate might then serve to repress or dampen down the
volume of commercial borrowing from banks and hence check the
private expansion of credit.
I think we have here a very important issue of public policy. The
Treasury is charged with managing the debt. You have performed
that function not only to the best of your ability but with great
savings to the Government. The Federal Reserve System, on the
other nand, is charged with an attempt to stabilize business conditions
and to prevent undue expansions and contractions of credit—private
credit primarily and public credit somewhat.
Now, suppose we should have a situation in which the consensus
of Federal Reserve opinion would be that it would be wise to allow
the interest rate to rise in order to check the volume of private borrowing and hence dampen down possible inflationary tendencies. But the
Treasury, wanting to save money for the Government and wanting
to fulfill its function, insisted upon low interest rates. Now, that
would present a conflict of purposes, and, in view of the importance
of the public debt, as you say, the Federal debt alone forming half of
the total volume of debt in the country, the decisions on the public debt
would vitally affect and might indeed control the decisions on private
credit. So that you might have the Federal Reserve System chained
to a low-interest-rate policy in a period when prices were expanding,
employment was reasonably full, and when we would have the danger
of private credit inflation.
I wonder if you have any comment you want to make on that issue
as a general matter.
Secretary SNYDER. A S a general matter, Mr. Chairman, there is no
question but that the management of the debt and the control of credit
and monetary affairs are closely interrelated and require an extreme
amount of cooperation between the two agencies that are in control of
the various segments—the Treasury and the Federal Reserve Board




408

MONETARY, CREDIT, AND FISCAL POLICIES

I have been very happy with that cooperation. I think it has been
splendid, I think we have worked to the interest of the public as the
results have shown. I will stand on those results—both as to what
we have be able to do in the way of savings to the taxpayers and also
the effect on the continued prosperity of the country.
Senator DOUGLAS. It is sometimes regarded as futile to discuss past
history. I do not regard it as such, because I think if you analyze
fast history, it sometimes can teach you lessons about the future; and
raise this last question not to do any point scoring or to say who
is right and who is wrong, but to try to look toward the future.
Is it not possible that the price expansion of late 1946 and 1947,
which we can call quite a violent inflation, might have been partially
changed or dampened down if the interst rate had been allowed to
rise, even though that would have meant a heavier debt charge upon
the Treasury and possibly, in the case of some long-time securities^
though not E, F, and G bonds, some depreciation in their price?
Secretary SNYDER. Mr. Chairman, that is so debatable and other
elements come into consideration there that
Senator DOUGLAS. It is debatable, but we are trying to grope our
way toward an answer, and we would like your advice.
Secretary SNYDER. We feel we have followed the best procedure that
we could after careful consultation with many segements of the economy. The Treasury Department holds constant studies with various
groups: bankers, insurance people, businessmen, savings bank people,
investment bankers. We are in constant consultation with the Federal
Reserve Board.
After all that consultation, however, the actual responsibility always
fell back on the Treasury Department to make the decision, and we
felt we made the decisions as ably as we could on the data before us.
Senator DOUGLAS. I would like to offer, if I may, an argument in
support of your position, which you yourself have not given—namely,
that I suppose you could have argued, and probably did, that by keeping the interest rate down, you thereby increased the Government
surplus in the fiscal years 1947 and 1948 and enabled a larger amount
of the bank-held public debt, primarily in short-time securities, to be
retired. I suppose you could argue that you, therefore, effected a
freater stabilizing influence through fiscal policy than could have
een exerted by the Reserve System through credit and interest policy.
You see, I am jumping into the breach now in your defense.
Secretary SNYDER. That was the reason I said the matter was very
debatable and we could get into a lot of arguments back and forth that
would not particularly solve the problem. I am not trying to say we
were right and somebody else was wrong, or that somebody else was
right and we were wrong.
Senator DOUGLAS. Having argued on your side, let me, however,
also argue on the other side. If you had been able to check the inflation of prices by credit policy, the cost of Government services would
not have risen by as much as they did and, therefore, your expenditures would have been less, and the surplus would have been greater
than it otherwise would have been, and the deficit in the present period
probably would have been less.
Secretary SNYDER. Mr. Chairman, you are proving the very point
that I made, that it is a most debatable matter, that you can argue back
and forth for days.



409

MONETARY,

CREDIT, AND FISCAL POLICIES

Senator DOUGLAS. What we are trying tofindare the reasons and the
f rounds on which one can debate, so that instead of this thing being
one with a few high-powered experts and officials, the public and the
Senators and the Congressmen can get some appreciation of what the
intellectual issues are, because I have always felt that, in a democracy,
monetary policy was not sacrosanct, that it vitally affects the life of
the community and, therefore, the community should know something
about it and should have some share in making the decision. That is
why I would like a full unveiling of these matters, if we might have
them.
Secretary SNYDER. I would be delighted to have all the unveiling
possible, but please remember that you cannot discuss public debt policies—as to what is going to be done or not done in the future, as to
interest rates and maturities and that sort of thing—the Secretary of
the Treasury cannot discuss those things openly as an individual because the minute he does go on record as to his thinking, that becomes
then the policy of the Treasury in the minds of the public; and it
would greatly affect our market relationships and possibly cause us
great difficulties in the management of the debt.
Senator DOUGLAS. Can we discuss intellectual issues based on past
history ?
Secretary SNYDER. The Treasury Department has to keep the practical side along with the intellectual side constantly in mind.
Senator DOUGLAS. I do not suppose anyone except, shall we say,
financial die-hards, want to have a completely unsupported bond
market. The question is where the yield in prices shall be allowed to
fluctuate within certain narrow limits. That is the issue.
Senator FLANDERS. Mr. Chairman, I was interested in the testimony yesterday from Mr. Kline, of the Farm Bureau, who gave a
very well-prepared written statement, and Mr. Grede and Dr. Lutz,
of the National Manufacturers Association. I suppose in some sense
those two organizations and those witnesses can be said to represent,
perhaps, an informed point of view 011 the part of their organizations.
The interesting thing was that both of them in their testimony
indicated that they did not feel it was necessary to support the Government security market, keep it from going below par, and felt there
were advantages in more flexibility in the interest rate.
Now, in other words, if those gentlemen were correct and really
represented their constituencies, there would be no feeling of distrust
if there were a change of policy provided, as the chairman just said,
that it was understood the support was going to be there; and that
it was being undertaken in the purpose of some flexibility in the
interest rate and not a dropping of controls to allow the market to
go anywhere it pleased.
Secretary SNYDER. Mr. Chairman and Senator Flanders, there has
been considerable flexibility in the interest rate. We have demonstrated that. The Treasury Department has never taken an inflexible
position in reference to interest rates. We just have to keep a careful
watch on interest ratesfluctuatingtoo rapidly one way or the other.
Senator FLANDERS. But the other point of view is that they should
be allowed to fluctuate. There are reasons and purposes involved in
allowing them to increase at times and in holding them down at other
times. And that is determined by the point of support of the market,




410

MONETARY, CREDIT, AND FISCAL POLICIES

and I think it is true, is it not, that at no time has the market been
allowed to go below par to any extent or for any length of time ?
Secretary SNYDER. Of course, the bond market has not been supported on the 2% basis for some time. There was only a short period
when it was receiving relative support. But as to the flexibility of
the short rate, during the course of my incumbency as the Secretary
of the Treasury, it hasfluctuatedall the way from three-eighths to
1.12 at the present time, and that looks like considerable flexibility.
Senator FLANDERS. But was it allowed tofluctuatefor the purpose
of affecting commercial interest rates? That is the question.
Secretary SNYDER. Exactly; that was used for tightening up
purposes to assist in the credit-control arrangement.
Senator DOUGLAS. Mr. Secretary, that was done about the middle of
1947,1 take it?
Secretary SNYDER. Between then and now.
Senator DOUGLAS. SO that during 1 9 4 6 it was not done when the
rate on Treasury bills was less than one-half of 1 percent?
Secretary SNYDER. Correct.
Senator FLANDERS. In other words, there is some question as to
whether it was done at the time when it would have been most helpful
lo do it.
You are aware, Mr. Secretary, as you have indicated, this is a quest ion which is of very serious concern to people who are thinking about
this subject. We have to find some means of getting into it. We
have to find some means of satisfying our responsibilities with regard
to it as legislators.
I think we have a greater responsibility than that assigned with
reference to the general public by the chairman. We have a specific
responsibility for trying to understand this situation and coming to
some conclusion on it.
I would like to read into the record two paragraphs from a letter
from Marriner Eccles which raises the question in a fairly compact
form. I believe, sir, you have a copy of this letter.
Secretary SNYDER. It was handed to me just as I started up here,
and I have not had a chance to look at it.
Senator FLANDERS. I see.
I will just read these two paragraphs :
The Federal Reserve System was established by Congress primarily for the
purpose of determining and carrying out credit and monetary policy in the interest of economic stability and is responsible to Congress for that task. There is
a seven-man Board of Governors, appointed for 14-year terms with approval of
the Senate. The Board is assisted by an experienced and highly qualified staff
of experts. There are 12 presidents o'f the Federal Reserve banks, each with
a staff of specialists, and each Federal Reserve bank has a board of directors
composed of leading citizens in its district drawn from professional, business,
farming, banking, and other activities. There is also the Federal Advisory
Council, composed of a leading banker from each of the 12 districts, established
by Congress to advise the Board. All of these supply information and advice
and many participate in formulation of monetary policies appropriate to the
needs of the economy.
Under present circumstances the talents and efforts of these men are largely
wasted. Views of the Federal Reserve Board and Open Market Committee regarding debt-management policies are seldom sought by the Treasury before
decisions are reached. The System, however, has made suggestions on its own
initiative to the Treasury in connection with each financing, but very often
these have not been accepted. Decisions are apparently made by the Treasury
largely on the basis of its general desire to get money as cheaply as possible.




411 MONETARY, CREDIT, AND FISCAL POLICIES

I might comment by saying that that desire is a fairly praiseworthy
desire, and I think you should still maintain that desire.
Secretary SNYDER. Just before you leave that, Senator Flanders.
You are going to have the Chairman of the Federal Reserve Board
here tomorrow, are you not ?
Senator FLANDERS. I believe so.
Senator DOUGLAS. Yes; that is right.
Secretary SNYDER. Read that paragraph to him and ask him if he
concurs.
Senator FLANDERS. I will be glad to do it.
Now, Mr. Chairman, I have this suggestion to make for your consideration. I think that the Secretary makes a very important point
when he suggests that what he says in public with regard to the bond
market, maintaining its price, changing the interest rate, and so
forth, has far more effect than when you, or I, or any of the witnesses
we have had before us, make similar suggestions or similar statements.
Furthermore, I do not believe that any useful purpose would be
served on having a long-range debate on this subject, with one witness
appearing one day and another witness the next and another witness
the next.
I think we have a duty to see if there is some composition that can
be made in the public interest of these differences of opinion, and my
suggestion is that we ask members of the two groups to meet with us
in executive session and see if we can come to our own conclusion
as a result.
Senator DOUGLAS. Would that be acceptable to you ?
Secretary SNYDER. That would be acceptable to me, Mr. Chairman.
Senator DOUGLAS. We have a somewhat tight schedule next week,
but I think we could probably fit it in. We will send an invitation
to Mr. Eccles and also to Mr. McCabe if he cares to be there. It is
possible we could arrange that this afternoon.
Secretary SNYDER. Unfortunately, I will not be able to attend this
afternoon, Senator, but any day next week I am available for it.
Senator DOUGLAS. Mr. Secretary, yesterday Mr. Kline, in the testimony to which Senator Flanders has referred, made an interesting
suggestion on the adaptation of the refunding policy of the Treasury
to business conditions. And, before I go into that, I want to see if my
own knowledge of the facts of the situation is correct.
As I understand it, the purchases of Government bonds, generally,
for long periods of time, are made primarily by others than banks—
namely, by individuals and savings institutions—and come primarily
out of savings, and hence represent probably no real creation of additional monetary purchasing power, but instead the transfer of purchasing power to the purchase of Government securities which would
otherwise be used for some other purpose; but that the purchases
of securities by banks are primarily short-time securities and are
primarily derived from the creation ox credit by the banks, the writing
up of deposits on the bankbooks with which these short-time securities are purchased, and that they, therefore, amount to an injection
of additional monetary purchasing power into the economy.
Am I correct in that general impression?
Secretary SNYDER. That is correct.
Senator DOUGLAS. Mr. Kline's suggestion, as I gathered it, was that
the refunding policy instead of being independent of the business cycle



412

MONETARY, CREDIT, AND FISCAL POLICIES

or business conditions should be adapted to business conditions. For
example, in periods of so-called prosperity and rising prices, or inflation, there should be a relative shift from short-time Government
securities held by banks to long-time securities held by nonbanks, individuals, and savings institutions; that in this way you would at least
prevent from increasing, and probably decrease, the amount of bank
credit which was available, and you would substitute for that genuine
savings out of the current income; and that this would dampen down,
therefore, possible inflationary influences.
Secretary SNYDER. Mr. Chairman, that is exactly what we did. We
shifted $34,000,000,000 out of the commercial banking system into that
type of portfolio. We study those portfolios every day of the year, and
we are right on top of the available investment cash in all of those
different types of institutions, and we consult with them every month
in the year as to exactly how much they have available for investment
purposes. And we have been attempting to do exactly what you have
just outlined.
Senator DOUGLAS. Well, the converse of what Mr. Kline said was
that in a depression period you should shift from the long-time holdings of Government bonds to short-time holdings; and that, therefore,
you should diminish the holdings of long-time securities by individuals and savings institutions and increase the amounts of short-times
furnished by the banks.
Secretary SNYDER. We have not had a depression since I have been
Secretary of the Treasury.
Senator DOUGLAS. I am using the two words "prosperity" and "degression." Suppose we substitute for depression the word "recession." I think Mr. Kline would say that in a period of recession there
should be a shift from long-time to short-time, thus creating additional monetary purchasing power through the banks.
Secretary SNYDER. That follows the policy that we have been using.
Of course, we have not had any real recession.
Senator DOUGLAS. I am not trying to score a point, Mr. Secretary,
Secretary SNYDER. I am not trying to score points, either. I am
just trying to say we are in accord with those views because that is
exactly what we did on the one side. I have not had any experience
to actually do the other to any degree.
Senator DOUGLAS. Has not this last year been one of recession on
the whole?
Secretary SNYDER. There has been a shifting back and forth. We
do not consider this last year a recession, you understand. Income
was higher than it ever was before in the history of the country.
1948 was the most prosperous year in history.
Senator DOUGLAS. 1 9 4 9 was not a recession?
Secretary SNYDER. 1948 was not, and in 1949 income paid to individuals is still running at a tremendous rate. We have had some
adjustments, yes; but we have not had any recession.
Now there have been neighborhoods and localities that have had
some difficulties; but, as a national picture, we have had adjustments
but certainly no recession The income during the first 10 months of
the year was higher than in 1948.
Senator DOUGLAS. Well, it was a recession from the latter part of
F
1948.




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CREDIT, AND FISCAL POLICIES

Secretary SNYDER. Y O U are talking about the inventory adjustment
which began at the end of last year ?
Senator DOUGLAS. Mr. Secretary, wholesale prices went down, as
I remember it, by 8 percent; manufacturing production went down,
as I remember it, by about 16 percent. We have the charts. Unemployment went up from 3 percent; that is, if you take the nonagricultural working force, from 3y 2 percent to 7y 2 percent. I know there
are lots of semantic difficulties on these things, but I would call that
a recession.
Secretary SNYDER. Frankly, in the volume that took place, I would
call it an adjustment.
Senator DOUGLAS. But if it had been a recession—let us put it that
way. If it had been a recession, would it have been wise to have
pushed the sale of E, F, and G bonds which are bought out of savings ?
Had it been a recession, might it not have been better to have shifted
from long-time to short-time, which Mr. Kline suggested? Now we
have got a purely suppositious question.
Secretary SNYDER. That is what led me to say, Mr. Chairman, we
have to carefully study each time we make a decision in the Treasury
the conditions or that time. We have never seen where there was any
trend developing there. We saw adjustments taking place, and we
conducted our affairs accordingly.
If such a condition as you envision should come about, we would
have to sit down and give it our very careful consideration.
Senator DOUGLAS. H O W serious would the drop have to be for the
adjustment to turn into a recession?
Secretary SNYDER. We would have to observe that and decide.
You see, Mr. Chairman, if I would venture to say that any point is
the turning point, these gentlemen would never forget it; and if we ever
reached that point, then we would be said to have a fully binding
obligation. So, I will not venture to put any deciding line between
what is an adjustment and what is a depression or what is a recession.
Senator DOUGLAS. That preserves administrative discretion but does
not add to either public or senatorial enlightenment.
Secretary SNYDER. I will be glad to discuss the matter more fully
in this executive session you are planning.
Senator DOUGLAS. Mr. Secretary, let me ask you a theoretical
question.
Who in your judgment has the responsibility for monetary policy,
the Secretary of the Treasury or the Federal Reserve Board?
Secretary SNYDER. Well, the Federal Reserve has the primary responsibility.
Senator DOUGLAS. Who has the ultimate?
Secretary SNYDER. I am talking about generally speaking. If you
include debt management in monetary policy, that is another matter.
The Treasury Department without question—the Secretary of the
Treasury—has the responsibility for debt management, and it was
given to him by Congress.
Senator DOUGLAS. But credit management is in the hands of the
Federal Reserve.
Secretary SNYDER. Congress has placed that largely in the Federal
Reserve's hands.
Senator DOUGLAS. Through the increase in the public debt, the
Treasury and the Federal Reserve have become Siamese twins, as it
99076—50




27

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MONETARY, CREDIT, AND FISCAL POLICIES

were, joined together by an indissoluble connection. Now suppose the
Federal Reserve wants to move one way and the Treasury wants to
move the other, how strong is the filament which connects these two
bodies, and which has the greater motive force to lead the other?
Secretary SNYDER. Theoretically and practically, I would say, the
Treasury Department and the Federal Reserve Department must have
full cooperation. I said that initially, and I still believe it.
Senator DOUGLAS. Suppose the Federal Reserve wants to raise the
interest rate to check inflation and the Treasury wants to keep interest
rates down to reduce the debt service, who in this partnership is then
to decide?
Secretary SNYDER. Cooperation is a two-way street, and it is certainly to be hoped that the two agencies can sit down together and
work out their problems. I thought we had been doing it very well.
Senator DOUGLAS. We had a whole list of questions, Mr. Secretary;
but, in our desire to cooperate and have full cooperation between the
legislative and executive branches, I feel somewhat constrained in
the matter. I feel that I probably should not ask them with all these
gentlemen of the press about. I feel that I should defer them to this
executive session when I shall receive the first dividend in enjoyment
which I have thus far experienced as a Senator.
Secretary SNYDER. Mr. Chairman, in order that you might have
seasoned and carefully considered answers to those questions, if you
would give them to us now, we will be glad to go to work on them.
Senator DOUGLAS. Senator Flanders has read an excerpt from Mr.
Eccles' letter. I think you have copies of that letter. If you would
address yourself to the letter, we would appreciate it. Also, here is
the list of questions which I had intended to ask you.
Secretary SNYDER. We have a copy of'the letter. We will be delighted to work on it and these questions in the interim.
Senator DOUGLAS. I am sorry to disappoint the gentlemen of the
press, but the chairman, having run out of questions, feels it is proper
to ask in the interest of cooperationMr. Wolcott, excuse me.
Mr. WOLCOTT. That is perfectly all right. I am a very humble
member of this committee, anyway. I have enjoyed the debate thus
far very much.
I hope that no crime will be committed by me in my questions
against the committee's willingness to cooperate with the Treasury
in this respect. So, if any of the questions I ask are seemingly a
crime which violates this spirit of cooperation, I hope the Secretary
will refuse to answer them point-blank.
I think we should find out from the Secretary whether the Treasury has any program to offset a recession or depression or other adjustment periods.
Secretary SNYDER. What sort of program?
Mr. WOLCOTT. That is what I want to know.
Secretary SNYDER. That is a pretty broad question.
Mr. WOLCOTT. Put it this way; Have you outlined what the Treasury should do to offset a depression ?
Secretary SNYDER. YOU mean in the management of the debt?
Is that what you had in mind ?
Mr. WOLCOTT. In all thefieldsover which, you exercise an influence.
Secretary SNYDER. We will certainly attempt in any fashion we can



415 MONETARY, CREDIT, AND FISCAL POLICIES

to adjust our policy to the conditions of the times. As for having
any direct program that we are going to take a certain step at a certain time, we will have to do that in consultation with other agencies
because the Treasury alone does not have a great deal of control over
conditions of that sort. And, as far as the taxing is concerned, that
is a matter in the hands of Congress. And that, of course, is one of
the biggest factors that can be used that we are connected with—the
taxing program of any given year—and that is a matter, of course,
that is in the hands of Congress. We can make recommendations but the Congress makes the decision and makes the actual tax
legislation.
Mr. WOLCOTT. Would you suggest that taxes be raised in periods of
depression or recession?
Secretary SNYDER. Be raised in periods of recession ?
Mr. WOLCOTT. Yes; if it is necessary to balance the budget.
Secretary SNYDER. Well, I think those are matters that certainly
have to be decided, taking into consideration the conditions of the
times. And if raising taxes is going to drive us into a deeper period
of recession, we would have to give it full consideration at that time,
and consider the interests of the public.
Mr. WOLCOTT. I remember some testimony by one of your predecessors, Secretary Morgenthau, some years ago, when he said that the
Treasury was on a day-to-day basis m respect to policy. Is the Treasury still on a day-to-day basis in respect to policy?
Secretary SNYDER. It has to be, Mr. Congressman, because of the
economic conditions of the country, that is, so far as debt management
is concerned. A very definite policy in other matters, but in debt
management we have to be on a day-to-day basis—say a month-tomonth basis, but it is practically the same thing.
Mr. WOLCOTT. There is a very close affiliation between debt management and our economy, generally, because of the interest rate.
Secretary SNYDER. There is no question in the world about that.
Mr. WOLCOTT. I guess perhaps What I am trying to get at is: Have
you any program outlined as to what you might do in respect to debt
management which might affect our economy generally if we were
threatened with a recession?
Secretary SNYDER. The major things that we could do are tied up
in whatever tax program is adopted in any one year.
Mr. WOLCOTT. Well, have you a program which contemplates any
recommendations of Congress to offset a depression or a recession?
Secretary SNYDER. We have a study group constantly working with
Congress on various types of taxes and their effects on the economy.
Senator FLANDERS. May I interrupt for an observation ?
M r . WOLCOTT. Y e s .
Senator FLANDERS.

What you have just been saying, Mr. Secretary,
rather indicates to me that on the face of it you do not conceive of
that management as being a major factor in stabilizing the economy.
Secretary SNYDER. It is very important when combined with other
forces, Senator. But debt management by itself, set off alone, is
limited in what it could do in stabilizing the economy. We have to
work wit'h the credit-control people, we have to work with the Congress, we have to work with a number of elements, and tie those all
in together; then we can make the debt management fit into the stabilization program. But set off by itself, it has a limited effect.



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MONETARY,

CREDIT, A N D FISCAL

POLICIES

Senator FLANDERS. I do not think anyone has felt that debt management was unimportant or was in any other relationship to the whole
than the various other factors are.
Excuse me, Congressman Wolcott.
Mr. WOLCOTT. Perhaps at this point it might be interesting to determine what proportion of our debt now is in accumulated interest.
Secretary SNYDER. Have we got the figure on that ?
Mr. H A A S . Y O U mean on discount bonds, Mr. Congressman?
Mr. WOLCOTT. Interest on the whole debt, I guess.
Mr. H A A S . I beg your pardon.
Mr. WOLCOTT. It would have to be interest on the whole debt if
we are going to compare it to the debt.
Secretary SNYDER. On the total debt the figure is $3,100,000,000.
Mr. WOLCOTT. $3,100,000,000?
Secretary SNYDER. Yes.
Congressman Wolcott, I do not want to diminish it, and I have emphasized the importance of debt management's part in the whole
economic stabilization program. But I again accented the importance
that it must be tied in with other elements, and it cannot simply by
itself, isolated, have a tremendous effect. But tied in with the operation of Federal Reserve and with the tax program and with
recommendations for budgetary matters, it is vitally important. I
want to make that perfectly clear.
Mr. WOLCOTT. I think when you said there was this very close affiliation with great influence on our economy incident to debt management, that you surely could not be charged with saying, there was
not a great influence and a very close affiliation.
Secretary SNYDER. Yes.
Mr. WOLCOTT. I S your management of the debt predicated upon the
continuance of the present inflated dollar?
Secretary SNYDER. Just what do you mean by that?
Mr. WOLCOTT. Well, we have about a 60-cent dollar as opposed to
a 100-cent dollar on the 1936-39 level, and of course there is a reflection
in the debt of that depreciation in the value of the dollar.
Secretary SNYDER. We have to measure that, of course, against what
our national income is now and what the present economy is. We
just cannot isolate it and say what the dollar might have been worth
in purchasing power in 1939 and what it is today.
Mr. WOLCOTT. Let me put it this way: Do you think that the value
of the American dollar should remain static on the $35-an-ounce gold
base?
Secretary SNYDER. Under conditions as they are today, I see no
reason, with the commitments that we have in the purchase and sale
of gold, why we should make any change in the dollar price of gold—
$35 an ounce.
Mr. WOLCOTT. I think you have made the statement that it would
perhaps be disastrous if you were to make any change in the dollar
price of gold.
Secretary SNYDER. Well, it would jnst mean this: If we would make
a change upward in the price of gold, we would be taxing our taxpayers to pay the subsidy on our purchases of foreign gold. The
present volume of newly mined gold, known newly mined gold, in
the world is roughly 900 millions of dollars. Of that the United




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CREDIT, AND FISCAL POLICIES

States produces about 75 million. Last year we purchased more gold
than all of the current world production of gold. Any increase in the
price of gold would be a subsidy paid by the American taxpayer.
I just cannot bring myself to agree to that.
Mr. WOLCOTT. That world production of gold is an estimate or the
actual figure?
Secretary SNYDER. That is the actual known figure.
Mr. WOLCOTT. D O you know how much Soviet Russia produces?
Secretary SNYDER. That is why I put it "known" production.
Mr. WOLCOTT. We have been trying for a good many years to find
out their production.
Secretary SNYDER. We do not know accurately what Russia is producing. That is why I qualified the statement and said the "known"
world production of gold.
Mr. WOLCOTT. Have you taken into consideration some production
by Soviet Russia, or is the Soviet production in addition to these
figures?
Secretary SNYDER. N O Soviet gold is in that figure.
Mr. WOLCOTT. In your statement you say that under the circumstances which existed stability in the Government bond market has
been of tremendous importance to the country.
You mean by that it is important to stabilize the Government bond
market if we are going to stabilize our economy ?
Secretary SNYDER. The fact we have had a stable Government bond
market has had a good influence on all other segments of our economy—in the operation of credit in various fields, in the development
of industry, and in thefinancingof our crops.
Mr. WOLCOTT. I was merely leading up to this question: Do you
advocate the continuance of pegging the bond market by the Federal
Reserve or the Open Market Committee, or anyone else?
Secretary SNYDER. We have not had to put any pegs in there for
some time.
Mr. WOLCOTT. I mean if there came a time when the Government
bond market was declining, would you feel that the Government
bond market should be stabilized at any given arbitrary figure?
Secretary SNYDER. Well, the Federal Government is under no implied obligation to peg any market.
Mr. WOLCOTT. I know that.
Secretary SNYDER. As to what our position will be, we will just
have to determine it as conditions develop.
Mr. W O L C O T T . It has a very important influence on economic stability. I will put it this way: Do you believe it is necessary to support
the Government bond market?
Secretary SNYDER. I will have to measure by conditions as they
are at the time we make a decision.
Mr. WOLCOTT. That is not part of the program, however?
Secretary SNYDER. There is no program iinplied.
Mr. W O L C O T T . Have you any recommendations to make to the Congress in respect to what we might do as a stabilizing influence in
respect to taking from you the authority which you now have to buy
gold freely?
Secretary SNYDER. I would have to give that some consideration, Mr.
Congressman.




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MONETARY, CREDIT, AND FISCAL POLICIES

Mr. WOLCOTT. Would you be opposed to the repeal of sections 8 and
9 of the Gold Reserve Act ? I think those are the sections which give
you that authority.
Secretary SNYDER. I would have to give that some consideration.
Mr. WOLCOTT. Under the Bretton Woods Enabling Act, we have
provided—and with the chairman's consent I will read it into the
record so that there will be no dispute about the language of the law.
There seems to be a little dispute as to what section 5 of the act
contains in this respect.
That provides:
Unless Congress by law authorizes such action, neither the President nor any
person or agency shall on behalf of the United States propose or agree to any
change in the par value of the United States dollar under article IV, section 5,
or article XX, section 4, of the Articles of Agreement of the Fund, or approve
any general change in par values under article IV, section 7.

I will also read article IY, section 1, defining the par value:
The par value of the currency of each member shall be expressed in terms of
gold as a common denominator.

Section 2 of the same article specifies that—
The fund shall prescribe a margin above and below par value for transactions
in gold by members, and no member shall buy gold at a price above par value
plus the prescribed margin, or sell gold at a price below par value minus the
prescribed margin.

Now if the directors of the fund, having set that margin at a quarter
of 1 percent, increased it to, we will say, 10 percent, that would in
effect change the gold content of the American dollar, would it not?
Secretary SNYDER. By their action you mean it would actually change
or would theoretically change ?
Mr. WOLCOTT. Well, I guess theoretically primarily, perhaps, but it
would naturally follow—it would be an actual change.
Secretary SNYDER. If the board of directors of the fund were to
make such an adjustment, it does not imply the United States will
follow through and buy and sell gold at that price.
Mr. WOLCOTT. T O be sure now.
Secretary SNYDER. It takes the consent of the United States along
with it.
Mr. WOLCOTT. But it would in effect and in practice change the gold
content of the dollar, notwithstanding the fact that our director on
the fund might vote against it or might refrain from voting under
the terms of the enabling act, which forbids him from voting any
change without consent of Congress. Perhaps this is all theoretical,
and I hope academic, because of the position which you have taken
effectually.
What I am trying to find out here—what I am reading from here
now is what I consider a splendid article which will appear in the
Engineering and Mining Journal in next month's issue, which I have
a tear sheet from. I think the article is very well put up and puts this
whole problem into one package. And I might suggest to the chairman, if he cared to do it—and I have the consent of the Engineering
and Mining Journal—that it might go into the record.
Senator DOUGLAS. We will be very glad to have that, Congressman
Wolcott.
(The document above referred to is as follows:)




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MONETARY, CREDIT, AND FISCAL POLICIES
COULD T H E T R E A S U R Y R A I S E I T S GOLD PRICE O V E R N I G H T ?

(Herbert M. Bratter, Washington, D. C.)
"Can the Treasury overnight increase the price of gold?" This question was
put to me by the editor of Engineering and Mining Journal. For years, as a
Government economist and private citizen, I have watched American gold legislation from the ringside, but I hasten to state at the outset that I am no lawyer.
Had the question been phrased differently, the reply might be easier. Had
the editor asked: "Do you think the administration wants to raise the price of
gold or devalue the dollar any time in the visible future?" my reply would be
"No."
However, the editor's question relates to power, not intent. It arises from the
fact that there is'on the statutes a clear power for the Secretary of the Treasury
to change the price at which the Government buys and sells gold. While that
power, last enacted in 1934, has never been specifically repealed, some hold that
it has been in effect repealed by the subsequently enacted Bretton Woods Agreements Act of 1945. The most that the Treasury has stated about its 1934 power
today is that the "discretion of the Secretary of the Treasury" to change the
price of gold has been "limited" and "circumscribed." The power remains.
PRICE OF GOLD

Under the gold standard, as understood by economists, the terms "price of gold"
and "gold content of the dollar" mean the same thing. Thus, in the United States
today, regardless of the fact that the dollar is not internally redeemable in gpld
coin, the price of gold is $35 an ounce troy. The troy ounce contains 480 grains.
The gold content of the dollar, therefore, is 480 grains divided by 35, or 13.71-f
grains of fine gold.
Since 1934 the weight or gold content of the dollar has remained unchanged.
Hence, there has been no change in the official price of gold in the United States.
Were the gold content of the dollar to be reduced, the price of gold would be
raised automatically, pari passu. If, for example, the gold content of the dollar
were to be reduced by 50 percent the price of gold at the Treasury would be
doubled.
It is possible for the Treasury to increase the price of gold while leaving unchanged the legal definition of the weight of the dollar, but if that is done, the
country violates one of the rules of the gold standard. It was actually done in
1933. The administration at that time deliberately took the country off the
gold standard, utilizing the Trading. With the Enemy Act. Congress later endorsed the steps taken when it passed the Thomas amendment in May 1933.
Subsequently, that year the administration raised the price of gold in the open
market, despite some question in the Treasury as to the legality of what it
was doing.
In sections 8 and 9 of the Gold Reserve Act of 1934 the legality of the purchase
of gold at premiums above the legal price of gold was retroactively ratified.
"The par value of the United States dollar" is another term, understanding
of which is necessary in connection with the subject of this article. Parity means
equality of value, expressed in terms of the monetary standard. As between
two countries whose currencies are each defined as specific weights of gold,
parity is the ratio of the two official prices of gold. Within a single country
which defines its currency unit as a weight of gold, parity is that weight.
In the United States the dollar is at the official parity whenever it equals
one thirty-fifth of an ounce of gold. It is this which the Congress obviously had
in mind in the Bretton Woods Agreements Act cited hereafter.
. Under the Thomas amendment of 1933 the President was authorized to reduce
the weight of the gold dollar by as much as 50 percent. No time limit was set
on that power. But the Gold Reserve Act of 1934, passed after the open market
price of gold in the United States had been raised to almost $35 an ounce, put
a time limit on this power of the President, which was several times extended,
but finally was allowed to lapse in June 1943. However, to the extent that the
Secretary of the Treasury may have any p o w e r over the price of gold under
the terms of sections 8 and 9 of the Gold Reserve Act of 1934, the President also
has power; the power to consent. And the President's power to consent is certainly, in fact, the power to initiate action as well.




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MONETARY, CREDIT, AND FISCAL POLICIES
GOLD RESERVE A C T

Sections 8 and 9 of the Gold Reserve Act of 1934 read as follows:
SEC. 8. Section 3700 of the Reserve Statutes (31 U. S. C. 734) is amended to
read as follows:
" S E C . 3 7 0 0 . With the approval of the President, the Secretary of the Treasury
may purchase gold in any amounts, at home or abroad, with any direct obligations, coin, or currency or the United States, authorized by law, or with any
funds in the Treasury not otherwise appropriated, at such rates and upon such
terms and conditions as he may deem most advantageous to the public interest;
any provision of law relating to the maintenance of parity, or limiting the
purposes for which any of such obligations, coin, or currency, may be issued, or
requiring any such obligations to be offered as a popular loan or on a competitive basis, or to be offered or issued at not less than par, to the contrary
notwithstanding. All gold so purchased shall be included as an asset of the
general fund of the Treasury." (31 U. S. C. 734.)
SEC. 9 . Section 3 6 9 9 of the Revised Statutes ( 3 1 U . S . C . 7 3 3 ) is amended to
read as follows:
"SEC. 3699. The Secretary of the Treasury may anticipate the payment of
interest on the public debt, by a period not exceeding one year, from time to
time, either with or without a rebate of interest upon the coupons, as to him
may seem expedient; and he may sell gold in any amounts, at home or abroad,
in such manner and at such rates and upon such terms and conditions as he may
deem most advantageous to the public interest, and the proceeds of any gold
so sold shall be covered into the general fund of the Treasury: Provided, however,
That the Secretary of the Treasury may sell the gold which is required to be
maintained as a reserve or as security for currency issued by the United States,
only to the extent necessary to maintain such currency at a parity with the gold
dollar." (31 U. S. C. 733.)
The act which authorizes United States participation in the International
Monetary Fund provides (Sec. 5) that:
"Unless Congress by law authorizes such action, neither the President nor any
person or agency shall on behalf of the United States * * * propose or agree
to any change in the par value of the United States dollar under Article IV,
Section 5, or Article XX, Section 4, of the Articles of Agreement of the Fund,
or approve any general change in par values under Article IV, Section 7 * * *."
The Articles of Agreement of the International Monetary Fund in article IV,
section 1, define par value as follows :
"The par value of the currency of each member shall be expressed in terms
of gold as a common denominator . .
Section 2 of the same article specifies that:
"The Fund shall prescribe a margin above and below par value for transactions in gold by members, and no member shall buy gold at a price above par
value plus the prescribed margin, or sell gold at a price below par value minus
the prescribed margin."
SNYDER C O M M E N T S

On repeated occasions, notably in press conferences, Secretary of the Treasury
John W. Snyder has consistently denied any intention to propose a change in the
dollar price of gold. In a statement handed to the press in written form on October 5, 1949, the Secretary went further. He not only denied the intention to
propose a change. He made it clear that the power given the Secretary of the
Treasury in sections 8 and 9 of the Gold Reserve Act of 1934 "is limited by a
number of factors," first of which is the obligation of the United States as a
member of the fund. After quoting article 4, section 2, of the fund agreement,
already cited, Mr. Snyder's October 5 hand-out reads:
"The fund has prescribed a margin of one-fourth of 1 percent above and below
the par value for purchases and sales of gold. Accordingly, the United States
has an obligation to the International Monetary Fund not to purchase gold at
more or sell gold at less, than $35 plus or minus the prescribed margin so long
as the par value of the dollar declared to the fund remains unchanged. The par
value of the dollar can be changed only pursuant to the provisions of the articles
of agreement and the Bretton Woods Agreement Act, which requires the approval
of Congress for any such change. Section 5 of that act provides that neither
the President nor any person or agency shall propose to the International Monetary Fund any change in the par value of the United States dollar or approve any
general change in par values unless Congress by law authorizes such action.




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MONETARY, CREDIT, AND FISCAL POLICIES

"Even without the legal obligation to the .International Monetary Fund there
are important considerations of policy which, in effect, circumscribe the discretion
of the Secretary of the Treasury to change the price of gold. The gold policy of
the United States has been directed primarily to maintaining a stable relation
between gold and the dollar."
Mr. Snyder went on to emphasize the importance which the United States
attaches to maintenance of a stable dollar price for gold. He pointed out that
the gold parity statutes of 1900 and 1933 require the Secretary of the Treasury
to maintain parity of United States money with the gold dollar.
Note, however, that both these statutes were on the books when Roosevelt late
in 1933 raised the price of gold without the dollar's having been formally deValued. Note also that section 8 (already cited) permits the Secretary to buy
gold on his own terms, "any provisions of law relating to the maintenance of
parity * * * to the contrary notwithstanding."
Although this indicates that Snyder could, if he would, raise the price of gold,
the likelihood of his doing so was lessened by President Truman's flat statement
on November 10 that as long as he was President, the price of gold was fixed.
While the present Secretary of the Treasury evidently regards the Bretton
Woods Agreements Act of 1945 obligation as overriding the powers given him
under sections 8 and 9 of the Gold Reserve Act of 1934, it does not necessarily
follow that a later law eliminates the provisions of an earlier law, unless those
provisions are specifically repealed. On November 17, 1933, Attorney General
Homer Cummings sent President Roosevelt a written opinion that the powers
of the Secretary of the Treasury enacted in 1862 and 1864 to buy and sell gold
(the powers since reenacted in sections 8 and 9 of the Gold Reserve Act) were
still alive in 1933.
T H E F U N D ' S POSITION

The board of executive directors of the International Monetary Fund, in
which the United States has the largest voice, have it in their power to prescribe
(under article 4, section 2, of the fund's articles of agreement) the margin above
and below par value for transactions in gold by members. In the fund's present
rules and regulations this margin is fixed at one-fourth of 1 percent. This margin could be increased without amendment of the articles of agreement. Only
the rules would have to be changed. Were the margin to be expanded to, say
10 percent, the Secretary of the Treasury could use his powers under the Gold
Reserve Act of 1934 to buy gold at $38.50 an ounce.
Several members of the World Fund have subsidized their gold-mining industries. While the intentions of the Bretton Woods Conference are somewhat
obscure on this point, the fund in practice tolerates gold-mining subsidies so long
as they are not on a uniform-per-ounce basis.
Individual subsidies to individual gold mines get around the fund's objections
and are just as satisfactory to the miners concerned. It would be possible for
the United States to subsidize its gold-minfcig industry without violating the
fund articles of agreement. For example, suppose that the Secretary of the
Treasury with the President's approval were to buy all the gold produced in
excess of the previous year's output at, say, $40 an ounce, it would be possible to
maintain that:
(1) The gold content or weight of the dollar remains unchanged.
(2) The par value of the dollar remains unchanged.
(3) The fund articles of agreement and recent policies are observed.
And this can be done without any new legislation, by the Congress. That it
would be done is, of course, most unlikely, in vifeW oi the lack of need for more
gold in the monetary system and the relative smallness of the gold-mining
industry in this country's economy.
T H E OUTLOOK

On the surface or behind the scenes, so far as a Washingtonian can observe,
there is not the slightest sign that the present administration desires an increase
in the price of gold or devaluation of the dollar.
Whatever powers the Truman administration has over the price of gold, it has
no intention of using them. Nor has it any intention of surrendering them.
Yet this generation has had experience with long-dormant laws and powers
aiid their application to surprising ends. It has discovered that laws and promises do not always mean what they have long seemed to mean. Who can be sure,
therefore, that in some future 1933, with another FDR in the White House,




422

MONETARY, CREDIT, AND FISCAL POLICIES

another Homer Cummings as Attorney General, another Herman Oliphant as
Treasury General Counsel, it will not be determined that the Secretary of the
Treasury has the power to increase the price of gold?

Mr. WOLCOTT. I think it throws a tremendous amount of light on
this whole question, and the law is all here in 1-2-3 order.
Senator FLANDERS. Congressman Wolcott, may I inquire whether
the article explains whether gold stabilizes the dollar or whether the
dollar stabilizes gold ?
Mr. WOLCOTT. I think there would be general agreement under the
plan that gold would stabilize the dollar.
Senator FLANDERS. That is a debatable question.
Mr. WOLCOTT. I know. It was to me until these hearings. And I
gather from the hearings that, much to my surprise, we are on some
sort of a gold standard. I had not known that for some years. But
every witness has brought out this very close affiliation between the
American dollar and gold. So I assume from that, if we are not
actually on a de jure gold basis we are at least on a de facto gold basis.
Senator FLANDERS. Or gold is on a dollar basis.
Mr. WOLCOTT. I will agree—I did not think we were in disagreement
on this—that the dollar under the Bretton Woods agreement in practice has been substituted as a basis which controls the value of all
major world currencies.
Secretary SNYDER. I think we are definitely on an international
gold bullion standard. There is no question about that.
Mr. WOLCOTT. I do not think there is any question in anyone's mind
about the desirability of getting as much of the debt into private hands
as possible as a hedge against inflation. And we have been told that
the drives on the savings bonds have been very successful in that
respect.
Now how much can we rely upon future activities in that field to
prevent the monetization of the debt?
Secretary SNYDER. Well, the savings bond program, as we have conducted it since the war, has been on a thrift basis and including with
it at times an inflationary basis. But recently we have used it most
as a thrift incentive, and it has been deemed so by all the banking
institutions because we have <had the hearty support of all banking
groups in the savings bond programs. And it has been very effective
m spreading the ownership of the debt and the interest on the debt.
We have tried to keep on that level, and we keep our eyes constantly
on it, and if it ever got to be a drain on the economy, we would naturally taper off on the promotion of the savings bonds.
Is that the question?
Mr. WOLCOTT. Yes; I believe SO.
The purchaser of the bond purchases it because he is thrifty. Many
in Government and financial circles, however, have stressed the advisability of selling E, F, and G bonds to the general public to prevent
further threats to the value of the dollar incident to the possibility
of monetizing that debt if this debt were held by the banks in such a
way that it could be monetized. So I think on the part of the purchaser it is a question of thrift, and on the part of Government there
is this very decided factor, perhaps deciding factor, that the sale of
these bonds to private holders does prevent further inflationary influences. That is right, is it not?
Secretary SNYDER. It is.



423 M O N E T A R Y ,

CREDIT, AND FISCAL POLICIES

Mr. WOLCOTT. N O W , what I am trying to find out is how successful
we have been in that field.
I have before me a release of the Treasury Department on July 21,
1949, which is very short, and if I may, I shall read it. The number
is S-2060. It says:
Acting Secretary of the Treasury Foley announced today that sales of Series E
Savings Bonds in the recent opportunity Savings Bonds drive reached $1,216,230,000. This was 117 percent of the national quota of $1,040,000,000.
The Acting Secretary said:
"The Nation is to be congratulated on this further evidence that the spirit of
thrift is very much alive in America.
"The success of the drive was due primarily to the work of the hundreds of
thousands of volunteers who gave it their energetic support. These volunteers
included representatives of practically every field of activity. National Director
Vernon L. Clark of the Treasury's Savings Bonds Division joins me in extending
hearty thanks to these volunteers as individuals as well as to their community,
State, and national organizations."

Now I have also the Treasury Bulletin of November 1949 before
me. And if I understand thefigurescorrectly, they perhaps belie that
statement by Mr. Foley.
Your drive was going on from sometime in May to sometime in
June. Let's go back to April. Sales of E, F, and G bonds in April,
just before the drive, were $331,000,000; in May 1949, during the drive,
they were $322,000,000; in June, $359,000,000; July, $378,000,000,
when there was not any drive on. There does not seem to be too
much difference in the volume of sales.
Secretary SNYDER. I would like to look into it—those figures are
not in my mind.
Mr. WOLCOTT. I will give you some other figures here from your
report which, of course, are authentic.
The E's outstanding, which would be the bonds, presumably, for
which there would be the greater demand in a drive of that kind, as
of April 30, were about 33 billion dollars; May 31, about 33 billion;
June 30, 33 billion; July 31, 33 billion; August 31, 33.4 billion; September 30, 33.5 billion.
Secretary SNYDER. I do not carry thosefiguresin my mind. But
are those netfigures?
Mr. WOLCOTT. I think so.
Secretary S N Y D E R . Those are netfigures,are they not?
Mr. WOLCOTT. From the Treasury daily statement.
Secretary SNYDER. They are net outstanding.
Mr. WOLCOTT. Yes; net outstanding. So that would not indicate
there was in the aggregate much accomplished.
Secretary SNYDER. Y O U have got to keep working to stay even sometimes, you know. I will be glad to look into that for you.
Mr. WOLCOTT. I wonder if Mr. Foley was not a little optimistic. I
should not put it that way. Of course, I do not want to dispute the
figures. But I wonder if the people were not perhaps justified in
being a little bit misled by the Treasury's statement that we had sold
$1,216,000,000 during that period.
Secretary SNYDER. If you desire it, I will have a reconciliation of
those figures prepared.
Mr. W O L C O T T . I wish you would and I will appreciate it.
I bring it up only for the purpose of showing that perhaps our effort to put these bonds in position as part of our public debt, where




424

MONETARY, CREDIT, AND FISCAL POLICIES

they cannot be monetized, has not been the success that we in Congress
are sometimes led to believe.
Secretary SNYDER. Congressman, I think the real test is the total
volume outstanding. Ana that, of course, is an indisputable figure.
We know exactly what that is and have so stated in my statement.
And if that is being maintained, then we are accomplishing what
we have been endeavoring to do.
(The following information was later submitted for the record:)
In response to Congressman Wolcott's inquiry about the opportunity savings
bond drive:
The savings-bond program must be kept constantly before the public. The
Treasury Department has had several promotional drives since the end of the
war and in each case this has been one of the major objectives. As I said in my
prepared statement, and again in the questioning which followed, we have continued to promote the sale of savings bonds since the end of the war in order to
broaden the ownership of the debt; because of the anti-inflationary effect of such
sales during periods of inflationary pressures; and as a means of encouraging
thrift
Another aspect of the promotional drives which might be mentioned is the probable effect which they have in cutting down redemptions. As I noted in another
part of my statement, the savings-bond redemption experience since the end of
1945 has been more satisfactory than the turn-over experience in other forms of
savings.
It is with aU of these considerations in mind that we have sponsored promotibhal savings-bond drives since the eiid of the war. The important thing is to
maintain the total volume outstanding. We have done this; and the total
amount of E bonds outstanding has increased approximately $3,000,000,000 since
January 1947, as shown in the following table:
[In millions of dollars]
Redemptions
Sales

1947—January
February
March
April
May
Juie
July
August
September
October
November
December
1948—January
February
March
April
May
June
July
August
September
October
November
December
1949—January
February
March
April
May
June
July
August
September
October
November
1

Preliminary.




635
394
372
349
305
301
339
294
304
304
263
325
479"
367
383
320
305
341
379
334
304
305
308
399
438
386
415
331
322
359
378
329
299
289
286

Accrued
discount

52
40
45
40
42
61
57
42
46
41
46
67
60
44
48
44
60
78
70
49
52
49
59
83
75
53
57
54
64
89
81
59
62
64
69

Sales
price
334
282
333
355
320
328
344
305
329
305
262
316
299
233
328
332
303
332
305
307
289
274
281
292
269
213
291
271
276
301
269
283
1281
1263
1278

Accrued
discount
8
7
9
10
9
10
11
10
11
10
9
11
11
9
13
14
13
14
13
14
13
13
13
14
13
11
14
14
14
16
14
16
U5
115
115

Amount
outstanding
30,507
30,651
30,725
30,749
30,767
30,791
30,833
30,854
30,864
30,894
30,932
30,997
31,226
31,394
31,485
31,503
31,552
31,625
31,755
31,818
31,872
31,939
32,012
32,188
32,419
32,634
£2,800
32,901
32,997
33,127
33,303
33,393
33,457
33,532
33,594

425

MONETARY, CREDIT, AND FISCAL POLICIES

Mr. WOLCOTT. I am sorry I will not be here for this debate between
you and Mr. Eccles and Mr. McCabe. I assume that the Treasury
Department and the Federal Reserve have had pretty close contact
in respect to monetary and credit policies, have they not ?
Secretary SNYDER. It has been my opinion that that is true, yes.
Mr. WOLCOTT. Then can I leave here tomorrow under the assumption
that this debate you are going to have will not elicit any more cooperation than has been elicited from previous meetings you have
had?
Secretary SNYDER. Are you going to be here for the testimony of
the Chairman of the Board tomorrow ?
M r . WOLCOTT. Y e s .
Secretary SNYDER. That probably answers the question.
Mr. WOLCOTT. Then we can take your testimony today

and his
testimony tomorrow and by putting them together we can conclude
what will be the result of the meeting which you are going to have in
executive session here before this committee ?
Secretary SNYDER. We are not limiting the scope of this meeting
next week. The Chairman has asked to get parties together to visit.
I did not know it would necessarily be a debate, but an open discussion of problems.
Mr. WOLCOTT. Perhaps I misused the word. But there has been
open discussion between the Treasury and the Federal Reserve?
Secretary SNYDER. Constantly, constantly.
Mr. WOLCOTT. D O you want us to wait until we hear Mr. McCabe
before we go further into the Eccles letter ?
Secretary SNYDER. I have not had a chance to look at the Eccles
letter, but anything you want to bring out of it, all right.
Mr. WOLCOTT. He says:
"The Federal Reserve System was established by Congress primarily for the purpose of determining and carrying out credit and
monetary policy in the interest of economic stability and is responsible
to Congress for that task."
I guess that is right, is it not?
Secretary SNYDER. I do not think there is any doubt about that.
Mr. WOLCOTT. He goes on to indicate that, because of the great influence which the Treasury has upon the decisions of the Federal
Reserve Board, the Federal Reserve is put in the position now of
serving two masters, the Congress of the United States and the
Treasury.
Do you want to comment on that?
Secretary SNYDER. I do not think I want to comment on that. It
is interesting to me that the Federal Reserve serves any master.
Mr. WOLCOTT. He says also, and this is particularly interesting
in view of your statement of the decided innuence of debt management on our economy generally:
Decisions are apparently made by the Treasury largely on the basis of its
general desire to get money as cheaply as possible.

Is that the policy of the Treasury?
Secretary SNYDER. It is not.
Mr. WOLCOTT. Then he goes on to say that because of this policy
on the part of the Treasury the Federal Reserve's hands are tied pretty
much; that if you develop an easy money policy with respect to debt




426

MONETARY, CREDIT, AND FISCAL POLICIES

management, it is difficult for the Federal Reserve to offset that by
exercising the orthodox controls which it has within the limitations
of law.
Now we run up against that in respect to other agencies of the Government. The Federal Reserve could raise the rediscount rates, reserve requirements; it could manipulate the open market operations
to a point where there might be a tightening of credit and at the
same time this could be offset completely by the other agencies of the
Government. The RFC, the farm loan agencies, and Export-Import
Bank might completely offset the efforts on the part of the Federal Reserve to tighten credit or expand it.
Secretary SNYDER. A S I said a while ago, it takes the coordination
of the operation of many agencies to come up with a net result. And
if they could all be brought to bear on a single objective, which I feel
they attempt to do, why we accomplish the end result. But this Government was set up on a sort of check and balance theory, and so I
think that comes into operation in many of those considerations.
Mr. WOLCOTT. Well, in the committee print I think you answered
the question as to whether you were in favor of a credit council, or
something along that line, rather generally. As I recall it, you objected to it because it might, in the process of coordination, mean that
through any such council you might have to yield a little sovereignty
in that respect.
Secretary SNYDER. I do not think I objected to it. I think I specifically said I had no objection to the formation of such a monetary
council. I did express the doubt of whether or not it would accomplish the full objective for which it was set up.
MJ\ WOLCOTT. Would you vest them with any powers with respect
to the formulation of Treasury policies?
Secretary SNYDER. The Treasury will not delegate any authority
except when ordered by Congress to do so.
Mr. WOLCOTT. Would you think it advisable for the Congress in
the establishment of any coordinating body to vest that body with
such administrative powers that they could veto Treasury policy?
Secretary SNYDER. Well, the question is raised: Is the legislative
going to become administrative? I wonder whether or not Congress
wants to undertake to spell out how we are going to manage a debt.
Mr. WOLCOTT. We are not going to do that. I did not intend that
to be the question. I intended it to be along this line: If the Congress
establishes a coordinating body, a body to coordinate policy—call it
a Federal credit council or whatever you want to, but not a monetary
commission; I do not have that in mind—do you think this commission should be vested with such power that, notwithstanding
Treasury policy, they could establish policy?
Secretary SNYDER. I doubt if it should go beyond the type of
advisory group of the NAC. It can be an advisory group, but the
agency that has been charged by Congress with making final decisions
will have to continue to have that responsibility.
Mr. WOLCOTT. And vou think that logically should be in the Treasury?
Secretary SNYDER. The NAC has, as I think you know, been extremely effective in coordinating foreign monetary policy. It might
well be that a domestic council of that sort would be helpful.




427 M O N E T A R Y ,

CREDIT, AND FISCAL POLICIES

Mr. WOLCOTT. Could you suggest any standards under which they
should operate in this field?
Secretary SNYDER. In order to be of value to you, I would have to
give that very serious consideration and discuss it later.
Mr. WOLCOTT. What I am trying to find out here is: What' would
you suggest that the Congress do to help in the coordination of policy
within or between the Executive establishment and independent offices
of the Government?
Secretary SNYDER. I think possibly the formation of such a domestic council would be helpful. As a matter of fact, I was giving it a
great deal of consideration about 2 or 3 years ago. I think I talked
with one or two of you here about it. I think Senator Flanders and
you were both interested at the time. And we were comparing it
with the operation of the NAC. We never quite got around to making
any definite proposals about it, but I will be glad to brush up on the
thinking of that time and bring it up to the point where we can
discuss it with you in more detail.
Mr. WOLCOTT. D O you think it should be given any greater authority in the domestic field than the NAC now has in the foreign
field?
Secretary S N Y D E R . On the face of it, I would say "No." I would
have to give it very careful consideration to see if there is any further
latitude that should be granted domestically than is given in the
foreign field.
Mr. WOLCOTT. And would the same results be accomplished by
transferring the independent offices to the executive establishment,
letting the President coordinate, as he does, the executive establishment?
Secretary SNYDER. For just a complete blanket answer, I could
not give that. Some of the agencies could very appropriately be
blanketed into some of the executive establishments, but I would
have to give the whole picture careful consideration.
Mr. WOLCOTT. Of course, in doing so we would destroy the checks
and balances you referred to.
Secretary SNYDER. Y O U would. Every time you do that you are to
some extent mitigating the check and balance theory.
Mr. WOLCOTT. Thank you, Mr. Secretary.
Senator DOUGLAS. I have just onefinalquestion that I would like to
ask in order to make the record clear.
Did I understand you to say that you felt there was no indefinite
obligation upon the part of the Government to support the bond
market and to maintain prices of Government securities at at least par ?
There was no indefinite obligation?
Secretary SNYDER. I said there was no definite obligation.
Senator DOUGLAS. N O definite obligation?
Secretary SNYDER. That is true.
Senator DOUGLAS. And therefore there is no obligation even at the
present time or in the future ?
Secretary SNYDER. Our obligation is to pay them off at par at
maturity.
Senator DOUGLAS. But in the meantime there is no legal obligation
upon the Government to maintain it?
Secretary SNYDER. It is a matter of policy.




428

MONETARY, CREDIT, AND FISCAL POLICIES

Senator DOUGLAS. Again not to point out differences but for the
purposes of clarification. Mr. Harl, the head of F D I C , testified on this
other matter before us, and I would like to read from his testimony:
Mr. HAEL. We have labored under the policy that Government securities will
be supported at all times. In 1940 and 1941, when the war came on, I was a
State bank commissioner. I was assured by people in high places that the Government bond market would be supported. In that connection we went to our
banks and asked them to participate in the war effort by making certain purchases. Naturally, the bankers who were there in 1929 to 1933, in those days,
and particularly in 1920 and 1921, when Libertys dropped to, I think, 85, were
reluctant to participate, until we, as State bank commissioners, told them that we
were told that the bankers of this country would be protected on a stabilized
Government market.

Then I asked the question:
Was that protection a guaranty for an indefinite period of time, world without
end, or was it for a stated period?

Mr. Harl replied:
There was no statement made as to the length of guaranty or the time involved. We were told that the Government bond market would be protected.
As you remember very well, in those early twenties when Libertys went to 85
cents. Therefore, you know, if you discount 15 percent of your Government
holdings in the banks of the country it would materially affect their capital
structure.

Then I asked a further question:
But suppose the Federal Reserve, for example, should decide to either end the
system of support price or lower the support price, where would you be then?

And Mr. Harl replied:
I think if that was done, that good faith would have been broken with the
banking fraternity who have supported, by large investment, Government bonds.
I don't think we could have won the war if the bankers of the country hadn't
gone in and bought these bonds like they did. I understand that it cost us
one-tenth of 1 percent to dispose of our Government's. The bankers rallied and
bought these bonds. I know, frankly, that I would not have recommended to any
bank under my supervision at that time that they invest heavily in Government's
unless there was some assurance that they would be protected.

Then there is an intervening paragraph referring to the volume
of these obligations, and in the next paragraph:
I think that the bankers of this country believed that, and had a right to
believe, that their Government would see that the bond market was supported
at par, or they would not, as trustees of these large sums and these large deposits,
invested 56 percent of their assets in the securities of this Government.

I wondered if you had any comment on Mr. Harl's testimony,
whether you agree with his inference which, I think, is almost a clear
statement in his testimony, that Government securities would be supported at all times, or whether you think any modification should be
made in that statement.
Secretary SNYDER. Mr. Chairman, I was not present at those discussions, and that was before my time in the Treasury; so I am in no
position to discuss it one way or another as to what was said or what
was not said.
Senator DOUGLAS. I wondered if you wanted to make any expression.
Secretary SNYDER. I have no comment on it. I think the bankers
had the right to expect the debt would be properly managed.
Senator DOUGLAS. This is our difficulty: If there have been promises
made, we would naturally feel obligated to carry them out, but if
promises have not been made, we are not obligated to carry them out.